What is a tax credit?
Tax credits can reduce the amount of income tax you owe or increase your tax refund.
However, not all tax credits are created equal. Some tax credits are meant for families with children, while others are designed for Canadians living with disabilities.
So what kinds of tax credits are out there, and how do they impact your tax return?
Non-refundable tax credits
Most tax credits are non-refundable, meaning they can only reduce your income tax payable to zero. To claim the tax credit for a refund, you must pay income tax during the year. So, if you paid federal tax income, non-refundable tax credits may increase your tax refund.
Some tax credits can be carried forward to future years, while others must be claimed in the current tax year. The non-refundable Disability Tax Credit (DTC) is retroactive up to 10 years, meaning you can only claim the DTC to reduce your amount of income tax owed to zero. But if you’ve been paying income tax for up to the last 10 years, you may be eligible for a tax refund.
Refundable tax credits
Refundable tax credits are paid to you even if you do not owe any income tax. The Working Income Tax Benefit (WITB) provides tax relief for eligible working low-income individuals and their families. If you are approved for the Disability Tax Credit, you may also become eligible for an additional WITB supplement.
Transferring tax credits
Some tax credits may be transferred to a spouse or other family member to claim on their tax returns. For example, if you have leftover Disability Tax Credit amounts that you cannot claim, you may transfer those amounts to an eligible family member.
You may be entitled to numerous tax credits that you’re unaware of. Or if you’ve been claiming certain tax credits, the rules for the credit might have changed.
The Disability Tax Credit amount changes year to year, federally and provincially. So, whether you’ve never claimed the tax credit before or have been claiming it already, consider that there may be additional amounts that you may not be aware of.