Area of Law: Tax Law
Answer # 1700
What are tax deductions, credits and benefits?Region: Ontario Answer # 1700
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 credits work 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
For the 2021 tax year, the federal basic personal amount is $13,808 (for taxpayers with a net income of $151,978 or less). This means that an individual Canadian taxpayer can earn up-to $13,808 in 2021 before paying any federal income tax.
For the 2022 tax year, the federal basic personal amount is $14,398 (for taxpayers with a net income of $155,625 or less). This means that an individual Canadian taxpayer can earn up-to $14,398 in 2022 before paying any federal income tax. There are also provincial basic personal tax credit amounts, set by each province.
In Ontario, for the 2021 tax year the basic personal tax credit amount is $10,880. For the 2022 tax year this amount is $11,141.
Federal tax credits and benefits
Additional federal tax 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
- the Canada Workers Benefit – an enhanced version of the previous Working Income Tax Benefit WITB – is a refundable tax credit for 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 following tax credits:
- Ontario Sales Tax Credit
- Ontario Seniors’ Public Transit Tax Credit
- Ontario Energy and Property Tax Credit
Low-Income Individuals and Families Tax (LIFT) Credit
Beginning with the 2019 tax year, Ontario individuals may be able to claim the Low-Income Individuals and Families Tax (LIFT) Credit, which provides low-income and minimum wage workers up-to $850 (or 5.05%) of your employment income) in Ontario tax credits. Eligibility requirements include:
- you must owe Ontario personal income tax
- your individual adjusted net income for the year must be below $38,500
- your adjusted family net income for the year must be below $68,500
Ontario Child Care Tax Credit (CARE)
The Ontario 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 credit allows parents to claim up-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.
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:
- Ontario Child Benefit
- Ontario Guaranteed Annual Income System (GAINS) for seniors
- Ontario Senior Homeowners’ Property Tax Grant
- Ontario Trillium Benefit
Visit ontario.ca for more information about tax credits, benefits and incentives for Ontario residents. A complete list of the credits and tax reductions available in Ontario that can reduce your amount of provincial tax payable is also available at canada.ca.
For legal advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact Tax Chambers LLP
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