When it comes to filing your taxes in Canada, there are many steps, documents, and information to remember. For instance, you need to declare all income you received for the year, save money to cover a potential tax bill, and keep track of all eligible expenses and deductions to maximize a potential refund.
Then, there’s having to keep up with the Canada Revenue Agency’s (CRA) changing tax rules in Canada. Luckily, there are many ways to increase your tax refund, like tax credits and deductions. But many Canadians may wonder, “What is the maximum tax refund you can get in Canada?” Read on to find out more.
Key Points
- If you’ve overpaid the CRA throughout the year, you’ll receive a tax refund when you file your income taxes.
- The amount of your tax refund depends on your income, deductions, and the taxes you’ve already paid.
- Several tax credits and deductions are available to boost your tax refund.
What Is An Income Tax Refund?
An income tax refund occurs when the CRA collects too much income tax from you throughout the year and then refunds the overpayment. A common way this occurs is if your employer deducts too much income tax from your paycheques. Or, tax credits or deductions may reduce the amount you owe and therefore increase your refund.
What Is The Maximum Tax Refund You Can Get In Canada?
There is no real “maximum” tax refund that you can get in Canada. Your refund depends on your income, deductions, and how much you’ve paid in taxes.
If you’re an employee, your employer will collect the tax you owe the government from every paycheque. This makes things easier at tax time since employed individuals will receive a T4 with all the information they need.
How To Calculate Your Tax Refund
Accountants and other tax professionals can calculate your tax refund for you. However, you can calculate it yourself with an online tax calculator, or by doing the math yourself. Remember, if your tax situation is complicated, it may take you a bit longer to calculate your refund.
A basic formula:
| Taxable Income = Total Income – Total DeductionsTotal Taxes Owed = Taxable Income X Tax rate bracket you fall underTotal Taxes Paid – Total Taxes Owed= Tax Refund* |
Note* This amount will vary based on other deductions and credits you may qualify for.
How Do Tax Refunds Work For Employees Vs. Self-Employed Canadians?
Both employees and those who are self-employed may be eligible for tax refunds, depending on their situation. But each case works slightly differently.
Tax Refunds For Employees
Employers deduct taxes from employee paycheques before payments are issued. When you file your income taxes as an employee, you’ll include details about your earnings, credits, and deductions to determine exactly how much income taxes you owe.
If it’s discovered that you overpaid, then the CRA will issue you a tax refund. If you’re underpaid (which is less common), you’ll need to pay what you owe by April 30.
Tax Refunds For Self-Employed
Unlike employees, self-employed individuals do not have income taxes automatically deducted from the income they generate. Instead, they usually have to pay via installments throughout the year. If you work for yourself, you should estimate how much you’ll owe in income taxes based on what you earn. At year-end, you’ll add up your income and submit the amount to the CRA.
Unless you’ve been making regular income tax installment payments to the CRA throughout the tax year, you’ll likely not get a tax refund and instead will have to pay the CRA. However, if you overpaid through these installments, you could be entitled to a refund.
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Get StartedCan You Get A Tax Refund If You Didn’t Earn An Income?
Even if you did not earn an income, you should still file your income taxes. Several benefits and credits are available to eligible Canadians.
If you qualify for any of these benefits or credits, you can claim them when you file your taxes and potentially get money back once your tax return has been processed.
What If You Didn’t Receive Your Tax Refund?
If you didn’t receive a tax refund from the CRA, it may be due to one of the following scenarios:
- Your refund amount is less than $2
- You owe the government money (for instance, you have property taxes owing)
- You owe child support payments
If these situations don’t apply to you and you have not received your eligible tax refund after eight weeks, there could be an issue that you’ll need to speak with the CRA about. In this case, you’ll need to contact the CRA to find out what the problem is.
How To Maximize Your Tax Refund
There are many ways to increase the amount of money you receive on your yearly tax refund.
1. Contribute To Your RRSP
Registered Retirement Savings Plans, or RRSPs, are a great way to maximize your tax refund. Used primarily to save for retirement, RRSPs also provide tax relief since you’re able to deduct your contributions from your taxable income.
The limit for RRSP contributions is 18% of your earned income or the maximum contribution limit of $31,560 (for 2024), whichever is lower. If you have a low income or a pension plan, however, a Tax-Free Savings Account (TFSA) might be a better fit for you than an RRSP.
