It’s pretty hard to argue against trying to get the biggest tax refund possible.
(And after the year we’ve had, don’t we all want every last bit of refund we can possibly get?)
As it turns out, it’s pretty simple to maximize your return. What you do with your tax refund is a whole other conversation — paying down debt or putting it into savings are commonly recommended actions. It mostly comes down to knowing the difference between tax credits and tax deductions. After that, it’s knowing which ones apply to you.
How to maximize your tax return
Just grabbing your box of slips, logging onto your tax return program, and getting your tax filing out of the way is easy. As a result, you could be leaving a wide variety of tax credits and tax deductions on the table that the Canada Revenue Agency (CRA) has available to Canadians.
A quick word to the wise: the Canadian government does frequently make updates to these credits and deductions. By starting your taxes early, you’ll have enough time to thoroughly review any changes that might’ve been made.
Tax credits vs tax deductions
While both tax credits and tax deductions work toward giving you a bigger refund, there is a key distinction — and it’s kind of like a one-two punch.
In a nutshell, tax deductions bring down your overall taxable income while tax credits reduce the amount you owe.
Of course, there’s more to deductions and credits when you look at each one individually, so let’s break them down.
What are tax credits?
Tax credits are a type of benefit that you apply for when compiling your taxes. The more credits that apply to you, the less you end up owing.
Both the federal and provincial governments have credits available, which we’ll look at further below. Taxes reduced by credits are calculated based on the lowest tax bracket (15%), regardless of your own bracket. As a result, many of these credits are designed to offer the most direct assistance to low-and-moderate-income Canadians. Another great thing about tax credits — especially the provincial ones — is that eligibility is often quite broad or straightforward.
Going further, tax credits can be further divided into refundable and non-refundable categories.
Refundable tax credits
Examples of refundable tax credits include the GST/HST (Goods and Services Tax/Harmonized Sales Tax) credit and the Canada Workers Benefit. This type of credit reduces or cancels your taxes payable. If you claim any of these credits, they can be paid to you even if you have no income tax payable.
Non-refundable tax credits
Examples of non-refundable credits include the basic personal amount, charitable donations, and the First-Time Home Buyers’ Tax Credit (more on these below). Like the refundable credits, they help you reduce taxes payable, but you won’t provide a refund if their total exceeds the amount of taxes you owe.
What are tax deductions?
As explained above, tax deductions reduce your overall taxable income. They come into play after you’ve calculated your Total Income on line 15000 of your tax return. The most commonly cited example is the RRSP: the more you contribute, the more deductions from your taxable income.
What tax deductions and credits can you use?
Many of the deductions and credits are relatively common — think tuition credits or self-employment expenses. Others might be easy to overlook, like charity donations or even medical expenses. With these, people often end up just saying “it’s not worth it” and move on.
But just think, if you invest a bit of time to learn about the deductions and credits available, you’ll end up carrying that knowledge over year after year. Take the First-Time Home Buyers’ credit for example. Maybe you’re not a homeowner right now, but knowing the credit exists will help you both plan for your future and take action when the time comes.
To make the process even easier, tax software will typically flag credits or deductions based on the information you provide. For example, province-specific tax credits. One of the biggest pieces of advice we can offer? Keep your receipts/slips/proof-of-payment! It doesn’t matter if you keep them in an accordion folder, organized in a shoebox, or in a folder on your computer. Hang on to them, keep them organized, and you’ll have fewer headaches come tax season. (And, sorry to say, you should hang on to them for at least five years in case the CRA needs to review your returns.)
Let’s explore some of the most common tax credits and deductions.
Common tax credits:
Basic Personal Amount
All taxpayers are able to claim this basic non-refundable credit. Adjusted annually for inflation, the amount for the forthcoming 2021 tax year will be $13,808 for those with a net income of $151,978 or less. Each province and territory also set a personal amount for their taxes.
