Region: OntarioAnswer # 1700
Personal and business tax issues including tax deductions and what benefits and credits are available are vast and complicated. To get help, ask a lawyer now.
Reducing tax payable: deductions and credits
There are two main ways to reduce the amount of tax you pay: by claiming deductions and by claiming tax credits.
Deductions are amounts you can subtract directly from your income before calculating tax. There are not as many deductions for individuals earning employment income, in comparison to individuals who carry on a business. However, some common deductions for individuals include: support payments made to an ex-spouse, contribution amounts to an RRSP up-to your annual maximum, and moving expenses, if you had to move more than 40 kilometres because of work.
Tax creditswork differently from deductions in that they are subtracted from the amount of tax you owe, as opposed to your income before taxes. The most common credit that everyone can claim is a federal basic personal tax credit, which allows you to subtract an amount set by the government.
Tax-free basic personal amounts (BPA)
For the 2023 tax year, the federal basic personal amountis $15,000 (for taxpayers with a net income of $165,430 or less). This means that an individual Canadian taxpayer can earn up-to $15,000 in 2023 before paying any federal income tax.
For the 2024 tax year, the federal basic personal amount is $15,705 (for taxpayers with a net income of $173,205 or less). This means that an individual Canadian taxpayer can earn up-to $15,705 in 2024 before paying any federal income tax.
There are also provincial basic personal tax credit amounts, set by each province.
In Ontario, forthe2023 tax year the basic personal tax credit amount is$11,865. For the 2023 tax year this amount is $12,399.
Federal taxcredits and benefits
Additionalfederaltax credits and benefits include those available for:
- dependent spouse and children, (spouse includes common-law partners who qualify under the definition)
- disability amount
- caregiver expenses
- medical expenses for the lesser of an amount equal to 3% of your income or the annual amount set by the government
- college or university tuition
- theCanada Workers Benefit– an enhanced version of the previousWorking Income Tax BenefitWITB –is a refundable tax creditfor 2019 and subsequent taxation years that provides tax relief for eligible low-income working individuals and families
Ontario tax credits
Each province also has its own tax credits. For example, Ontario provides the followingtax credits:
Low-Income Individuals and Families Tax (LIFT) Credit
Beginning with the 2019 tax year, Ontario individuals may be able to claim theLow-Income Individuals and Families Tax (LIFT) Credit, which provides low-income and minimum wage workers up-to $875 (or 5.05%) of your employment income) in Ontario tax credits. Eligibility requirements include:
- you must owe Ontario personal income tax
- you must have employment income
- your individual adjusted net income for the year must be below $50,000 (previously $38,500 for the years 2019, 2020 and 2021)
- your adjusted family net income for the year must be below $82,500 (previously $68,500 for the years 2019, 2020 and 2021)
OntarioChild Care TaxCredit (CARE)
TheOntario Child Care Tax Credit(known as Ontario Childcare Access and Relief from Expenses (CARE)Tax Credit) focuses on low- and moderate-income families.The tax creditallows parentsto claimup-to 75% of their eligible childcare expenses, allowing families to access a broad range of child care options,such as care centres, homes and camps. For more information, view 1701 Child benefits and tax credits.
Ontario benefits
The Ontario government also has several benefits available to low-income individuals and families. Benefits are generally paid to the individual on a monthly basis, up-to a maximum amount set by the government. One of the requirements to qualify for any of the benefits available is that you must file a tax return, even if you did not earn any income. In Ontario, benefits include:
Visitontario.cafor more information about tax credits, benefits and incentives for Ontario residents. A complete list ofthe credits and tax reductionsavailable in Ontariothat canreduce your amount of provincial tax payable is also available at canada.ca.
Get help
For advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact Tax Chambers LLP
Personal and business tax issues are vast and complicated. To get help, ask a lawyer now.
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FAQs
A deduction reduces the amount of your income that is subject to tax, thus generally reducing the amount of tax you may have to pay.
What is a legal tax deduction? ›
A deduction is an amount you subtract from your income when you file so you don't pay tax on it. By lowering your income, deductions lower your tax. You need documents to show expenses or losses you want to deduct. Your tax software will calculate deductions for you and enter them in the right forms.