2. Contribute To Your FHSA
The First-Home Savings Account is a tax-sheltered account that you can use to help maximize your tax refund. It provides the same tax benefits as an RRSP and a TFSA. Meaning, that the money you contribute to the account not only reduces your taxable income, but any money withdrawn (including the interest earned on the amount) cannot be taxed if used for a qualifying home purchase. The annual contribution limit for a FHSA is $8,000, with a lifetime total of $40,000.
3. Apply For The Canada Workers Benefit
The Canada Workers Benefit is a refundable tax credit for Canadians with low income. The CWB has two components – a basic amount, and a disability supplement.
To be eligible, you must be 19 years of age or older. If younger than 19, you must live with your spouse, common-law partner or child, be a resident of Canada, and earn a working income.
The maximum credit amount is $1,428 for single individuals with a net income below $33,015 and $2,461 for families with a net income below $43,212.
4. Deduct Childcare Expenses
If you have children, you can claim the following expenses for each child under 18 years old, up to a maximum of $5,000, $8,000 or $11,000 (based on circumstances):
- Child care services from caregivers
- Daycare services
- Childcare services from educational institutions
- Day camps and Day sports schools
- Boarding schools, overnight camps
5. Deduct Home Office Expenses
If you work from home, you can claim expenses for your home office, such as internet bills, stationery, computers, and more.
Note: In 2020, 2021, and 2022 the CRA changed the rules for deducting home office expenses. More specifically, the temporary flat rate method is no longer applicable to the 2023 tax year and beyond. To deduct home office expenses, you can continue using the detailed method.
6. Deduct Moving Expenses
You can deduct moving expenses if you meet the following criteria:
- You moved to work, run a business, or attend university, college or another educational institution
- You moved at least 40 KM closer to your new job or school
Eligible, deductible moving expenses include vehicle expenses, accommodation, costs for utility hookups and disconnection, and title transfer costs.
7. Apply For Province-Specific Tax Credits
There are many province-specific tax credits available, depending on the province in which you reside. For example, Ontario offers tax deductions for adoption expenses and apprenticeship training, as well as credits for property tax and energy costs, depending on your income.
8. Claim Capital Loss
If you’ve lost money on investments in the stock market, make sure you record your capital loss. Your capital losses can be used to lower your taxes owed on your potential future capital gains or your capital gains from the preceding 3 years.
9. Claim The Disability Tax Credit
Canadians living with a disability can claim the Disability Tax Credit (DTC) to help reduce any income tax they may owe the government. This tax credit is meant to support those living with a disability or anyone who cares for them. Canadians with eligible disabilities can claim up to $9,428 per year, or up to $14,928 per year if they also have children with disabilities.
10. Claim The Caregiver Amount
If you’re a senior over the age of 65 who makes less than $98,309, you can claim up to $8,396 per year. This is a tax credit. If you do not need the credit, you can transfer it to your spouse.
What Is A Tax Credit In Canada?
There are two categories of tax credits that you can get in Canada:
Non-Refundable Tax Credits
These tax credits are applied directly to the amount of taxes you owe and can only be used to reduce your total taxes due to zero. As such, these credits are only beneficial to people who owe money. For example, if you owe $300 in taxes and receive a non-refundable tax credit of $100, you now only owe $200.
Refundable Tax Credits
These tax credits will give you a credit regardless of whether or not you owe taxes this year. These tax credits reduce your taxes owing. If the credit amount is higher than the income taxes you owe, you’ll get the difference in the form of a tax refund.
One example of a refundable tax credit is the GST/HST credit. This credit involves 4 quarterly non-taxable payments paid to low- to moderate-income Canadians.
What Is A Tax Deduction In Canada?
In Canada, a tax deduction serves to lower your total taxable income. Essentially, each tax deduction you qualify for reduces the amount of your income that is subject to tax. Common tax deductions in Canada are RRSP/FHSA contributions, CPP contributions, childcare expenses, employment insurance premiums, etc.
Final Thoughts
Tax time can be stressful for many Canadians. With so many records and information to keep track of, it can be intimidating. However, by following the steps above and being more aware of eligible expenses, you can look forward to a generous tax refund each year.