Simply put, after deductions, rather than paying taxes on your full income you’ll be taxed on what’s left after the personal amount is applied. Think of it almost as a head start. If your income for the year is $40,000, then right off the bat — seriously, it’s the first line in the tax credit section — your taxable income goes to $26,192.
Disability Tax Credit (DTC)
The costs associated with disability are unavoidable expenses. This non-refundable tax credit is about greater tax equity. The Disability Tax Credit helps those with disabilities or their supporting persons reduce their taxes payable.
To be eligible for the DTC, a medical practitioner needs to fill out Form T2201, Disability Tax Credit Certificate, and have it approved by the CRA. It should be noted that approval for the DTC can open doors to additional credits and deductions — for example, the Registered Disability Savings Plan (RDSP). Once the CRA gives their sign-off, you may be able to claim $8,576 (line 31600 of your tax return), plus an additional supplement of up to $5,003 for 2020 for those under 18 years old.
The Canadian government has a fairly extensive list of qualifying medical expenses you can claim on your return as non-refundable tax credits. Common examples include ambulance services, CPAP machines, IVF programs, medical cannabis, and prescription insulin. Keep in mind that most of the expenses on this list require a prescription.
Of course, the most important thing to remember is to keep all of your receipts, prescriptions, and supporting documentation.
Canada Caregiver Credit (CCC)
This non-refundable tax credit is for those who support a spouse or common-law partner, or a dependant with a physical or mental impairment. The amount you can claim, however, is tied to your relationship. For example, if you’re supporting your spouse, common-law partner, or an eligible adult (either related or not), you can claim up to $7,140 per person. For dependants under 18, the amount is up to $2,320 per person.
Fees paid to a licensed adoption agency, court and administrative costs, travel expenses, and mandatory immigration expenses are all eligible expenses for a non-refundable tax credit when adopting a child under 18. (More expenses listed here)
The maximum claim for each child is $14,440. What’s important to flag here is the adoption period. According to the CRA, you need to claim these expenses in the tax year that includes the end of the adoption period.
We’re quite generous, us Canadians. We donated $17 billion to charity in 2019. The pandemic, however, has meant that fewer Canadians were able to give. At the same time, there were plenty of requests for donations in 2021 — largely because of the resulting economic crisis.
Cash, goods, land, and even listed securities donated to a registered charity are all eligible for this tax credit. What’s not included? Volunteer hours, payment for a lottery ticket (eg. home lotteries), event admission, and more. The exact tax credit amount varies, based on how much you donated during the tax year and your province. Broadly speaking, though, you can claim all or part of the eligible amount (in most cases shown on your receipt), up to the limit of 75% of your net income. According to CanadaHelps, you can receive as much as 53% of your donation back.
Donations are a great way to grab easy extra tax credits. Most donations are made online these days, so a folder in your email would be the best way to stay organized. Make your contribution, get your receipt, file it away — 1, 2, 3!
Tuition Tax Credit
College or university is getting more expensive by the year. While pursuing education comes with related expenses like transportation, housing, and textbooks, the biggest one is tuition. Luckily, the Canadian government has this non-refundable tax credit to help offset the costs.
To claim this credit, students must be over 16 and enrolled in post-secondary level courses at a Designated Educational Institution. Trade schools can also qualify. If the student is attending a school outside of Canada, they need to have been studying full-time for at least three weeks. If a student’s employer or their parent’s employer covers or reimburses costs, then tuition can only be claimed if the employer includes the amount in their earnings. To claim this credit, you’ll need a T2202 – Education & Textbook Amounts Certificate, issued by the school
Given that this credit is non-refundable, it can help reduce or eliminate taxes owing but won’t generate a refund. As a result, any leftover amounts can be transferred to a parent, grandparent, spouse, or common-law partner.
Canada Training Credit (CTC)
Upskilling is a big part of today’s fast-moving, ever-changing economy. As part of the broader (and still rolling-out) Canada Training Benefit, the non-taxable CTC gives eligible workers 25-64 years old a credit of $250 per year, up to a lifetime limit of $5,000. The credit could be used to refund up to half the costs of a course or training program.
