Credits can help save money on your tax bill because they trim the amount due. Moreover, each of the provinces has its own system of rates applying to the credits, which can lower your tax liability even more. Some credits can be transferred between people in the same family to optimize their use.
Fundamentally, you calculate your federal tax credit by multiplying a dollar amount by the lowest federal tax rate. The dollar amount of some tax credits — such as the basic personal, age, and spousal credits — are indexed to increases in the Consumer Price Index. Unused tax credits aren’t refundable.
Severe and Prolonged
The Canada Revenue Agency (CRA) considers impairment severe if it markedly restricts your daily living activities. It is prolonged if it has lasted, or is expected to last, at least 12 months.
The courts, however, have considered the overall impact that a disability has had on taxpayers’ lives.
For example, the Tax Court of Canada has ruled that although an individual suffering from chronic fatigue syndrome wasn’t markedly restricted from performing any of CRA’s specified list of basic daily activities, she qualified for the credit because of the cumulative restrictive effects the illness had on her ability to function (Gibson v. The Queen, 2014 TCC 236).
These tax credits can be a gold mine. Here are some of the most common federal credits:
Basic personal. Each year, every taxpayer can earn a certain amount of income before paying any federal tax. This amount normally changes annually. The basic personal tax credit is calculated by multiplying the tax rate for the lowest tax bracket by the basic personal amount.
Spousal or common-law partner amount. If during the year you supported a spouse or common-law partner whose income was less than the basic personal amount, you may claim a tax credit. Both spouses can’t claim the credit for each other in the same year. The credit declines as the spouse’s income increases and is eliminated when income reaches a certain level. Special rules may apply if your status changed during the year.
Amount for an Eligible Dependent. This benefit is calculated in the same manner as the spousal credit for any time during the year that you were single, divorced or separated and supported a dependent who lived with you. But there are restrictions, including:
CPP and EI premiums. If you pay premiums for Canada Pension Plan and Employment Insurance, you can claim the credit on the amount paid. If you are self-employed and pay both the employee and employer CPP premiums, you can claim a credit for half the amount (the employee portion) and a deduction for the employer’s half.
Disability. The credit applies if a Canadian medical doctor certifies that you suffer from severe and prolonged mental or physical impairment. (See right-hand box) Other professionals may certify specific disabilities: An optometrist can certify sight impairment or an audiologist can certify a hearing disability.
Caregiver. You can trim your tax bill if you are 18 or older and care for an ailing, dependant relative, parent or grandparent including an in-law, who is at least 65 years of age. This credit isn’t available on behalf of an individual for whom the amount for an eligible dependant credit or infirm dependant credit has already been claimed.
Medical. You can claim a credit for any non-reimbursed medical expenses on your own behalf or for your spouse or common-law partner. You can also claim expenses for other dependants, but the total may have to be reduced by a portion of the dependant’s income.
Public transit. You can claim the cost transit passes of monthly and longer durations. You can also claim shorter-duration passes if each allows unlimited travel for at least five consecutive days and you purchased enough of these passes to cover 20 days in any 28-day period. You may claim electronic payment cards when they are used to make at least 32 one-way trips within 31 days. The credits may be claimed by either the taxpayer or the taxpayer’s spouse or common-law partner for transit costs incurred by themselves and their dependant children under the age of 19. Keep your passes and receipts so that you can substantiate your claim.
Adoption. You my claim a credit for adoption expenses up to a certain amount in the year the adoption is finalized. Eligible expenses include: fees paid to a federally or provincially licensed adoption agency; court, legal and administrative expenses; reasonable and necessary travel and living expenses of the child and the adoptive parents; document translation fees; mandatory fees paid to a foreign institution; expenses related to the immigration of the child, and other reasonable expenses required by a provincial or territorial government or an adoption agency. Quebec residents may claim a refundable tax credit for adoption expenses that equal half of the total eligible cost of adoption.
Tuition and textbooks. You may claim tuition fees exceeding $100 for post-secondary courses at a college or university or, if you are 16 years of age or older, for courses at approved institutions to improve your occupational skills. Keep an official income tax receipt in case the CRA asks for it, but it doesn’t have to be attached to your income tax return. The 2016 budget proposes to eliminate the federal education and textbook tax credits.
Interest on student loans. Federal, provincial and territorial non-refundable credits may be claimed on loan interest. The credits are calculated by multiplying the lowest tax rate by the amount of the interest. The exception is Quebec, which uses a fixed rate.
Only loans under the Canada Student Loans Act, The Canada Student Financial Assistance Act or similar provincial or territorial government law qualify for the credit. Interest on student loans from financial institutions don’t qualify. While only the student can claim the credit, the loan itself can be paid either by the student or a relative, such as a parent.
Unused interest amounts can be carried forward for five years, so if your taxes are zero in a particular year you can save the credit to use later.
Pension income amount. You may claim federal, provincial and territorial credits on certain pension income. The credit is non-refundable but any unused portion may be transferred to a spouse or common-law partner, although the unused amount may not be carried forward or back.
Donations. Generally you may claim as much as 75% of net income as donations except in the year of and the year preceding death. In those years 100% of net income can be claimed. These rules don’t apply to capital property.
If you are a first-time donor, however, you can claim an extra 25% non-refundable credit when you claim your charitable donation tax credit. This means that you can get a 40% credit for as much as $200 in cash donations and a 54% credit for the part of the cash donations that is over $200 but not more than $1,000. First time donors are individuals who haven’t claimed a donation credit after 2007.
If you aren’t a first-time donor, the tax credit for the first $200 in donations or gifts to an eligible charity is at the lower personal tax rate except in Quebec, which uses a fixed rate. The credit for the amount exceeding $200 is at the highest federal provincial or territorial tax rate except in Alberta, which applies a fixed rate.
If you and your spouse or common law partner have combined donations of more than $200, you may combine them and claim them on one tax return. Donations may be carried forward for up to five years.
Consult with your professional advisor for more details on these credits.