Credits & Deductions, Education, Families, Tips & Advice

Calculating Your Tax Refund Canada

If you are expecting a tax refund, you can get a fairly accurate idea of how much you will be receiving before you actually file your tax return. Sure, you could use a free online tax preparation software like TurboTax and fill in a couple of key facts and you should see fairly quickly and easily if you are getting money back or will owe money.  But what information is most important in providing that snapshot?

Total Income

Your total income is just what it sounds like — all of the money you brought in for the year. It includes any money you earn from employment – including self-employment, commissions, bonuses, gig-work and tips.

It also includes income you earned from other sources. For instance, investment activities, like dividends, interest or renting a property, are amounts you would add into your total income.

Some Common Deductions Include:

  • The Registered Retirement Savings Plan (RRSP) deduction
  • Child care expenses
  • Moving expenses
  • Support payments you make for a spouse
  • Employment expenses (T2200 required)
  • Any deductions related to self-employment work

You can subtract deductions from your total income to get your taxable income. If your deductions are higher than your earned income, your taxable income would be considered $0.

For instance, say you earned $20,000, and your child care expenses, moving expenses and employment expenses totaled $23,000. Your taxable income would be $0, as opposed to -$3,000.

Your Federal Tax Bracket Depends On Your Taxable Income

For 2018;

  • 15% on the first $47,630 of taxable income, plus
  • 20.5% on the next $47,629 of taxable income (on the portion of taxable income over 47,630 up to $95,259), plus
  • 26% on the next $52,408 of taxable income (on the portion of taxable income over $95,259 up to $147,667), plus
  • 29% on the next $62,704 of taxable income (on the portion of taxable income over 147,667 up to $210,371), plus
  • 33% of taxable income over $210,371

Non-Refundable Credits and Taxes

The tax credits you claim on the Schedule 1 form are non-refundable like deductions. These credits can reduce your tax liability, but cannot make you go from owing taxes to receiving a refund.

The basic personal amount is a large chunk of your non-refundable credits and this amount varies by tax year. For 2018, the basic personal amount is $11,809.

You also receive additional credit for your spouse or common-law partner, and for your children.  You can receive credit for other things, such as college tuition and medical expenses.

You are allowed to subtract 15% of the total amount of your credits from your tax amount as determined by your tax bracket.  This amount is your net federal tax.

For instance, your credits total $20,000 and your taxable income is $40,000: ($40,000 x 15%) – ($20,000 x 15%) = $6,000 – $3,000 = $3,000 in net federal tax.

Disability Tax Credit

The Disability Tax Credit (DTC) is a non-refundable tax credit that helps persons with disabilities or their supporting persons reduce the amount of income tax they may have to pay.

An individual may claim the disability amount once they are eligible for the DTC.

Being eligible for the DTC can open the door to other federal, provincial, or territorial programs such as the registered disability savings plan, the working income tax benefit, (called the Canada Working Benefit as of 2019) and the child disability benefit.

Refund or Balance Owing

How do I know if I owe taxes or getting money back?

After you determine your net federal tax, you add any provincial or territorial tax to get your total tax payable. This is the amount you owe in taxes, prior to any refundable credits or over payments.

To determine your refund, you would subtract the amount of tax you paid and any items, such as over payments, refundable tax credits and working income tax benefits.

For example, if earned a salary of $20,000 working in Ontario in the 2018 tax year, your marginal tax rate is 20.05%, and your total tax payable is approximately 12%. Deduct how much tax you’ve paid as well as refundable credits from the total tax amount to calculate the amount payable or receivable.

Of course, there is the TurboTax Canada income tax calculator, which answers that question much quicker.  Then again, if you want to know whether you are getting a refund or if you owe, you might as well just complete your return through TurboTax.  With options available ranging from doing the return completely on your own, to having a TurboTax expert prepare your return for you – with options in between – why would you go anywhere else than with Canada’s most popular tax preparation software, who has been helping Canadians since 1983.