Tax Credit
A tax credit directly reduces your tax payable, dollar for dollar. Canada has two types: non-refundable credits reduce your tax to zero but no further, while refundable credits can generate a refund even if you owe no tax. Non-refundable credits are applied at the lowest tax rate (15% federally).
Common non-refundable credits include the Basic Personal Amount, spousal amount, age amount, pension income amount, disability tax credit, tuition credit, medical expenses, and charitable donation credit. Refundable credits include the GST/HST credit, Canada Workers Benefit, and the Canada Child Benefit.
Tax credits differ from deductions in an important way: a deduction reduces your taxable income (saving you tax at your marginal rate), while a non-refundable credit saves everyone the same dollar amount regardless of income. This makes credits more equitable but less valuable for high-income earners compared to deductions like RRSP contributions.
Related Terms
Tax Deduction
A tax deduction reduces your taxable income before tax is calculated, effectively saving you money at your marginal tax rate.
BPA (Basic Personal Amount)
The Basic Personal Amount (BPA) is a non-refundable tax credit available to every Canadian taxpayer.
GST/HST Credit
The GST/HST credit is a tax-free quarterly payment from the CRA designed to help individuals and families with low and modest incomes offset the GST/HST they pay on everyday purchases.
CCB (Canada Child Benefit)
The Canada Child Benefit (CCB) is a tax-free monthly payment from the CRA to eligible families to help with the cost of raising children under 18.