CRA & Revenu Québec

B.C. Tax Reduction Credit

The B.C. tax reduction credit reduces provincial income tax for low- and middle-wage earners in British Columbia. In 2016, the government increased the amount of this credit and increased the thresholds at which the credit phases out and disappears.

What Is the B.C. Tax Reduction Credit?

This is a nonrefundable credit based solely on your net income. As of 2016, you may receive up to $436, and this amount is used to reduce your provincial income tax. Unfortunately, however, this credit cannot create a refund as it is a nonrefundable credit. For example, if you receive the entire credit of $436 and only owe $200 in income tax, the credit lowers your tax to $0, but you don’t receive a refund for the unused credit.

Who Receives the B.C. Tax Reduction Credit?

To receive this credit, you must be a resident of British Columbia on the last day of the tax year for which you are filing. As of 2016, if your net income is less than $19,400, you receive the full amount of this credit, and if your net income is over $31,647, you are ineligible for this credit. If your net income falls between these two figures, you receive a partial amount of this credit.

How Does British Columbia Calculate the Partial Income Reduction Credit?

Once you pass the $19,400 threshold, the government uses a reduction factor to determine the amount of your credit. In 2015, the reduction factor was 3.5%, but in 2016, this number has increased to 3.56%. If your income is the same in 2016 as it was in 2015, you should receive a larger portion of this credit even if you don’t qualify for the whole thing. However, it is important to note these thresholds are based on net income.

What Is Net Income?

In Canada, net income appears on line 236 of your federal income tax return. This is the sum of your income minus your deductions. It includes income from all sources such as wages, self-employment, pension payments, and rental properties. Deductions include things such as moving expenses, child care expenses, and union dues as well as a list of other possibilities.

How Does the Reduction Credit Affect Provincial Income Tax?

As of tax year 2016, residents of British Columbia face a 5.06% tax rate on the first $38,210 of their earnings. As a result, if you earn $19,400, you owe $981.64 in income tax. However, at this income level, you receive the full tax reduction credit, and that lowers your provincial income tax bill to $545.64.

Similarly, if you only have $8,620 in taxable income, that makes your provincial income tax $436. In this case, the tax reduction credit of $436 completely eliminates your tax bill.

How Has the Tax Reduction Credit Changed?

In 2015, the income thresholds for the B.C. Tax Reduction Credit were lower than the 2016 thresholds. In 2015, taxpayers earning less than $19,000 received the full amount of the credit, and those with over $31,343 were not eligible to receive any of the credit.

How Do You Claim the B.C. Tax Reduction Credit?

To claim the credit, complete the British Columbia Tax Form (BC428) when you complete your federal T1 income tax return. You need to use a provincial worksheet to calculate some of your credits. Do not include this worksheet with your tax return, but remember to keep it with your records for at least six years.

Are There Other Tax Credits in British Columbia?

As a resident of British Columbia, you may qualify for a range of other provincial tax credits in addition to the tax reduction credit. For example, parents may claim credits for adoption expenses or for the cost of children’s art or fitness classes. There are also credits for full- and part-time students as well as credits for taxpayers who pay student loan interest. In addition, British Columbia offers age, pension, and disability credits, and if you have medical expenses or take care of a dependant with a disability, you may also qualify for additional credits. If you want to optimize your tax return, it is critical to claim all of the federal and provincial credits for which you are eligible, as tax credits can directly reduce your tax liability.

What If You Have Unused Credits?

As explained above, nonrefundable credits can reduce the tax you owe, but they cannot create a refund.
Because of this, you may not need all of your credits. Luckily, if you qualify for the age, pension, or disability credits but cannot use them, you may transfer these credits to your spouse or common-law partner. Unfortunately, however, you cannot transfer the tax reduction credits to another person.