What is the difference between a non-refundable and refundable tax credit?

There are a few major differences between non-refundable tax credits and refundable tax credits in Canada. While any tax credits are surely something positive for any individual or busienss, check out this post to learn about refundable ones which can actually be considered as payments!

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Non-Refundable Tax Credits

A tax credit that cannot reduce the amount of tax¬† that a person or business owes to less than zero. If a tax credit were able to reduce the amount of tax that someone owes to less than zero, then the taxpayer would be entitled to a tax refund payment from the government. For example if your taxable income was $1,000 and you had a non-refundable tax deduction that was worth $1500, you would really only be utilizing $1000 of the deduction as you can’t go lower than zero.

Refundable Tax Credits

A refundable tax credit is one that is not limited by the amount by an individual or businesses’ tax liability. Normally, a tax credit will only reduce an individual’s tax liability to zero. A refundable tax credit goes beyond zero and for all intensive purposes, can be considered the same as a payment. For example, if your taxable income was $1,000 and you had a refundable tax deduction of $1500, you would be receiving a check from the government for $500.

In Canada, there are multiple refundable tax credits, mostly in the realms of science and exploration, mining, film and multimedia. For more information, you can click here for financing refundable tax credits as well as more info about the different types of refundable tax credits out there.

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One Response to What is the difference between a non-refundable and refundable tax credit?

  1. That’s surprisingly simple. I thought it would be far more involved than that. I tend to get lost in the fine print of all of these tax and government terms so it’s refreshing to see a simple explanation for something. I don’t think I’d ever owe zero for taxes, but I sure would love a refundable tax credit that would give me money back!

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