Tax credits are a big deal. They can reduce your overall tax bill. Unlike tax deductions which reduce your taxable income, tax credits reduce the amount you owe. Consult with a professional accountant Edmonton to understand the different types of tax credits and how they work, because individuals and businesses can save money and get healthier financially.
What are Tax Credits?
Tax credits are amounts you can subtract from the taxes you owe. They can be broken down into two main types:
- Refundable Tax Credits: These can reduce your tax to zero and if the credit exceeds your tax owed, you get the rest back as a refund.
- Non-Refundable Tax Credits: These reduce your taxes payable but can’t result in a refund if they exceed your tax liability.
Both are important to reduce your tax load and get your finances in order.
Canadian Tax Credits
The Canadian tax system has many tax credits for individuals and businesses. An experienced accountant Mississauga can tell you which tax credits are applicable to you. Here are some common ones:
- Canada Child Benefit (CCB): Refundable credit for families with children under 18, based on income. Helps offset the cost of raising kids.
- Disability Tax Credit (DTC): Non-refundable credit for individuals with severe and prolonged disabilities. Reduces the financial burden of medical or support expenses.
- Home Accessibility Tax Credit (HATC): Non-refundable credit for seniors and individuals with disabilities who incur expenses to make their homes more accessible.
- Tuition and Education Credits: Students can claim non-refundable credits for tuition fees paid to eligible institutions. Can also be transferred to a spouse, parent or grandparent.
- Medical Expense Tax Credit (METC): Non-refundable credit for medical expenses above a certain percentage of your income.
- Small Business Credits: Businesses may be eligible for credits like the Small Business Deduction or Scientific Research and Experimental Development (SR&ED) Tax Credit which reduce corporate tax payable.
How Tax Credits Work
Tax credits are applied after you calculate your taxable income and determine your taxes payable. For example, if your tax bill is $5,000 and you have $1,500 in non-refundable credits, your tax liability is reduced to $3,500. Refundable credits can result in a refund if the credits exceed your taxes payable.
How to Make the Most of Tax Credits
- Know Your Eligibility: Research the credits you’re eligible for and make sure you meet the requirements. Filing the right documentation is key to claiming credits.
- Plan Ahead: Many credits require upfront planning, like tracking eligible expenses or investing in education or home improvements.
- Consult Professionals: A tax accountant can find hidden credits and make sure you don’t miss out on reducing your tax bill.
Why Tax Credits
Tax credits are part of the Canadian tax system to promote fairness and encourage specific behaviors like investing in education, supporting families and business innovation. For individuals and businesses, knowing and using these credits can mean big tax savings and financial stability.
Bottom Line
Tax credits are a way to reduce your tax bill and keep more money in your pocket. Whether you’re an individual looking to offset medical expenses or a business investing in research, tax credits can be a big help. Stay informed and be proactive and you can get the most out of these and improve your finances.
