When talking about taxes, you’ve probably heard people throw around terms like:
- Refundable tax credit
- Non-refundable tax credit
Refundable tax credits and benefits are like gift cards
They are real cash that the government gives you. The value of the gift card will first be used to reduce or eliminate any tax you owe. It will then be used for you to save for retirement in CPP and in case of unemployment in EI.
Non-refundable tax credits and deductions are like coupons
A discount coupon gives you a percentage off a purchase, like 20% off a $10 laundry detergent. We know that this has a value of $2, but you can only use those $2 to reduce the cost of laundry detergent.
Deductions are like coupons too
A deduction is like a variable coupon worth more to people who pay more taxes, less for those who pay less and worthless to those who don’t pay taxes.
Non-refundable tax credits and deductions are like discount coupons issued by the government. They can only be used to reduce, or eliminate, the cost of taxes.
What refunds, credits and deductions can I get?
There are dozens of different federal and provincial credits and benefits that you can only get if you file your taxes. The credits and benefits you receive depend on factors like your age, the number of dependants you have, if you have a disability and how much money you made.