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 basic personal tax credit, which allows you to subtract an amount set by the government.The federal 2018 basic personal tax credit amount is $11,809. The federal basic personal amount for the 2019 tax year is $12,069. There are also provincial basic personal tax credit amounts, set by each province. In Ontario, it is $10,354 for 2018. For the 2019 tax year, it is $10,582. 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
- 2018 tax year the Working Income Tax Benefit (WITB) is intended to provide tax relief for eligible working low-income individuals and families, and to encourage those who are not working to enter the workforce
- 2019 tax year and subsequent years: the Canada Workers Benefit (CWB) – an enhanced version of the WITB
Ontario tax credits
Each province also has its own tax credits. For example, Ontario provides tax credits for the following:
- Healthy Homes Renovation
- Focused flow-through share, to encourage mineral exploration in Ontario
- Political contributions
- Apprenticeship training
Low-Income Individuals and Families Tax (LIFT) Credit
The Ontario government has introduced a new tax credit, called the Low-Income Individuals and Families Tax (LIFT) Credit. Effective January 1, 2019 it provides low-income and minimum wage workers up-to $850 in Ontario tax credits, and couples up-to $1,700. A single person working full-time and earning minimum wage (approximately $30,000 a year) pays no Ontario Personal Income Tax, while the tax will be gradually reduced for individuals earning over $30,000, and families earning greater than $60,000. This credit can be claimed for the 2019 tax year.
Ontario Childcare Access and Relief from Expenses (CARE) Credit – Pending
The Ontario government has proposed a new Ontario Childcare Access and Relief from Expenses (CARE) personal income tax credit, which focuses on low- and moderate-income families. The tax credit would be based on family income and eligible child care expenses. If passed, it will take affect for the 2019 tax year.
The new credit would support families with incomes of up-to $150,000 and would provide eligible families with up-to 75 per cent of their eligible child care expenses. It’s aim is to allow families to access a broad range of child care options, such as care centres, homes and camps. The CARE credit would be in addition to the existing Child Care Expense Deduction (CCED) which provides provincial and federal tax relief toward eligible child care expenses to higher income families.
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)
- Ontario Senior Homeowners’ Property Tax Grant
- Ontario Trillium Benefit
Visit the Ministry of Finance 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 help filing your tax returns, contact H&R Block.
For legal advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact our preferred Tax lawyers and see who’s right for you:
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