What is a Tax Credit?
When filing your tax return, you can claim any tax credits that you are eligible for. A tax credit is an amount that can be deducted from the amount of taxes owed. Contrary to deductions and exemptions, which reduce the amount of taxable income, tax credits act as reduction to the actual amount of taxes to be paid. The amount of credit depends on its nature, as various types of personal tax credits exist.
How Do Tax Credits Work?
Common government objectives stimulating tax credits are to support disadvantaged taxpayers or encourage a particular behaviour, such as utilizing energy-efficient appliances.
Tax credits are preferable to tax deductions or exemptions since they lower tax payables dollar for dollar. In contrast, a deduction will reduce the tax liability within the limits of the marginal tax rate. For example, if the marginal tax rate for the individual is 25%, then for every tax dollar deducted, they would save $0.25.
For more information regarding tax credits, you can contact SRJ professionals to speak with chartered professional accountants in Toronto that possess relevant expertise
Types of Tax Credits
Non-refundable tax credits
This only works towards reducing a payable, but seeing as it is non-refundable, it will only be applicable till a payable reaches $0. However, when you have an amount greater than the tax liability, resulting in a refund, non-refundable credits are no longer valid, regardless of whether you are eligible for credits. This is because these credits are not paid out to the taxpayer and in effect, are lost. Generally, most non-refundable tax credits are sufficient for the given tax year and cannot be carried forward or used in future years. As a result of this condition, low-income earners are negatively impacted as amounts of their non-refundable personal tax credits that are unused get lost rather than being used in upcoming tax years.
Refundable tax credits
This is most advantageous for taxpayers as the amount of the credit reduces your payable amount, and the excess amount is paid to you. Regardless of whether you have a tax liability or are entitled to a refund, the entire tax credit is utilized.
Personal Tax Credits 2023
It is increasingly important to understand some of the new personal tax credits available to us on our upcoming 2023 personal income tax returns so that you are well-prepared for the following tax season. SRJ professionals connect you with specialized accountants in Toronto that can provide accurate tax credit information. The following is a quick summary of some of the newly introduced personal tax credits that you may qualify for this year:
- Canada Training Credit Limit – In 2020, the Canadian federal government introduced the Canada Training Benefit to help with labour force disruptions due to technological changes. This refundable tax credit provides financial coverage for tuition and training costs and breaks down the barrier to professional development. Being a part of the labour force, you would be able to receive a tax credit of up to $250 annually, up to a lifetime limit of $5,000, which can be used for eligible purposes. Based on the information within your return, the Canada Revenue Agency will calculate your Canada Training Credit Limit for the 2023 tax year and list it on your 2022 Notice of assessment, accessible from your CRA account. You can still receive this amount.
The criteria to be eligible for this tax credit are as follows:
- A personal income tax return should be filed for the stated year;
- At the end of the tax year, fall between the age of 25 and 65 years old;
- During the year, you must be a Canadian resident; and
- Have earnings anywhere between $10,000 up to a maximum $150,000 that are eligible during the year
- Canada Workers Benefit – Previously known as the Working Income Tax Benefit, the Canada Workers Benefit is a refundable tax credit available to low-income earning individuals and families. For single workers, $1,428 and for families, the CWB provides $2,461 for the year 2023 provided through existing tax payments.
- Climate Action Incentive Payment – The Climate Action Incentive Payment is a refundable tax credit used to reduce tax liabilities and create or increase a refund. Eligible residents of Alberta can claim the Climate Action Incentive Credit. For British Columbia, residents are eligible to receive $521.50 for each individual. Since October 2022, there has been an addition of $164 to the overall tax payment. Furthermore, residents of Ontario, Manitoba and Saskatchewan remain eligible for this refundable tax credit that is per adult $488, $528, and $680, respectively, for the months of April 2023, July 2023, October 2023 and January 2024. Amounts for second adults, each child and a family of four, are varied and provided on the website.
- Canada Pension Plan (CPP) Enhancement – Beginning January 1, 2019, Canadians have started contributing more to the CPP. A deduction can be claimed to enhance contribution to the CPP. The annual contribution rates will increase gradually over the next seven years. The adjustment to the CPP was made to help improve the retirement benefits and income for Canadians who work.
Maximum pensionable earnings will rise in 2020 to $58,700 from $57,400 in the previous year. Additionally, employer and employee contributions rates have risen to $5.70% in the year 2022. This means that the CPP amount will increase to $66,600 in 2023 compared to $64,900 in 2022.
