What is a tax credit?

Several of the topics that follow refer to a tax credit. Although there’s a substantial difference between a tax credit and a tax deduction, it’s easy to get the two confused. A tax deduction reduces your taxable income, with the actual amount of tax saved depending on your personal marginal rate of tax.

A tax credit, on the other hand, is a deduction from tax owing. Provided the credit can be used, each taxpayer receives the same tax relief with a tax credit regardless of his or her particular tax bracket.

The provinces are free to either follow the federal tax credit system or introduce tax credits that are unique to the particular province. In many cases, the amount of the provincial credit will differ from its federal counterpart.

The tax credit sections that follow generally just comment on the federal tax credit. For 2015, federal personal tax credits are calculated as 15% of specified “personal amounts” and are allowed as a deduction in calculating your federal tax liability. Keep in mind that the provincial tax credits may or may not parallel the treatment provided at the federal level.

Basic personal credit

For 2016, everyone is entitled to claim a basic personal amount of $11,474.

The spouse or common-law partner credit

You may claim the spouse or common-law partner amount if, at any time in the year, you were married or had a common-law partner (see topic 100), and you were not living separately because of a breakdown of the relationship. For 2016, the spouse or common-law partner amount is also equal to $11,474. This amount is reduced on a dollar- for-dollar basis by the dependant’s net income.

The eligible dependant credit

If you were unmarried or separated from your spouse or common-law partner at any time in the year, you may be entitled to claim a personal tax credit known as the eligible dependant credit. To qualify, you must have maintained a home in which you and your qualifying dependant lived. As well, your dependant must be related to you and dependent on you for support. The dependant must be your parent, grandparent or child and must be either under 18 years of age at any time during 2016 or mentally or physically infirm. Two or more supporting relatives cannot split this tax credit. This credit is calculated the same way as the spouse or common-law partner credit. Therefore, the maximum claim for 2016 is $11,474.

Elimination of the credit for children under age 18

For 2014 and prior years, a credit could generally be claimed for each child under the age of 18 at the end of the taxation year.

Starting in 2015, this credit has been replaced with the enhanced Universal Child Care Benefit (see topic 98)

The infirm dependant credit

You may claim the infirm dependant tax credit for a relative who is 18 years of age or older before the end of the year, provided the individual is dependent on you because of mental or physical infirmity. In addition, the individual must be dependent on you for support at any time in the year. Unlike the credits above, it is not necessary that the dependant live in the same residence as you, nor does the disability have to be severe enough that the dependant qualifies for the disability tax credit (see topic 80).

For 2016, the infirm dependant amount is $6,788. This amount is reduced on a dollar-for-dollar basis by the dependant’s income in excess of $6,807.

The caregiver credit

Because of the above income threshold, most taxpayers who provide care to an elderly relative living with them cannot claim the eligible dependant credit because payments under the Old Age Security and Guaranteed Income Supplement programs are well in excess of the threshold. As a result, there’s another tax credit available if you reside with and provide in-home care for a parent or grandparent who is 65 years of age or older. The age restriction is removed if the relative is dependent on you by reason of mental or physical infirmity.

The maximum caregiver amount for 2016 is $4,667. However, in this case, the eligible credit amount does not start to be reduced until the dependant’s net income reaches $15,940. No credit will be available once the dependant’s net income exceeds $20,607. Also, the caregiver credit won’t be available if any person claims an eligible dependant or infirm dependant tax credit with respect to the dependant.

Family caregiver credit

To provide support to caregivers of dependants with a mental or physical infirmity, a family caregiver credit was introduced in 2012.

For 2016, if eligible, an additional $2,121 can be claimed for an infirm dependant under any of the following existing dependency-related credits: spousal, child, eligible dependant, caregiver or infirm dependant over 18. The amount for the infirm dependant credit (noted above) is already increased by the $2,121 enhancement since, by definition, the family caregiver amount would apply.

The age credit

Canadian taxpayers 65 or older are entitled to claim an age amount of $7,125 for 2016. It’s reduced at a rate of 15% where a taxpayer’s income exceeds a prescribed threshold, currently $35,927, and it’s fully eliminated once income exceeds $83,427.

Family tax cut

The family tax cut is a new non-refundable tax credit available for 2014 and later years if you have an eligible spouse or common-law partner and at least one child under 18 who ordinarily lives with you. Either spouse or common-law partner can claim this credit, but not both. There are other criteria that must be met to be eligible. For example, you cannot claim the family tax cut if you or your spouse or common-law partner elected to split eligible pension income for the year (see topic 71).

The credit (up to a maximum of $2,000 per year) is based on the net reduction of federal tax that would be realized if up to $50,000 of the taxpayer’s taxable income was transferred to a lower-income earning eligible spouse or common-law partner. For example, for 2015 you earn $140,000 and your spouse earns $10,000. You have two children under 18. If you split up to $50,000 of income (i.e. your notional income is $90,000 and your spouse’s notional income is $60,000), the maximum family tax cut of $2,000 is claimed, even though your notional combined federal taxes would be an estimated $5,000 less. $2,000 is the maximum amount that can be claimed.