May 19, 2023

Are you paying more tax than you need to?

By Brenda Spiering and Sun Life Staff

Are you claiming all the tax credits and deductions you can? If not, you may be paying more to the government than you need to.

Paying taxes is part of our responsibility as Canadians. But no one wants to pay more than they have to. Here’s how to help make sure you pay your fair share – and no more.

What you can deduct from your taxes

Start by looking at your income tax return. Lines 20600 to 48500 are where you report deductions from your income and tax credits. So, take some time to review this section carefully. You may find you can claim more than you thought.

For example, you have until March 1 to make registered retirement savings plan (RRSP) contributions for the previous year. The deadline can be a day or two later, if March 1 falls on a weekend. And making an RRSP contribution can often mean getting a refund come tax time.

The same is true of tax credits. Take some time to pull together all the receipts you need. You could see real savings.

What’s the difference between claiming a tax deduction and a tax credit?

There are two common ways to lower your tax bill: tax deductions and tax credits. What’s the difference?

What are tax deductions?

Tax deductions lower the tax you have to pay by reducing the annual income you report on your return. Tax deductions come straight off your annual earnings.

For example, if you earn a salary, your employer has probably deducted income tax all year from your paycheque. Employers do this based on your estimated annual income. But what if you contributed to an RRSP and so effectively reduced your income? Then you may have paid more tax than necessary. and you could get some of it back.

Just remember, says the My Money Coach blog, from the Credit Counselling Society: “Tax refund money is essentially an interest-free loan you give the government each year; your refund is getting your own money paid back to you.” Better to make regular RRSP contributions and get your employer to reduce your tax payments “at source.” That means taking less off your paycheque and leaving more in your pocket throughout the year. In 2020, more than 6.2 million Canadians saved tax by putting money into RRSPs, says Statistics Canada.

Also, while you get a tax break when you put money into an RRSP, you will pay tax when you take it out. This works well if you’re in a lower tax bracket by then – for example, if you’ve retired. But what if you expect to be in the same or even a higher tax bracket? Then, you may want to think about putting your money in a tax-free savings account instead. See TFSA or RRSP: When to use one over the other (infographic) to help you decide. 

What are tax credits?

There are two kinds of tax credits: non-refundable and refundable.

  • Non-refundable tax credits (such as donations and gifts) come straight off your tax bill. They reduce the amount of tax you owe – but only if you owe tax to begin with. If you don’t owe any tax, you don’t get the credit.
  • Refundable tax credits (such as the federal GST/HST credit and Canada child benefit) are government tax refunds. If you qualify for the credit, all you need to do is file a tax return. You don’t need to actually owe any tax. Were you thinking about not filing a return because your income was too low to be taxed? File it anyway, and get the refund. The government sends the money out automatically, often in a series of payments throughout the year. In January 2023, says Statistics Canada, 13.2 million lower-income Canadians received nearly $2 billion in quarterly GST/HST credits. That same month, 3.4 million families received $2.3 billion in Canada child benefits.

Find out more about non-refundable and refundable tax credits from Tax credits and benefits for individuals

More tax-time tips from Sun Life:

For more information on what you can deduct and where to report tax credits and deductions, visit the Canada Revenue Agency.

This article is meant to provide general information only. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.

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