Credits & Deductions, Refunds

Personal Income Tax Deductions in Canada

Canada’s federal and provincial governments use income tax deductions or credits to reduce the tax for some taxpayers and to promote certain activities considered to be beneficial. Some deductions reduce the income subject to tax, while others reduce the amount of the tax directly. As a taxpayer, you should be aware of all the deductions that are available to avoid an overpayment of taxes and possibly increase your tax refund.

Deductions That Reduce Taxable Income

Deductions are taken after calculating your Total Income on Line 15000 of your tax return.  Certain deductions are used to arrive at your Net Income – Line 23600. You can, for example, deduct RRSPs, Child Care Expenses, Employment Expenses, just to name a few. Your total income minus these deductions equals your net income.

Then there are items you may be able to deduct from the net income to arrive at your Taxable Income on Line 26000. You could, for example, deduct losses from previous years and an amount if you are a northern resident. The best strategy for claiming deductions of this type is to go through your income tax form line by line. We will explain these deductions and the line numbers they are seen on below.

Deductions That Reduce Income Tax

The Canada Revenue Agency allows you to deduct amounts from the tax that you owe based on your taxable income. These calculations are carried out in Section 5 of the tax return (formerly Schedule 1) and known as Non-Refundable Tax Credits or NRTCs. There are Federal Non-Refundable Tax Credits and Provincial and Territorial Credits specific to the province you resided in on December 31st of the tax year.

Non-refundable vs. Refundable

Tax deductions that reduce your taxable income, or amounts you can subtract from your tax due, are known as non-refundable. This means you can use the deductions to reduce your tax payable to zero, but you can’t claim a refund based on these amounts.

Refundable tax credits, as the name suggests, result in a refund. Normally, you have already paid some income tax, either through salary deductions or via installments paid during the year.

To these amounts, you can add any overpayments you made on Employment Insurance (EI) or the Canada Pension Plan (CPP).

The Canada Workers Benefit (CWB), (formerly the Working Income Tax Benefit or WITB) is an example of a refundable tax credit. When the total of these amounts is more than the amount of tax due, or if there is no tax due because the deductions have reduced it to zero, you could receive a refund.

What Can You Claim On Your Tax Return?

The following list explains the deductions and credits available, and where they are entered on your Income Tax and Benefit Return:

Non-Refundable Tax Credits

This list may seem exhaustive and overwhelming trying to ensure you have your credits or deductions entered on the right line, in the right section, or even if you are eligible to claim it! But when you use a software program like TurboTax, you can be confident that you are getting the credits you are entitled to and they are entered correctly by simply going through our EasyStep Interview.

Why not answer a few simple questions on our product recommender and we can help guide you to the right edition that will reflect your individual circumstances.

You can always start your return in TurboTax Free, and if you feel the need for additional assistance, you can upgrade to any of our paid editions or get live help from an expert with our Assist & Review or Full Service*. But don’t worry, while using the online version of the software when you choose to upgrade, your information is instantly carried over so you can pick up right where you left off.

*TurboTax Live™ Full Service is not available in Quebec.