There are one-too many tax credits and deductions that we are responsible for knowing (and knowing what applies to us!) at tax time.
What is a tax credit, exactly?
A tax credit directly reduces the amount of tax you OWE, giving you a dollar for dollar reduction on your total tax liability.
There are two types. Refundable and non refundable.
Refundable - if the value of your tax credit goes beyond the amount of taxes you owe, you can get a refund.
Non-refundable - if the value of your tax credit reduces your income to below $0, you don't get a refund.
Some popular examples? Charitable donations, tuition, medical expenses, disability, first time homebuyers, pension income.
What is a tax deduction?
A deduction reduces your total income that is subject to income tax. It lowers (dollar for dollar) your taxable income from the top down.
The most popular tax deduction is the RRSP contribution.
For example: If you earn $100,000 and make an RRSP contribution of $20,000, an RRSP contribution is a tax deduction. Therefore, it immediately reduces your taxable income to $80,000 ($100,000 - $20,000).
Check out the handy reference chart of deductions and credits that may apply to you this tax season!