This is an excerpt of select chapters from 78 Tax Tips for Canadians for Dummies, written by Christie Henderson, Brian Quinlan and Suzanne Schultz.
Tip #49 Know What Tax Credits Are Available for You and Your Family
Basic personal credit amount
Each and every Canadian filing a tax return is able to claim this credit. The amount changes every year, but it is in excess of $10,000. In other words, the first $10,000 or so of income you earn is not subject to tax! Here’s how this actually works. Assume your taxable income is $10,000. The tax rate at this income level is 15 per cent, so your tax equals $1,500. On schedule 1 you calculate the non-refundable tax credits available to you. If the basic personal amount is $10,000 (and it’s likely more), the 15 per cent tax credit equals $1,500. See a pattern? The tax credit completely offsets the tax, so your final tax liability is nil.
Spouse/common-law partner credit amount
The spouse/common-law credit amount is another credit worth at least $10,000. Again, the amount changes every year. Assuming the credit is $10,000 and you’re able to claim the full amount, the federal tax savings will be $1,500 ($10,000 times15 per cent).
How do you qualify? Well, first you have to have a spouse. For income tax purposes, “spouse” includes the person you’re legally married to or a person who is your common-law partner. (Of course, if you happen to have both, you can make a claim for only one these “spouses”!) Common-law partners are defined as two persons, regardless of sex, who cohabit in a conjugal relationship that has been continuous for at least 12 months or, if fewer than 12 months, have a child, natural or adopted, together.
As you might have guessed, more qualifications exist. If your spouse had any net income for the year, the credit amount is reduced dollar for dollar. If your spouse’s income is greater than the credit amount, the amount available to you is reduced to zero. Your spouse’s net income is the amount reported on line 236 of his or her tax return.
If you separated during the year and were not back together by December 31, reduce the credit amount by your spouse’s net income before the separation only.
Tip If you cannot claim the spousal amount (say, because the credit amount calculation works out to zero), or you have to reduce the credit claimed because of your spouse’s net income, you still may be able to claim the credit, or an increased credit amount, if your spouse’s income for the year includes dividend income from Canadian corporations. You do this by claiming your spouse’s dividend income on your return so that his or her income is lowered to permit the credit amount you claim – or, perhaps, a greater credit amount than originally calculated.
Child tax credit amount
If you have a child, then this credit is for you! The child tax credit amount is at least $2,000 for each child under the age of 18 at the end of the year. No receipts required! The credit amount changes each year, but assuming a credit of $2,000 the actual federal tax saving is $300 per child ($2,000 times 15 per cent)!
Remember If you don’t need all the child tax credit to reduce your federal tax to zero, you can transfer any of the unused portion to your spouse or common-law partner.
