Tax Credit and Tax Deduction

What Is The Difference Between A Tax Credit and A Tax Deduction?

First Published: November 5, 2009

Tax Deduction

A tax deduction is an amount of money which lowers your taxable income.

Tax deductions reduce taxable income.

Tax deductions may make your taxable income zero by exceeding your employment income.

Tax deductions reduce more taxes for those who are in higher tax brackets than for lower tax brackets.

If you live in Ontario and in the highest federal tax bracket (29%), your federal and provincial combined marginal tax rate is 46.41% – as of 2009. If you have $100 tax deduction = you will save $46.41 in tax. If you are in a lower bracket, you will receive less savings.

Tax deduction examples: RRSPs, Childcare expenses, Capital losses, Moving expenses.

Tax Credit (Non-Refundable)

A tax credit is a dollar for dollar deduction which is subtracted from the amount of tax you pay.

Tax credits lower taxes payable at the lowest tax rate

Tax credits may not make your taxable income zero because it only reduces taxes payable at the lowest tax rate.

Tax credits are fixed amounts, so they reduce same monetary value to all taxpayers – if you have enough taxable income to make the deduction.

Tax credits are calculated based on the lowest federal and provincial tax rates. For 2009, lowest federal and provincial rates are 15% and 6.05% (Ontario). Therefore, if you have $100 tax credit, you will save $15 + $6.05 = Total $21.05 – regardless of tax bracket.

Tax credit examples: Medical expenses, Eligible dependent, public transit credit, Caregiver amount, Tuition and education amount, Charitable donations.

Tax Deduction or Tax Credit – which one is better? The answer can be a tricky one and it may not as simple as it looks. In general, tax deduction seems to favour the higher income group, but I would suggest you to consult a tax professional. For more Info,
please visit – Canada Revenue Website.

How To Use Canada Revenue Agency Website

Canada Revenue Agency Website

First Published: Nov 9, 2009

Canada Revenue Agency (CRA) Website provides tax related information, publications, guides, forms, and other services that educate general public and promote compliance with Canada’s Tax system. CRA website has a vast amount of information, and it can be overwhelming. Here is a video clip showing how to easily navigate throughout CRA website and find tax information you need quickly and efficiently.

Here Is An Example of Tax Refund Scam Text

Income Tax Return Scam

Hard-working Canadians are now rushing to file their tax returns. Also, scammers are working hard to scam more people and extract more money in unique ways. A common form of scam this time of year takes the form of a phone, text, or email scam asking people to pay owed taxes or collect a tax refund.

Today I have the opportunity to present a screenshot of a real scam text that was received via phone. Scammers send this type of text or email asking to collect or pay money to the CRA or tax agency. These texts or emails look so real that some people actually fall for it and lose money. Basically, if you follow the instructions on these texts or emails your banking information will be exposed to the con artists and they will be able to empty out your bank accounts.

Government tax agencies like CRA or others do not send texts, emails, or call asking for money. Their method of communication is postal mail or notifying your accountants (if you chose that option). The other ways you can check your tax balances is by logging onto the government tax website or calling the tax agencies directly.

Vigilance and common sense are your best defence. If you believe you have been a victim of a scam, contact your local police authority or central anti-fraud authority such as The Canadian Anti-Fraud Centre (CAFC).