Taxpayers often confuse the terms tax deduction and tax credit or think of the terms as being interchangeable. A tax deduction is not the same as a tax credit. Depending on the expense, it is considered either a tax deduction or a tax credit.
An expense that is tax deductible means that you can reduce your overall income by that amount. This means that you could end up in a lower tax bracket. The higher you are in your tax bracket means you’ll have to pay more tax.
An expense that is a tax credit can either be non-refundable or refundable.
A non-refundable tax credit will help decrease the amount of tax you owe. For example, charitable donations, digital news subscriptions.
A refundable tax credit can either reduce the amount of tax you owe or increase the amount of your refund. For example, GST/HST credit, Climate action incentive.
If you are in need of tax preparation assistance, contact us to learn how we can help.