Unlike tax deductions that reduce your taxable income, tax credits reduce your tax owing (your taxable income multiplied by the applicable tax rate). There are two types of tax credits – refundable and non-refundable.
A refundable tax credit means that the government will return the unused portion of your tax credit to you if your tax owing becomes $0 without using the full amount.
Non-refundable tax credits, on the other hand, 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 that while non-refundable credits will not result in a tax refund, unused portions can sometimes be carried forward, such as charitable donations, tuition, education, and textbook amounts. Meanwhile, some can also be transferred to a spouse, such as the age amount, disability amount, and tuition, education, and textbook amounts.
Common Refundable Tax Credits
The Working Income Tax Benefit (WITB) is a refundable tax credit available to individuals and families with low-income who have earned income from employment or business. It consists of two parts – the basic WITB and the WITB disability supplement. The WITB can be claimed by you or an eligible spouse/dependent, but not both.
If you have high medical expenses and low income, you may be eligible to receive a Refundable Medical Expense Supplement. For 2019 the maximum supplement is $1,248. For more information on this credit and eligibility, visit the Canada Revenue Agency website.
Common Non-Refundable Tax Credits
The Basic Personal Amount 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 2019 the credit amount is $12,069 resulting in a tax credit of $1,810.35.
The Spouse or Common Law Partner Amount 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 the annual $12,069. Only one spouse can claim this amount.
The Eligible Dependent Amount can be claimed if, at some point during the year, you met all of the following criteria:
- You didn’t have a spouse or common law partner or were not living with them, supporting them or being supported by them.
- You supported an eligible dependent.
- You lived with the dependent in a home you maintained (not on a temporary basis).
- The dependent was, by blood, marriage, common-law or adoption, a parent or grandparent, or a child, grandchild, brother, or sister who was under the age of 18 or had a physical or mental impairment.
The Age Amount can be deducted from your tax payable if you are 65 or older in 2019 and your incomes is under the specified income. You will be eligible for a tax credit of $7,494 unless your income exceeds $37,790 at which point the credit will be reduced by 15% of the amount made over and above $37,790.
The Canada Employment Amount 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 $1,222 or your employment income of the year.
The Disability Amount 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 Adoption Expense Credit is a non-refundable tax credit that was put in place to help with the costs associated with adoption. These expenses can be claimed in the year the adoption period ends. Unlike many tax credits, the Adoption Expense credit can be divided among both spouses. It is claimable on expenses that fall into the following categories:
- Fees paid to a licensed adoption agency.
- Legal fees, court cost and admin expenses related to the adoption.
- Traveling and living expenses, within reason, related to the adoption.
- Translation fees.
- Fees paid to a foreign institute.
- Immigration fees for the child.
- Other reasonable expenses required by a provincial or territorial government or the adoption agency.
You can claim Charitable 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 refundable and non-refundable tax credits available to you and your family, contact us today.
