What is meant by Non-Refundable Credits for Individual Tax Return?

       When you file your individual income and benefit tax return, non-refundable tax credits play a very important part in reducing your balance owing or increasing your tax refund.

       

       Non-refundable tax credits reduce your income tax owing to zero but do not cause tax refunds. It can be best understood by comparing with a situation similar to when you visit a grocery store, purchase something, say for $100 and qualify for a coupon worth $20, admissible at the time of your next purchase.

       When you purchase next time from that grocery store, say of worth $15, the store cashier will not refund the balance $5 but request you to utilize the remaining $5 to use your coupon fully. This is the exact nature of a non-refundable tax credit.

       Non-refundable tax credits are both Federal and Provincial which reduce Federal Tax owing and Provincial Tax owing respectively. While most non-refundable tax credits are similar, the maximum amount of those tax credits differ. At the same time, these credit amounts increase from year to year.

Broadly to state, major non-refundable tax credits are currently based on whether you have any dependents to claim (i.e. spouse, kids), whether you have school fees to claim, or whether you or any of your dependents have any personal disability.

Let us start understanding those Federal tax credits and how they operate.

1)      Basic Personal Amount: Federal Amount - $11,327

Every Canadian Resident taxpayer can avail this tax-credit and earn income without paying any tax.

If you are a new immigrant or emigrant (taxpayers leaving Canada during the year), this tax credit is prorated based on the number of days present in Canada in that year.

In the year of death, you could be required to file multiple tax returns but this credit is not prorated between January 01 and date of death, and period after the date of death till the year end due to the special situation.

In the year of taxpayer declaring bankruptcy, he is required to file two tax returns; one from January 01 to date of declaring bankruptcy and another for the post-bankruptcy period.

Non-resident taxpayers do not qualify for this credit unless they file their tax return in Canada, their income from Canada is more than 90% of their world income.

2)      Age Amount: Federal Amount- $7,033

Age amount is granted to taxpayers who are over the age of 65 years during or at the end of the year. In case of a new immigrant or emigrant, this amount is prorated.

The age amount is also phased out depending on your income if you qualify for the same.

If your Net Income (Line 236) for the year is $35,466 or less, you may be entitled to the full age amount credit. If your Net Income is $82,353 or more, there will be no age credit amount that you will qualify for and if your Net Income is in between the above two amounts, the age credit is phased out at 15%.

   There are other non-refundable tax credits which we will consider in my next blog.