What is the difference between a tax credit and a tax deduction? ›
Both can lower your tax bill but do so in different ways: While tax deductions reduce the amount of your income subject to tax, tax credits reduce your tax liability directly. Each credit and deduction also has unique eligibility requirements including, for some, income thresholds.
What are tax credits and how do they work? ›
A tax credit lowers the amount of money you must pay the IRS. Not to be confused with deductions, tax credits reduce your final tax bill dollar for dollar. That means that if you owe Uncle Sam $5,000, a $2,000 credit would shave $2,000 off your total tax bill and you would only owe $3,000.
Do tax deductions give you money? ›
Tax deduction lowers a person's tax liability by reducing their taxable income. Because a deduction lowers your taxable income, it lowers the amount of tax you owe, but by decreasing your taxable income — not by directly lowering your tax.
Are tax credits free money? ›
A tax credit is a dollar amount that you can subtract from your income tax to reduce your overall tax liability. So, while a tax refund simply represents the difference between the taxes you paid versus the taxes you actually owe, a tax credit is a benefit that directly reduces your tax burden.
What deductions can I claim? ›
Taxpayers can take advantage of deductions for various everyday expenses, such as student loan interest, IRA contributions, self-employed retirement plans, and health-related costs like insurance premiums and out-of-pocket medical expenses.
What are 3 allowable deductions when filing taxes? ›
Common itemized deductions
| Deduction | CA allowable amount |
|---|
| Medical and dental expenses | Expenses that exceed 7.5% of your federal AGI |
| Home mortgage interest | On home purchases up to $1,000,000 |
| Job Expenses and Certain Miscellaneous Itemized Deductions | Expenses that exceed 2% of your federal AGI |
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They can include various expenses such as mortgage interest, medical expenses, charitable contributions, and certain business expenses, either through itemized deductions or the standard deduction.
How to get a $10,000 tax refund? ›
CAEITC
- Be 18 or older or have a qualifying child.
- Have earned income of at least $1.00 and not more than $30,000.
- Have a valid Social Security Number or Individual Taxpayer Identification Number (ITIN) for yourself, your spouse, and any qualifying children.
- Living in California for more than half of the tax year.
Refundable tax credits are arguably the most beneficial type of tax credit for taxpayers because they are paid in full. That means, for instance, if the amount of the refundable tax credit is greater than the taxes owed, the extra dollar amount beyond zero translates to a cash refund.
Is tax credit good or bad? ›
Tax credits directly reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability. A tax credit valued at $1,000, for instance, lowers your tax bill by the corresponding $1,000. Tax deductions, on the other hand, reduce how much of your income is subject to taxes.
What is the meaning of do you get tax credits? ›
Working tax credit is paid to people who work and are on a low income – it does not matter whether you are an employee or self-employed. You do not need to have children to get WTC. Child tax credit is paid to people who have children.
Who benefits from tax credits? ›
The Earned Income Tax Credit (EITC) helps low- to moderate-income workers and families get a tax break. If you qualify, you can use the credit to reduce the taxes you owe – and maybe increase your refund. Did you receive a letter from the IRS about the EITC? Find out what to do.
Do you get money back from tax credits? ›
Some tax credits are refundable. If a taxpayer's tax bill is less than the amount of a refundable credit, they can get the difference back in their refund. Some taxpayers who aren't required to file may still want to do so to claim refundable tax credits. Not all tax credits are refundable, however.
What is the advantage of deduction? ›
Benefits of Tax Deductions
Tax deductions help you reduce an amount from your taxable income and save tax. When you claim an income tax deduction, it reduces the amount of your income that is subject to tax.
Who benefits most from tax deductions? ›
In practice, except for refundable tax credits like the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), tax expenditures primarily benefit the top 20% of households.
Is tax deductible a good thing? ›
A tax deductible is an expense that an individual taxpayer or a business can subtract from adjusted gross income (AGI). The deductible expense reduces taxable income and therefore reduces the amount of income taxes owed.
How much do tax deductions save you? ›
On the other hand, a deduction reduces your taxable income by $100. The resulting amount of tax you save depends on your tax bracket. If you were in the 24% tax bracket, a $100 deduction reduces your taxes by $24. On the other hand, a $100 credit would reduce your taxes by $100.