In tandem with the CTC, the benefit also includes the EI Training Support Benefit (for income support during training) and leave provisions.
Get a detailed look at this innovative new Benefit.
Canada Workers Benefit (CWB)
This refundable tax credit — formerly the Working Income Tax Benefit — is designed for low-income individuals and families. While recipients must earn no less than $3,000, the maximum income level varies by province. In addition, you must have been at least 19 on December 31, and a Canadian resident for tax purposes during the year.
This benefit has two parts: a basic amount and a disability supplement. You can be eligible for the latter if you qualify for the Disability Tax Credit and have an approved Disability Tax Credit Certificate.
The maximum basic amount for individuals is $1,381 and $2,379 for families. For the disability supplement, the maximum amount is $713 for both.
Digital News Subscription Tax Credit
Let’s face facts: The last few years have been for the history books. You probably listened, watched, or read more news than ever. Basically, high-quality Canadian journalism is more important than ever.
This new non-refundable tax credit allows you to claim up to $500 for digital news subscription expenses to a qualified Canadian journalism organization (QCJO). These organizations must not be licensed to broadcast, and content needs to be primarily original news. If you’re claiming the same qualifying subscription expenses with someone, you can split the claim but the total amount of both can’t exceed $500.
First-Time Home Buyers’ Tax Credit (HBTC)
Buy your first home? First off, congratulations! Now, make sure you apply for the HBTC — introduced in 2009, and designed to reimburse closing costs like legal expenses, inspections, and land transfer taxes.
The HBTC is a $5000 non-refundable tax credit. Claiming it can give you a tax rebate of $750. If you qualify, all you have to do is fill in the amount of $5000 on line 31270 of your Schedule 1 when preparing your taxes. Easy right?
To qualify, per the CRA, both of these need to apply:
- you or your spouse or common-law partner acquired a qualifying home.
- you did not live in another home owned by you or your spouse or common-law partner in the year of the acquisition or in any of the four preceding years.
Not yet a homeowner but want to be in the future? Check out our article on the financial considerations of buying a home in Canada.
Designed to return a portion (or all) of the federal sales tax low-income Canadians pay, this credit is paid out four times per year. To qualify, you must be one of the following: at least 19 years old, have (or had) a spouse or common-law partner, or are (or were) a parent and live (or lived) with your child. Application is automatic when you file your taxes.
GST/HST credit payments are lumped together with the provincial and territorial credit payments, with the exception of the Ontario Sales Tax Credit,
Examples of province-specific credits:
Ontario Energy and Property Tax Credit
This tax-free payment is part of the Ontario Trillium Benefit, designed to help low-to-moderate-income Ontarians pay for energy costs, plus sales and property tax. The other two parts of this benefit are the Northern Ontario Energy Credit (because of higher home energy costs in the region) and the Ontario Sales Tax Credit. To receive the Trillium Benefit, you need to be eligible for at least one of the three.
For the Energy and Property Tax Credit specifically (for the 2020 benefit year) you must be an Ontario resident on December 31, plus one of the following at some point before June 1, 2022:
- 18 or older
- currently or previously married or in a common-law relationship,
- a parent who lives or previously lived with your child
In addition, you need to have:
- rented or paid property tax for your main residence
- lived on a reserve and paid for your home energy costs, or
- lived in a public long-term care home and paid an amount for your accommodation
Ontarians 18-64 could get a maximum credit of $1,095, while those 65 and over could get $1,247. You could get $243 if you live on a reserve or in a public long-term care home, and $25 if you live in a designated college, university, or private school residence.
Learn more about the Ontario Trillium Benefit.
