Unlike tax deductions that reduce your taxable income, tax credits reduce your tax owing (your taxable income multiplied by the applicable tax rate).
Non-refundable tax credits are tax credits that can only be used to reduce your tax owing to $0. If there are still credits remaining once your tax owing equals $0, you will not be refunded the remaining amount.
It is important to note, however, that unused portions can sometimes be carried forward, such as those resulting from the charitable donations and tuition, education, and textbook amounts, while others can be transferred to a spouse, including the age amount, disability amount, as well as tuition, education, and textbook amounts.
Below are explanations of some of the more common non-refundable tax credits.
Basic Personal Amount – This is a non-refundable tax credit that every Canadian is entitled to on their tax return. This amount changes every year, based on inflation. For 2020 the credit amount is $12,298 resulting in a tax credit of $1,844.70.
Spouse or Common-Law Partner Amount – This credit can be claimed by a taxpayer if, at any time in the year, you supported your spouse or common-law partner and their income was less than $12,298. The amount of the credit is reduced by any income that your spouse or common-law partner made and only one spouse can claim this amount.
Eligible Dependent Amount – This credit was introduced for single/separated individuals who are not claiming the Spouse or Common-Law Partner Amount. The amount of this credit is $12,298 in 2020 and can be claimed if, at some point during the year, you supported an eligible dependent that lived with you in a home you maintained on a non-temporary basis and the dependent was, by blood, marriage, common-law or adoption, a parent/grandparent, or a child/grandchild/brother/sister who was under the age of 18 or had a physical or mental impairment. Note that like the Spouse or Common-Law Partner Amount, the Eligible Dependent Amount is reduced by income earned by the dependent.
Canada Employment Amount – This credit is available to Canadian taxpayers with employment income, excluding those who are self-employed. This credit is available to help offset the costs of work-related expenses, such as uniforms, home computers and supplies. The amount you claim will be equal to the lesser of $1,245 or your employment income of the year.
Disability Amount – This non-refundable tax credit helps those with disabilities or those supporting someone with a disability. To be eligible for the Disability Tax Credit (DTC), you must have an approved Form T2201. The amount you can claim in 2020 is $8,576.
Donation Tax Credit – A tax credit can be claimed for donations made to registered charities between January 1 and December 31 of each year as a non-refundable tax credit. Unlike other non-refundable tax credits, the amount you will receive as a tax credit on your donations depends on how much you donate.
The Federal government offers a 15% non-refundable tax credit on the first $200 of donations. For most Canadians, any donations you make over the $200 threshold, you will receive a non-refundable tax credit of 29%.
For more information on non-refundable tax credits available to you and your family, contact us today.
