Tax conversations with clients often circle around one question. How can they pay only what they need to, without leaving money on the table? One concept sits at the centre of that discussion: tax credits.
In this article, Wealth Professional Canada will explore how tax credits operate within the Canadian tax system. We'll also talk about how refundable and non-refundable credits differ and other valuable insights. Want to see the latest tax credit news? Scroll to the bottom of the article to find all the news articles we've published!
A tax credit is an amount that reduces income tax payable after it has been calculated. Here's how tax credits work: your clients start with total income, subtract deductions to reach taxable income, then apply tax rates. Once that tax is calculated, tax credits step in to bring the tax bill down.
This is different from a tax deduction. A deduction does not directly cut the tax bill. Instead, it lowers the income figure that is used to calculate tax in the first place. A tax credit acts later, right against the amount of tax that would otherwise be owing.
There are two kinds of tax credit in Canada. Both can reduce tax payable to zero. The difference is what happens if the credit is larger than the tax bill:
Non-refundable tax credits can reduce income tax payable to zero, but they cannot produce a refund on their own. Once tax has been brought down to zero, any remaining value in these credits is simply not used.
Some of the non-refundable credits your clients might encounter include:
Each of these has its own rules and thresholds, but they all share the non-refundable nature. They can bring tax payable down, often to zero, but they do not by themselves generate a refund.
Refundable tax credits go a step further. These credits also reduce income tax payable. However, if the total value of the credit is larger than the tax bill, your clients can receive the difference as a refund.
Common refundable tax credits in Canada include:
These credits are particularly important for lower-income households, many of whom have little or no tax payable after deductions and non-refundable credits. Refundable credits can still reach them in cash, often through quarterly or monthly payments.
Watch this video to learn more:
During tax season, knowing how to differentiate yourself from other financial advisors is vital. Be sure to show clients the unique value that you can bring.
When you're familiar with how refundable and non-refundable credits differ, you can ask better questions in your meetings with clients.
You can encourage good practices such as filing taxes consistently and highlight the importance of keeping records for expenses like tuition and medical costs. You can also flag life changes that might open the door to new credits.
In doing so, you help your clients make practical use of tax credits and deductions, combining them in a way that supports cash flow and long-term planning. Over time, this can strengthen their financial position and deepen the value you provide as their financial advisor.
Clients do not qualify for the same credits. Eligibility depends on personal details such as:
As a financial advisor, you can look at several areas of your clients' lives to identify where tax credit opportunities might exist.
Eligibility always comes down to the rules for each specific credit. Still, there are some shared themes across the Canadian system that you can use in conversations with your clients:
For most credits, filing a tax return is the starting point. Many clients believe they do not need to file if they have little or no income. This mindset can cost them refundable credits and benefits.
For instance, the GST/HST credit relies on information reported on the previous year's tax return. If your clients do not file, the Canada Revenue Agency (CRA) cannot assess their eligibility, and those payments will not arrive.
The same is true for the Canada Workers Benefit, which is claimed through the return. Even if your clients do not owe income tax, filing keeps them in the system for credits and benefits that support households across the year.
Beyond filing, your clients must meet specific conditions tied to each credit. A few examples help show how varied these rules can be:
In some cases, more than one person in a household might claim a tax credit or share it. Spouses can decide how to claim the Home Buyers' Amount, as long as the combined total does not exceed the allowed maximum. Family members can transfer certain credits, such as tuition or disability amounts, under CRA rules.
Many of your clients might not be inclined to read through tax guides or government directories on their own. They might use online tax software, which usually asks questions about their situation and flags possible credits.
Others would prefer to work with an accountant or tax expert who can review their profile and suggest credits based on their personal details. As a financial advisor, you can complement this by raising topics that your clients might not mention, such as:
For your clients, tax credits are almost always positive, but the effect depends on the type of credit and their broader tax position. Here are three benefits of tax credits:
Let's discuss each of these benefits further:
Non-refundable credits help reduce the amount of tax your clients owe. In many cases, a combination of non-refundable credits and deductions can bring their tax payable down to zero.
The Basic Personal Amount is one example. It is a non-refundable credit that every taxpayer can claim. Its purpose is to fully remove federal income tax for people with taxable income below that threshold and to partially reduce tax for those above it.
Other non-refundable credits like the Disability Tax Credit and Home Buyers' Amount can further cut into tax payable. Even if they do not create a refund, they leave more money in your clients' hands than they would have without those credits.
Refundable credits go beyond reducing tax payable. They can create or increase refunds and, in some cases, provide regular payments during the year.
Because these credits are refundable, your clients can still receive them even if their income tax payable is zero after deductions and non-refundable credits. This makes them especially essential for those with lower incomes or high deductions.
Tax credits are also designed to encourage certain behaviour and recognise particular needs. For instance, education-related credits support investment in post-secondary training. Disability and caregiver credits acknowledge added financial pressure on households affected by health challenges.
As for home buyer tax credits, they help first-time purchasers enter the housing market. When you understand this intent, you can discuss with your clients how current and future life choices might connect with available credits.
You can also help them see that tax planning is not only about reducing this year's bill. It's also about aligning their actions with long-term goals.
Aside from these tax credit benefits, here are other tax saving tips that you can share with your clients:
Top-performing financial advisors help clients spot potential tax credits and weave them into their plans, while still urging them to consult a qualified tax professional. Be sure to apply this to your practice to boost credibility and expand your network.
Your clients might qualify for several credits at once. Factors such as income level, residence, schooling, donations, and disabilities can all influence eligibility.
Some credits arrive automatically once a return is filed, such as the GST/HST credit. On the other hand, other tax credits must be claimed by entering specific amounts, such as tuition, medical expenses, or charitable donations.
Tax credits are a huge part of the Canadian tax system and an important area of knowledge for any wealth professional. They operate at the level of tax payable, working alongside deductions that first reduce taxable income.
By combining both, your clients can manage their tax burden more effectively and keep more of their resources working toward their goals. When you integrate tax credit strategies into regular reviews, you help ensure that clients aren't missing valuable opportunities that could enhance their financial plans.
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