Updated: Jan 21, 2022
Non-refundable tax credits are an important component to the calculation of income taxes payable. Income taxes payable is first calculated based on the taxable income reported on the return less any tax deductions. Once the taxes payable has been calculated, non-refundable tax credits are applied to reduce this balance. If the amount of the credits exceeds the balance of taxes payable, the excess amount will not be refunded to the taxpayer.
There are many common non-refundable tax credits available to Canadian resident taxpayers. The credits discussed below are federal credits. Unless otherwise noted below, the federal credit is calculated as 15% of the amount and can not be carried forward to future years. There are many corresponding provincial or territorial credits available, or additional credits that are not available at the federal level. I would be happy to advise on these separately.
Basic personal amount (BPA)
The BPA is available to all taxpayers. The federal BPA is $13,808 for 2021. This includes the regular BPA of $12,421 and the additional BPA of $1,387. The additional BPA is gradually clawed back for taxpayers with a net income greater than $151,978 and is eliminated when taxable income reaches $216,511.
As mentioned above, 15% of the BPA is available to claim as a non-refundable tax credit. As 15% is the lowest federal tax rate, the BPA shelters the first $12,421 to $13,808 of taxable income from federal tax.
The age amount is available to taxpayers who are 65 years of age or older at the end of the taxation year.
The federal age amount is a maximum of $7,713 for 2021. This amount is clawed back by 15% of net income in excess of $38,893 and is eliminated if net income exceeds $90,313.
Spouse or common-law partner amount
The spouse or common-law partner amount is available to taxpayers who supported their spouse or common-law partner at any point during the year and their taxable income was less than the taxpayer’s BPA (or the BPA plus $2,295 if they were dependent on the taxpayer because of an impairment in physical or mental functions as discussed in the caregiver amount below).
The maximum amount to claim is equivalent to the BPA. However, the amount is reduced by any taxable income reported by the spouse as they are required to utilize a portion of their BPA.
Amount for an eligible dependant
The amount for an eligible dependant is equivalent to the spouse of common-law partner amount. Only one of these credits can be claimed in each year.
This credit can be claimed for one dependant each year. This credit can be claimed for a dependant that you supported who lived with you during the year in a home you maintained. The credit can not be claimed if you have a spouse or common-law partner that you are living with, supporting or being supported by.
Dependants include the parents or grandparents of the taxpayer or their spouse or common-law partner. Dependants also include the children, grandchildren, brothers or sisters of the taxpayer or spouse or common-law partner who are under 18 years of age or have an impairment in physical or mental functions.
If you are eligible for the spouse or common-law partner amount or the amount for an eligible dependant, you may be eligible for the caregiver amount. For 2021, an additional $2,295 can be added to these amounts for eligible individuals.
The caregiver amount can be claimed in respect of a spouse or common-law partner, infirm children under age 18, and other infirm dependants age 18 or older.
The spouse or common-law partner amount and the amount for an eligible dependant must be claimed before the caregiver amount, and the amount claimed will reduce the caregiver amount.
Home Buyers’ Amount
The home buyers’ amount is available to taxpayers who purchased a qualifying home during the year. The maximum amount to claim is $5,000.
A qualifying home must be located in Canada. The taxpayer must intend to occupy the home as their principal residence within one year of the acquisition date.
The qualifying home must have been purchased by the taxpayer or their spouse or common-law partner. The credit is also intended to be claimed by first-time home buyers. Therefore, the taxpayer must not have lived in a home owned by them or their spouse or common-law partner in the year or any of the preceding four years.
Tuition paid to qualifying institutions can be claimed as a non-refundable tax credit. This includes tuition paid to a qualifying post-secondary education institution, certain fees paid for an individual 16 years of age or older to develop or improve skills in an occupation, or certain fees paid for examination fees for licensing or certification.
The qualifying institution should issue Form T2202—Tuition and Enrolment Certificate to verify the eligible tuition paid. Form TL11A is used for institutions outside Canada.
Up to $5,000 of the unused portion of the credit can be transferred to a parent, grandparent or spouse or common-law partner. Any unused portion remaining can be carried forward indefinitely.
Interest paid on student loans
Interest paid on loans provided under the Canada Student Loans Act , Canada Financial Assistance Act , Apprentice Loans Act , or similar provincial or territorial programs qualify for a tax credit. Interest paid to banks or other institutions will not qualify.
This credit can be carried forward for up to five years but can not be transferred to another individual.
Individuals with a physical or mental impairment are eligible for the disability amount up to $8,662 for 2021. Individuals under 18 years of age may be eligible for a supplement up to $5,053.
A medical practitioner must complete Form T2201 Disability Tax Credit Certificate. On this form, the practitioner certifies details of the impairment and the year the impairment began. This form must be submitted to CRA for approval prior to claiming the amount for any year.
The unused portion of the credit may be transferred to a supporting person.
Medical expenses can be claimed for the taxpayer, their spouse or common-law partner or other dependants. The medical expenses can be claimed for any 12 month period ending during the year (24 months for a deceased taxpayer).
Eligible medical expenses must exceed the lesser of $2,421 (for 2021) or 3% of net income.
Common examples of medical expenses include fees paid to medical professionals, prescriptions, aids and other assistive devices, vision care and cost of attendant care in certain facilities such as nursing homes or long-term care homes. This is not an exhaustive list and I would be happy to discuss with you further.
Donations and gifts
Donations made to registered charities or other qualified donees can be claimed up to a maximum of 75% of net income. An official donation tax receipt should be received to support the amount.
Donations up to $200 are eligible for a credit of 15% of the eligible donation amount. Donations in excess of $200 are eligible for an enhanced credit of 29% of the eligible donation amount.
Donations to charitable organizations in the United States may be claimed as well. Generally, these donations can be only be claimed if you report United States-source income on your tax return, up to 75% of this income.
Unclaimed donations can be carried forward for up to five years.
There are many other miscellaneous tax credits available, such as for Canada Pension Plan or Quebec Pension Plan contributions paid, Employment Insurance premiums paid, employment income (up to $1,257), eligible pension income (up to $2,000), adoption expenses, home accessibility expenses and digital news subscription expenses. Proper planning is required to optimize each of these credits.
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