Paying taxes might be somewhat stressful when you’re already on the lower end of the income spectrum. But you can minimize the amount you pay and get a decent return by taking advantage of various tax credits and deductions.
Key Points You Should Know About Low-Income Tax Credits In Canada
- Whether you have low or no income, filing a tax return is important as it ensures your eligibility for future tax credits and benefits.
- The Canada Workers Benefit, the GST/HST tax credit, and the Basic Personal Amount are just a few of the tax credits and deductions you can claim as a low-income earner.
- Depending on the province you live in, you may find additional tax credits and benefits you can claim.
Low-Income Tax Credits You Can Claim In Canada
Here are a few low-income tax credits you can claim to make the most of your low income when tax season rolls around.
1. Look Into The Canada Workers Benefit (CWB)
Formerly known as the Working Income Tax Benefit (WITB), the Canada Workers Benefit (CWB) is a refundable tax credit for Canadians with a low income. Individuals making up to $33,015 and families with incomes up to $43,212 are eligible for the tax credit for all of Canada excluding Alberta, Quebec, and Nunavut.
Those who qualify can receive up to $1,428 as an individual and up to $2,461 for families. This tax credit is offered by the Canadian Government to financially support people with low incomes and motivate them to remain in the workforce.
2. Consider Claiming A Tax Credit In The Future, Instead Of Now
Other types of tax credits are better saved for the future if you are currently earning a low income, or you are at a zero-payable position when it comes to your taxes. Referred to as “carry-forward,” these credits can be used for expenses such as tuition and books, charitable donations, and moving costs.
It’s better to record these expenses when they’ve occurred, but only claim them on your taxes in future when you’re earning a higher income. Some of these expenses, such as those for tuition and books, can be kept on record for years and then used when you start earning more and fall into a higher income tax bracket.
3. Look Into The GST/HST Tax Credit
The GST/HST tax credit is another tax-free benefit offered by the CRA, which applies to individuals and families with low incomes. Individuals and families do not need to apply for this credit. Instead, when you file your income tax return, the CRA will determine whether or not you are eligible, and pay the credit in quarterly installments every three months, four times per year.
GST/HST tax credit payment amounts are as follows:
| $496 | For eligible adults over the age of 19 |
| $171 | For each child that’s under the age of 19 |
| $650 | For those who are married or are in a common-law relationship |
4. Let Your Spouse Claim Your Tax Credits
When your spouse or common-law partner is earning a larger income than you, it’s a good idea to look into assigning them some of your tax credits. These credits include, but are not limited to:
- Caregiver credits
- Medical expenses
- Charitable donations
- Public transit
- Tuition
While both spouses/partners can file for these types of credits, it’s more beneficial for the spouse with the highest income to claim them.
5. Always File A Return, And Claim Everything Possible
Even if you’re earning little to no income, the best thing you can do during tax season is to always file a tax return. When you file your income taxes, you’ll be automatically evaluated by the CRA to determine whether or not you’ll be eligible for certain tax credits such as the GST/HST tax credit, the Canada Child Benefit, or any other kind of federal or provincial tax benefit.
| Tax Considerations For Parents | Learn More |
| Tax Considerations For Seniors | Learn More |
| Other Government Benefits | Learn More |
6. Make Use Of RRSPs And TFSAs
A great strategy to consider when it comes to reducing your taxable amount is to make use of tax-deferred accounts, like RRSPs, TFSAs, and FHSAs.
- Registered Retirement Savings Plan (RRSP). Contributions made to your RRSP account will lower your taxable income and therefore reduce the amount of taxes you have to pay. You can contribute up to 18% of your earned income in the previous year up to the annual limit (which will be $31,560 for 2024). Meanwhile, the money you have in your account will continue to grow tax-free until you withdraw it.
- Tax-Free Savings Account (TFSA). Contributions to your TFSA are made using after-tax money. You won’t be taxed on this money when you withdraw it from your account, while the deposits continue to grow tax-free. The annual contribution limit for TFSAs in 2024 will be $7,000.
- First Home Savings Account (FHSA). Like an RRSP, contributions to FHSA will lower your taxable income. If invested, these contributions can grow tax-free, whether from capital gains, dividends, or interest. Withdrawing from a FHSA for an eligible first home purchase is also tax-free. The annual contribution limit is $8,000, with a lifetime maximum of $40,000.
Keep in mind that these accounts might make less sense in certain income situations. For instance, if you earn a considerably low income, then contributing to an RRSP in an effort to reduce your taxable income might not have much of an impact. Generally speaking, those who earn a higher income benefit more from RRSP contributions in terms of tax benefits.
7. Look Into Refundable Provincial Credits
Aside from federal tax credits available, there are also some provincial tax credits available that are worth considering, depending on where you live. Here are a couple of examples:
Ontario Trillium Benefit (OTB)
The Ontario Trillium Benefit provides a monthly tax-free payment to eligible residents of Ontario. The benefit is meant to help low- to moderate-income households cover the cost of energy bills and certain taxes. Recipients of the OTB can receive anywhere from $172 to $265, depending on income and family status.
Quebec Solidarity Tax Credit
Quebec residents may qualify for the Solidarity Tax Credit (STC), which provides a credit of up to $800 or more. There are 3 components to the credit, one for housing, one for Quebec sales tax and one for individuals living in northern villages. The amount you receive will vary based on which components you qualify for. You’ll automatically be paid this credit if you qualify.
8. Claim The Basic Personal Amount
A basic personal amount is a non-refundable tax credit provided by both federal and provincial governments that you can claim on your income tax returns. This credit can help you reduce the taxes you owe.
The federal amount of the credit is currently $15,000. The provincial amount varies. For instance, in Ontario, the basic personal amount is currently $12,399, and in Quebec, it’s $18,056.
9. Take Advantage Of Pension Income Splitting
If you’re of retirement age and received qualifying pension income during the tax year, you may be eligible for pension splitting. This strategy involves transferring part of your eligible pension income to your partner (spouse or common-law).
The idea is for the partner in the higher income bracket to transfer the pension income to the partner in the lower income bracket. By doing so, you can reduce the overall amount of taxes that both you and your partner owe.
10. Find A Tax Credit Applicable To Your Life Situation
Maybe you’re a student, a senior, or a person with a disability. If you fall under a specific category and are struggling with a low income, you may qualify for any number of tax credits. Here are a few to consider, along with the maximum credit you may receive:
- Medical Expense Tax Credit — Receive up to $2,635
- Home Accessibility Tax Credit — Receive up to $3,000
- Disability Tax Credit — Receive up to $9,428
- First-Time Home Buyers’ Tax Credit — Receive up to $1,500
How Do You Find Which Tax Benefits You’re Eligible For?
The Canada.ca website provides a list of available tax credits, along with the eligibility requirements needed to qualify for each.
You can also use the Canadian government’s Benefits Finder to help you navigate all the available tax credits.
If you’re using tax software to file your taxes, you can use it to find the tax credits available to you based on your profile.
Bottom Line
If you’re earning a low income, don’t worry. There are ways that you can make the most of your return, as long as you file your income taxes properly and on time. Filing your taxes early will also give you ample time to figure out what you can and can’t claim, pay what you owe, and relieve as much tax stress as possible.
