When you file your tax return, you can claim the tax credits you are entitled to. A tax credit is an amount that can be deducted from the amount of tax owed. Unlike deductions and exemptions, which reduce the amount of taxable income, tax credits have the function of reducing the actual amount of tax payable. The amount of the credit depends on its nature, as there are different types of personal tax credits. Get in touch with an accountant near me for more details.

How do tax credits work?

The common goals of government stimulating tax credits are to support disadvantaged taxpayers or to encourage specific behaviors such as the use of energy efficient appliances. Tax credits are more beneficial than tax credits or exemptions because they reduce your tax liability dollar for dollar. On the contrary, the deduction will reduce the tax burden within the limits of the marginal rate. For example, if the marginal tax rate for an individual is 25%, then for every dollar deducted in taxes, they save $0.25.

Get in touch with an accountant near me for more details. For more information on tax credits, you can contact a personal tax accountant and speak to a tax consultant in Toronto who have the relevant expertise.

Types of tax credits

Non-refundable tax credits

It only works to reduce your payment, but because it is non-refundable, it will only be used until your payment reaches $0. However, if you have more than your tax debt, which results in a refund, non-refundable credits are not more valid, regardless of whether you qualify for the credits. This is because these credits are not paid to the taxpayer and are effectively lost. In general, most non-refundable tax credits are sufficient for a given tax year and cannot be carried forward or used in subsequent years. As a result of this condition, low-income earners are adversely affected by the fact that the amount of their non-refundable personal tax credits that are not used are lost instead of being used in future tax years.

Refundable Tax Credits

This is very beneficial for taxpayers, as the credit amount reduces the amount owed, and the excess amount is paid back to you. Regardless of whether you owe or are entitled to a tax refund, the entire tax credit is used.

Personal tax credits 2023

It’s increasingly important to understand some of the new personal tax credits available in our upcoming 2023 personal tax returns so that you’re well-prepared for the upcoming tax season. SRJ professionals will connect you with specialized accountants in Toronto who can provide you with accurate tax credit information. Below is a brief overview of some of the newly introduced personal tax credits you may be eligible for this year:

Canada Training Credit Limit – In 2020, the Canadian federal government introduced the Canada Training Benefit to help with workforce disruptions due to technological changes. This refundable tax credit provides financial coverage for tuition and training costs and removes barriers to professional development. As part of the workforce, you may receive a tax credit of up to $250 a year up to a lifetime limit of $5,000 that can be used for eligible purposes. Based on the information on your return, the Canada Revenue Agency will calculate your Canada Training Credit limit for the 2023 tax year and display it on your 2022 Assessment Notice, which is available from your CRA account. You can still receive this amount.

The criteria for obtaining this tax credit are as follows:

  1. The personal income tax return must be submitted for the reference year;
  2. Be between the ages of 25 and 65 at the end of the tax year;
  3. You must be a resident of Canada during the year; AND
  4. Have earnings of between $10,000 to a maximum of $150,000 eligible during the year

Canada Workers Benefit – Previously known as the Working Income Tax Benefit, the Canada Workers Benefit is a refundable tax credit available to low-income individuals and families. For individual workers, $1,428, and for households, the CWB provides $2,461 for 2023 provided through existing tax payments.

Climate Action Incentive Payment – The Climate Action Incentive Payment is a refundable tax credit used to reduce your tax burden and generate or increase a refund. Eligible Alberta residents are eligible to apply for the Climate Action Incentive Credit. In the case of British Columbia, residents are entitled to $521.50 for each individual. Since October 2022, $164 has been added to your total tax payment. In addition, residents of Ontario, Manitoba, and Saskatchewan are eligible for this refundable tax credit of $488, $528, and $680 per adult during April 2023, July 2023, October 2023, and January 2024. The amounts for the latter adult, each child, and a family of four, are different and are provided on the website.

Improvements to the Canada Pension Plan (CPP) – Effective January 1, 2019, Canadians began contributing more to the CPP. A deduction can be requested to increase the CPP contribution. The annual contribution rates will gradually increase over the next seven years. The CPP adjustment was made to help improve retirement benefits and income for working Canadians.

Maximum retirement earnings will rise to $58,700 in 2020 from $57,400 a year prior. Additionally, the employer and employee contribution rates increase to 5.70% in 2022. This means that the CPP amount will increase to $66,600 in 2023, up from $64,900 in 2022.

Claiming cannabis as a medical expense – Income tax law will be changed to include the cannabis industry as cannabis has recently become legal in Canada. Currently, for hemp-based products purchased after October 16, 2018, it is possible to apply a discount on medical expenses. As of 2021, you can claim $2,421 in medical expenses related to cannabis use (this may be 3% of your net income). To be eligible for the deduction, the patient must:

  1. Be the recipient of a medical document as described in the Cannabis Regulations;
  2. Be registered as a customer of the selling licensee; AND
  3. Have the products purchased from the holder of the sales license with which they are registered.
  4. How to apply for credits and tax breaks

To be able to request tax credits or benefits, it is necessary to present the tax return for the tax year in question. We can help you prepare your Canadian tax return and maximize your refund. For more information on tax credits, you can contact a personal tax accountant and speak to a tax consultant in Toronto.

Webtax online is a professional accountancy firm based in Toronto in tax advice and consultancy for individuals and businesses. Get in touch with an accountant near me for more details. If you have any questions or would like to get in touch with the personal tax accountant at webtax online and speak to a tax consultant in Toronto who have the relevant expertise.

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