Quebec Solidarity Tax Credit
The refundable Quebec Solidarity credit is geared towards low- and middle-income families, like many of the provincial tax credits. Eligible recipients are those who, on December 31, are residents of Quebec and:
- Were 18 or older or, if younger than 18:
- had a spouse;
- were the mother or father of a child they lived with, or
- were a court-recognized emancipated minor
In addition, the recipient or their spouse must be:
- A Canadian citizen;
- A permanent resident or a protected person under the Immigration and Refugee Protection Act; or
- A temporary resident or have a temporary resident permit under the Immigration and Refugee Protection Act and living in Canada for the last 18 months.
BC Climate Action Tax Credit
This non-taxable credit helps offset the impact of the carbon taxes paid by individuals or families. It’s combined with the GST/HST credit into one quarterly payment. Only one person can receive this credit on behalf of a family. Eligible recipients are BC residents who are:
- 19 years-old or older
- Have a spouse or common-law partner, or
- Are a parent who resides with your child.
Alberta Child and Family Benefit (ACFB)
This benefit actually consolidates the former Alberta Child Benefit (ACB) and the Alberta Family Employment Tax Credit (AFETC). Eligible recipients need to:
- Be a parent of one or more children under 18
- Be an Alberta resident
- Meet the income criteria
When you file your tax return and qualify for the Canada Child Benefit under the federal government, your application is automatically considered. The amount of the tax credit is based on the family income level and how many children under 18 are part of the family.
More information on taxes and credits for each province and territory can be found via the CRA.
Common tax deductions
Work from home
Are you one of the thousands of Canadians who have made their pandemic-related work-from-home arrangement permanent?
Thanks to the pandemic, this tax deduction is still under a big spotlight. While the CRA simplified it for the 2020 tax year, that was just a temporary measure. For your 2021 taxes, according to the CRA, you need to have spent at least 50% of your work time at home during four consecutive weeks in 2021 — including full-time and part-time hours.
Unlike other credits or deductions where claims can be split, more than one eligible person working from the same home can each make a claim.
The CRA has also simplified the process for using the detailed method for the 2020 tax year.
This is one of the most popular tax deductions. Canadians can contribute up to 18% of their net income each year to their RRSP, up to the maximum limit designated for the tax year. And, in short, every dollar contributed is deducted from your taxable income. Make this deduction on line 20800 of your tax return.
For a detailed look at RRSPs, our blog features a whole section covering the most common questions and topics.
Child care expenses
Kids. Are. Expensive.
Daycare, summer camp, overnight boarding school, nannies — childcare costs add up! Luckily, the CRA allows working parents to claim up to $8,000 for kids under 7 and up to $5,000 for kids 7 to 16. Note that there are specific situations that dictate whether the lower or higher-income parent can claim childcare expenses.
For those with an impairment in physical or mental functions, supports such as Braille note-taking devices, page-turner devices, and reading services are incredibly important. Anyone who relies on these for work or school can deduct related expenses from their taxes. The CRA has the full list of eligible expenses and specific details.
As of May 2021, around 5.1 million Canadians were working from home. Working for yourself comes with a degree of financial risk, but the last year has been especially hard for many within this group.
One factor that makes self-employment particularly enticing to many is the idea of deducting (reasonable) business expenses. Some of the most common expenses are:
- Operating expenses (business rental space, office supplies, payroll, etc)
- A home office, calculated by dividing the total square footage of your apartment or home by the square footage of your office space)
- Meals and entertainment, but only 50% of the total cost
- Travel, such as speaking at a conference or picking up inventory
- Websites and software (hosting services, payroll software, etc)
As with all tax credits and deductions, making sure you keep receipts/documentation/invoices related to your self-employment expenses is critical.
Part of a union or even a professional association? Related fees can help reduce your taxable income. Some examples include trade union membership fees, legally required professional board dues, and insurance premiums (eg. malpractice liability) related to your profession. According to the CRA, initiation fees, licenses, special assessments, or charges for anything other than the organization’s ordinary operating costs are not included.
Find this amount in box 44 of your T4 slip, and enter it on line 21200 of your tax return.
Want a complete list of deductions, credits, and expenses Canadians can claim on their personal income taxes? Click here.