Effective tax planning is a cornerstone of good financial management. To do so, you will want to take advantage of all the tax credits available to you. Here are 16 of the most common personal tax credits you cannot miss!
Hello, my dear readers! For those of you who have visited the “About Me” section of my blog, you know that I have been pursuing my CPA designation outside of my day job and blogging. Through my further education, I have learned a lot about taxes, including all the tax credits that I may not have been aware of before. Today, I’d like to share with you 16 common personal tax credits that you should take advantage of.
Note that because I am based in Canada, all personal tax credits mentioned in this post are specifically for Canadians. However, I am confident that many of these tax credits also have their equivalent counterparts in your home country. Therefore, no matter where you are, I still recommend that you read through this blog post!
1. Basic personal amount
The basic personal amount defines the maximum amount of income that can be earned without paying any tax. This is the amount that is available to all individuals regardless of age. For Canadians, this amount is around $13,000, and it changes every year.
2. Spousal or common-law partner amount/Equivalent to spouse amount
If your spouse/common-law partner earns significantly less than the basic personal amount above (e.g., a stay-at-home mom or dad), then this is the tax credit for you. If you are a single parent who has to financially support a dependent relative, then, instead of claiming the spousal amount, you can claim the equivalent-to-spouse amount, also known as the eligible dependent amount.
This amount is typically the same as basic personal amount mentioned above, around $13,000 a year, indexed to inflation.
3. Caregiver amount
If you are financially supporting an infirm relative, then you may be eligible for the caregiver amount. Note that there may be some overlap between this tax credit and the spousal/equivalent-to-spouse amount mentioned above, so, depending on your situation, you may not be able to claim both.
There are two types of caregiver amount currently available in Canada. One is called a caregiver credit, which is for infirm adult dependant relatives. The other one is called the family caregiver amount, which is for an infirm spouse, eligible dependent, or infirm child under the age of 18.
One nice thing about the caregiver amount is that you do not necessarily have to live with your infirm relative to be eligible.
4. Pension plan contributions/Employment insurance premiums
In Canada, it is mandatory to contribute to the Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) and pay for Employment Insurance premiums. The contribution amounts are subject to maximums, but you can claim a tax credit for all of your contributions.
5. Adoption expenses
Yes, you can claim a tax credit for expenses associated with adopting a child under the age of 18.
6. Medical expenses
Although you may not be able to claim small medical expenses (there is a threshold, which is around 3% of your net income), if you have any big expenses, the government is willing to support you financially, at least partially. The list of qualifying medical expenses is quite extensive, ranging from medical equipment to prescription drugs, practitioners’ fees, etc.
Note that you can claim medical expenses not just for yourself, but also your spouse, your children under the age of 18, and any eligible dependents.
7. Home buyers’ amount
If you are a first-time home buyer, you will want to take advantage of this tax credit.
8. Interest on student loans
If you are paying down your student loans, you can receive a tax credit that is equal to the amount of interest on the loans. Note that interest on private loans from financial institutions does not qualify.
9. Tuition amount
Tuition paid on any eligible educational program qualifies for this tax credit, as long as the tuition fee is greater than $100. CPA, for example, qualifies for it.
One nice feature about the tuition amount is that it may be transferred to a spouse, common-law partner, parent or grandparent, or carried forward by the student into the future. This helps reduce the overall tax bill of your family.
10. Disability amount
This tax credit is for individuals who have a disability. Note that the impairment must be certified by a medical professional. There is also a supplementary tax credit called “disability supplement for disabled children” for kids under the age of 18.
11. Donation tax credit
This is available for eligible donations to registered charities. Eligible donations include cash and non-cash donations. In the event of a non-cash donation, the fair value of the property is the basis for the tax credit.
Couples can pool their donations together and claim the credit on either one of the tax returns to optimize for tax savings.
12. Political contribution tax credit
If you have contributed to a registered political party, then you can claim a tax credit for your political contribution. The tax credit is subject to a maximum of $650 at the time of writing.
13. Dividend tax credit
Simply put, the dividend tax credit is used to prevent double taxation of dividends, first in the hands of the corporation, and then again in the hands of the individual. The math is a little bit complex, but you can usually use the forms provided by your financial institution directly to figure out how much you can claim.
14. GST/HST credit
This is a refundable tax credit for low-income families. The amount is a direct result of family size and family net income.
15. Refundable medical expense supplement
This tax credit is to help low-income individuals with their medical expenses. This is in addition to the medical expenses tax credit mentioned above. This supplement is negatively correlated with your income and is entirely eliminated once your income reaches around $30,000.
16. Canada Workers Benefit
This is a tax benefit that provides financial assistance to adults who are low-income but employed. You must earn a minimum amount of income in a year. The tax credit is eliminated once you reach an income threshold, around $13,000 for individuals, and $17,000 for families.
Note that this benefit does not apply to full-time students, regardless of the income level.
This is it! Hope you have learned something from the blog post that can be applied to your life. Note that the above list is not exhaustive, but it should cover the most common tax credits for those looking to minimize taxes. These tax credits are provided by the government, so make sure that you use as many as possible to lower your tax bill.
If you own a small business or have a side hustle, you will want to check out Tax Deductions for Small Businesses – A Must-Read for Entrepreneurs and my tax tips for bloggers to learn about how you can optimize your taxes. If you have any savings vehicles such as high-yield savings accounts and investments, then you will want to check out the taxation rules specific for these!