Canada Revenue Agency: 3 Essential Tax Breaks Canadians Shouldn’t Overlook

Do you ever wish that you didn’t have to pay so much tax?

In a way, it’s a silly question. Almost everybody would like to have more take-home income. Despite this, relatively few people actually take the time to lower their tax bills.

They should! Most people incur several expenses in the run of a year that can be claimed as deductions or credits. These work to lower taxes payable. In this article, I will explore three tax breaks that you might be able to claim in 2024.

Tuition fees

Tuition fees create tax-creditable expenses you can claim when you file taxes. The credit for tuition fees is 15% of the amount spent on tuition. So, for example, if you spent $10,000 on tuition in a given year, you can shave $1,500 off your tax bill.

There are some nuances pertaining to eligibility for the tuition tax credit:

• You need to be 16 or older to claim the credit.
• You have to attend an “eligible” post-secondary institution to claim the credit.
• You or your parents can claim the credit, but not both of you.
• You can claim tuition fees for certification courses if the courses are required to obtain a professional designation in Canada.
• You can’t claim travel, lodging or grocery expenses related to your education.

Basically, anybody attending a Canadian post-secondary institution can claim the tuition tax credit unless somebody else pays for their schooling. Interest on student loans is tax deductible, so don’t forget that tax break, either.

Disability tax credit

Next up, we have the disability tax credit. This is a tax credit you can claim if you are disabled or supporting a disabled family member. You can claim amounts pertaining to your/your loved one’s disability—for example, medication, home upgrades (e.g., ramps for people in wheelchairs), etc. There is theoretically no maximum amount that can be claimed for this credit; however, if the credit reduces your taxes to zero, the Canada Revenue Agency will not allow you to claim any more expenses beyond that point.

Dividend tax credit

Last but not least, we have the dividend tax credit. This is a non-refundable credit that removes some of the taxes you would otherwise pay on dividend income. The credit is 15% of a “grossed up” amount (more on that in a minute), plus a provincial credit. It can go a long way toward helping you build wealth.

Let’s imagine that you held $100,000 worth of First National Financial (TSX: FN) stock in a taxable account in Ontario. FN is a dividend stock yielding 6.57%. That means that you get $6,570 in annual dividend income from it if the yield doesn’t change.

How much tax would you pay on those dividends from First National Financial stock?

First, we have to gross up the dividends. To “gross up” means to account for the fact that the dividends have already been taxed. Since FN is a Canadian stock paying eligible dividends, the gross-up is 38%. So, for tax purposes, your $6,570 in dividend income becomes $9,066.

Second, you calculate your pre-credit tax by multiplying your marginal tax rate by the dividend amount. If your tax rate were 33%, your pre-credit tax would be $3,022.

Third, you calculate the 15% Federal Credit on $9,022 ($1,353) and subtract it from your pre-credit tax. This takes you to $1,669.

Finally, you remove $902 for Ontario’s 10% provincial dividend tax credit, leaving you owing $762. So, your ultimate tax is 74.6% lower than what you’d have paid without the dividend tax credits! Now, that’s a credit you don’t want to miss.