SDG Accountant team provides an introduction on tax credit and various issues. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.
What is a Tax Credit?
A tax credit is a benefit offered by CRA to reduce the dollar amount of your tax payable.
For example, you need to pay $5,000 personal tax for your income from all sources. At the same time, you are eligible for $2,000 tax credit. Therefore, your tax payable has decreased from $5,000 to $3,000. We strongly recommend you to carefully review all the tax credits can be applied to you. The total amount of tax saving is tremendous!
Refundable Tax Credit VS Non-refundable Tax Credit
The tax credit can be divided into two categories, refundable tax credit, and non-refundable tax credit.
Both of the Refundable tax credit and non-refundable tax credit can be utilized to offset tax liability. However, under the scenario that if you don’t have any tax payable, CRA will refund the total amount of refundable tax credit to you in cash. As for non-refundable tax credit, it can only be used to reduce tax payable to zero but it cannot be used to claim refund nor carry-forward for future years.
Some Common Examples for Personal Non-refundable Tax Credit in Ontario
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Basic Amount
This is the basic tax credit that generally every Canadian citizen can claim. In 2016, eligible residence in Ontario is allowed to claim $10,011 Basic Personal Amount. The amount could be varied depends on the residency status.
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Age Amount
You can claim up to $4,888 if you were 65 years of age or older on December 31, 2016, and your income from all sources is less than $68,945.
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Spouse or Common-law Partner amount
You can claim this tax credit if the following two criteria are met:
- Rules are met for claiming the amount on line 303 of federal Schedule 1
- Your spouse’s or common-law partner’s net income is less than $9,350
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The amount for an eligible dependant
You can claim this tax credit if the following two criteria are met:
- Rules are met for claiming the amount on line 305 of federal Schedule 1
- Your dependant’s net income is less than $9,350
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Tuition and Education Expense
Tuition and Education Expense are eligible for claiming the personal tax credit. Besides, by updating your record for unused tuition and education expense tax credit, you are allowed to carry forward to other years. In addition, the certain amount of current year tax credit from tuition expense can also be transferred to their parents.
Some Common Examples for Personal Refundable Tax Credit in Ontario
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Working Income Tax Credit
The Working Income Tax Credit is designed to reduce tax liability for the low-income individual as well as family. Specific application and eligibility can be founded on CRA website.
Some Common Examples for Corporate Tax Credit
CRA also offers the tax credit for corporations as an incentive. For example, foreign tax credit and Scientific Research and Experimental Development Expense. In order to be qualified for receiving the tax credit benefit, specific requirements must be met and evidence needs to be provided. Detailed information can be found on the CRA website.
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