- Claiming Cannabis as a Medical Expense – The Income Tax Act will be adjusted to include the cannabis industry, as cannabis has recently become legal in Canada. Currently, for cannabis products bought after October 16, 2018, a medical expense personal income tax credit can be claimed. As of 2021, you can claim $2,421 as medical expenses related to cannabis use (it can either be 3% of your net income). To be eligible to claim the deduction, the patient must:
- Be a recipient of a medical document as described in the Cannabis Regulations;
- Be enlisted as a client of the recipient of a sales license; and
- Have the products bought from a holder of a sales license they are registered with.
How to Apply for Tax Credits and Benefits
You must file a tax return for the given tax year to claim any tax credits or benefits. We can help you prepare your Canadian tax return and maximize your refund. SRJ Chartered Professional Accountants is a Toronto and Mississauga based chartered professional accounting firm specializing in tax consulting for and advisory for individuals and businesses. If you have any questions or want to connect with chartered accountants in Toronto at SRJ Chartered Professional Accountants, please feel free to contact our offices at email@example.com or by phone at 647-725-2537.
Frequenty Asked Questions
What is the TD1 amount for 2022?
For 2022, the Canadian Basic Personal Amount is $14,398. This amount will be listed at the top of the TD1ON form of your tax return.
What is a personal tax credit return?
A personal tax credit return, also known as the TD1 is a form utilized to calculate the tax amount that can be deducted from an individual’s employment income and other income. After being filled out, the information in the form informs your employer about your situation, so they deduct the correct amounts from your paycheck.
How do I fill out a TD1 form for 2022 and 2023?
To complete the first portion, you would need the following information: your name, date of birth, address, and social insurance number. Following, you will need to fill out the boxes listed in the form with the appropriate amounts that can be claimed based on your circumstances. The same procedure will be followed to fill out TD1 forms for the year 2023.
The personal exemption, also known as the basic personal amount, is a non-refundable tax credit claimable by all individuals. This is aimed to provide a complete reduction in federal income tax to be paid for individuals with a taxable income below this amount. The personal tax exemption amount is 0 for both 2022 and 2023.
Can an individual claim medical cannabis on their tax returns?
Medical Cannabis does not come with a Drug Identification Number (DIN). It is also not covered by any public health plan; therefore, patients relying heavily on their medical plans must search for appropriate means to cover the costs of their specialized medication. Since Canada has legalized cannabis for medical purposes, therefore the government has allocated a specified amount that can be claimed on an individual’s yearly tax return.
Everyone is advised to first consult with their tax advisors regarding more information on tax returns on medical cannabis.
How can an individual claim medical cannabis expenses on their tax returns?
To claim cannabis for medical purposes, the patient must have a prescription, and the medicine must be purchased through a Licensed Producer. The receipts should be saved in the digitized format as evidence of the patient’s medical cannabis expenses which can later be compensated through their tax returns.
What Cannabis products can individuals avail of on their medical tax returns?
Individuals can claim medical items regarding cannabis flowers, seeds, ingestible oils, and other products that can be easily purchased from the local practitioner. Medical devices such as vaporizers, Volcano Medic, Volcano Medic 2, Mighty Medic etc., are all approved by Health Canada and hence can be compensated on the tax controls.
However, growing cannabis for medical purposes is another aspect, and return taxes cannot be claimed. These products contain light, containers, fertilizers, etc.
Is the government doubling the Goods and Services (GST) Tax Credit for 2022?
Yes! The Canadian Government has stated that starting from November 4, 2022, single Canadians without children will receive $234, and couples having two children can receive an additional $467 for an estimated 11 million low and modest-income families.
How do SRJ services help you in getting your tax returns?
No need to fret over your tax filings and miss out on significant updates regarding Canadian tax regulations. With SRJ services, you are kept updated with tax filing information, tax credit returns, important deadlines and how to file your taxes or let anyone of our SRJ Professional Chartered Accountants do so. With their help, you will be able to stay on top of your tax filings and be at ease while doing so.
Why should you find chartered Accountants in Toronto for taxation purposes?
Most accountants charge by the hour and can have varying rates depending on the amount of work they are in charge of, for instance, providing additional services such as bookkeeping. But living in one of the most cosmopolitan cities in the world, it is imperative to hire chartered accountants that can help your businesses stay afloat by taking care of all the taxation. Hiring accountants in Toronto can be a hugely beneficial aspect as they can provide you with peace of mind, improved business processes and privacy protection regarding your financial books.