Filing Tips for Beginners
Filing Tips for Beginners
Tax Services
Tax Services
Tax Services
Deductions vs Credits
What's The Difference?
Deduction: a tax deduction will lower your taxable income. This automatically includes lowering the tax rate applied to your taxable income and can place you into a lower tax bracket.
Credit: a tax credit will lower the taxes you owe. There are two types of tax credits:
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Refundable credits:
If you do not owe any taxes this year, or the tax credit lowers your taxes owed beyond $0, any remaining refundable credit will be paid back to you by the Canadian Government in the form of a refund.
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Non-refundable credits:
If you do not owe any taxes this year, or the tax credit lowers your taxes owed beyond $0, any remaining non-refundable credit will be void. You will not receive the remaining credit, nor can it be used to reduce your income taxes in the following year. The government allows people who fall under certain categories to claim a pre-determined amount as a non-refundable tax credit.
Examples of Deductions: union dues, certain childcare expenses for children under 16, expenses related to moving over 40km for a job, RRSP contributions, etc.
How to Claim a Deduction or Credit
When claiming a deduction and/or credit, you need to have supporting documentation proving your eligibility. Supporting documentation can include tax receipts, donation receipts from charities, and more. You do not have to submit these documents with your taxes, but you need to be able to provide them if requested, so it is recommended you keep them in a safe place.
Credits and/or deductions are claimed one of two ways:
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1) A checkbox will be located somewhere on your T1, which you simply need to check off to claim the relevant deduction/credit.
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2) You will need to fill in a pre-calculated amount in a numbered box somewhere on
Examples of Refundable Credits: GST/HST credit, working income tax credit, etc.
Examples of Non-refundable Credits: non-refundable tax credits are available for those that have a disability, a child/children under 18 years old, are 65 years or older, pay interest on student loans, etc.
your T1. This amount will either be provided on the relevant tax receipt, or you will be provided instructions on how to calculate the amount on your T1. If you are using a computer program to file your taxes, it may request you fill in some values and do the rest automatically.