Last time we talked about tax deductions. The next important piece to understand is tax credits. There is a couple more moving parts to a tax credit, but it is still simple to understand.
What is a Tax Credit?
A tax credit is an amount of money that will be returned to you based on the specific credit.
A tax deduction reduces taxes payable. A tax credit is money in your pocket.
For example with a “Tuition Tax Credit” the amount is 15%. This means that if I spend $1000 in tuition, I will receive $150 off my tax bill.
Not to add a level of confusion but...There is two types of a tax credit;
Non-Refundable Tax Credit: These become worthless once your taxes owing become nil. In other words you won’t get money back as a refund solely because of these.
Non-Refund Tax Credit Examples;
- Child Tax Credit
- Adoption Expense Tax Credit
- Tuition Fee Tax Credit
- Textbook Tax Credit
- Medical Expense Tax Credit
Refundable Tax Credit : These credits are always worth to you what they say they are worth. And can provide a refund. In other words - they can take your income below $0. (there is not as many of these available)
Refundable Tax Credit Examples;
- Dividend Tax Credit
- Labour Sponsored Funds and certain investments
- Political Contribution Credit
To learn more about the tax credits available in your province click here
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