40 What is the difference between a refundable and non-refundable tax credit? Describe the tax implications of some of the more common tax credits.

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Refundable Tax Credits: Refundable credits can reduce your tax liability to zero and still result in a refund if the credit amount exceeds your taxes owing. Examples include:

  • GST/HST Credit: Provides payments to low- and modest-income individuals and families to offset all or part of the GST or HST they pay. This credit continues to be available, with amounts indexed annually.
  • Canada Workers Benefit (CWB): This is a refundable tax credit for low-income individuals and families who are working. It includes an additional disability supplement for eligible individuals.

Non-Refundable Tax Credits: These credits reduce the amount of tax payable but do not provide a refund if the credit exceeds the taxes owed. Common examples, discussed earlier in the textbook, include: The Basic Personal Amount (BPA), the Canada Employment Credit, EI and CPP etc.

By distinguishing between refundable and non-refundable credits, taxpayers can better understand their overall tax obligations and optimize the benefits they receive from these credits.

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October 2024

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