In the previous post Understand tax deduction, we learn how tax deductions save your tax. In this post, we will show you how tax credit reduces your tax by example.

Tax credit directly reduces tax liability and hence produces the same tax saving amount for all taxpayers, despite their income and marginal tax rates.

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

• Refundable tax credits will pay you a tax refund. The most common credits are: Working Income Tax Benefit (WITB), GST/HST credit and Ontario Trillium Benefit (OTB).
• Non-refundable tax credit reduce your tax payable. It can’t be used to get you a refund if you don’t need to pay tax. Howervr, you may be able transfer those unused amounts to your family members or carry them forward to future tax years. The most common tax credits are Child amount, Tuition amount, Disability amount and public transit amount.

Client information is the same as part 4.

John Smith, single, living in Ottawa, has 2 T4 tax slip and pay rental payment $8000 in 2014. He made $5000 Registered Retirement Saving Plan (RRSP) contribution, and paid $200 union due, which is not included in his T4.

Additional information in this case study

• He paid $1000 for his monthly bus passes in 2014.
• He studied in Ottawa University and paid tuition fees. He got a T2202A tax slip from his school as below.

Continue with part 4, let’s prepare his tax return step by step.

1. Input the $1000 monthly bus passes amount.

• Click Schedule 1 on the left.
• Double click Public transmit amount line 364, a window should pop up.
• Input $1000 on the other public transit amount, and then click OK.

2. Input the T2202A tax slip.

• Scroll down, and click the T2202 on the left.
• Input tuition fees paid, number of months in part-time and number of months in full time study as above.

3. Check the tax refund.

Go back to T1 page 4, you will see the tax refund is $2612.25, increasing from $967.64. By adding the public transmit and tuition tax credit, the total tax saving is $1644.61 ($2612.25 – $967.64).

Easy, right? You already know how to do it. Want to know why? Continue reading.

1. Get Federal Schedule 11 and Ontario schedule S11.

• Click the form on the menu.
• Add Federal schedule 11 on the left and Ontario schedule 11 on the right.

2. Open federal schedule 11

You will see how the tuition amount 7374 is calculated based on the tuition fee paid, number of months in full time and part time study.

3. Open Ontario schedule 11

you will see how the tuition amount 7690.8 is calculated based on the tuition fee paid, number of months in full time and part time study.

4. Go back to federal schedule 1.

You will see the total tax amount for tuition and public transmit is 8374.8 (1000+7374.8). Federal non-refundable tax credit rate is 15%. So the tax credit for the 8374.8 is 1256.22 (8374.8×15%). In other word, by adding the public transmit and tuition amount, the federal tax saving amount is $1256.22.

5. Click the ON428 to check Ontario tax credit.

Public transmit amount is not qualified as Ontario tax credit, so you won’t see it on ON427. Ontario non-refundable tax credit rate is 5.05%. So the tax credit for the 7690.8 is 388.39 (7690.8×5.05%). In other word, by adding tuition amount, the Ontario tax saving amount is $388.39.

The total tax saving is $1644.61($1256.22+$388.39) by claiming public transmit and tuition fee amounts.

Click to read all articles about Tax Courses.

Through this case study, you will learn an important tax concept – tax deduction.

Tax deduction reduces your taxable income, thus lower your tax bill or increase your tax refund. Let’s see how tax deduction works by example.

Continue with case study 1.

John Smith, single, living in Ottawa, has T4 tax slips and pay rental payment $8000 in 2014.

Additional tax information for John Smith.

• He made $5000 Registered Retirement Saving Plan (RRSP) contribution.
• He paid $200 union due, which is not included in his T4.
• He has another T4 slip as below.

Let’s prepare his tax return step by step.

1. Input his T4 slip.

You can get the T4 slip form from wizard or just click T4 on the left, and then you will see the T4 form as below. Input the T4 slip’s data into the form

2.Go Back to T1 page 4 to see the result.

• Net Federal tax Line 420 is $6875.01.
• Provincial tax Line 428 is $3409.89.
• Total income tax deducted is $9632.74.
• Balance owing is $652.16. He has to pay taxes!

You may also notice the working income benefit in line 453 become zero. This is because his income increases, he is not qualified for the benefit any more.

Now, let’s see how tax deduction reduces his tax owing.

3. Input his $5000 RRSP contribution.



• Click T1 page 3 on the left.
• On page 3, double click RRSP deduction Line 208. A RRSP contribution form should pop up.
• On the RRSP contribution form, input $10,000 on the RRSP deduction limit. You can find your RRSP deduction limit on your latest notice assessment. Make sure the deduction limit is larger than your contribution amount.
• Click “between March 4th and December 31st, 2014″.
• Input $5000 to the pop up window, and then click OK.

Click to read more articles about RRSP.

4. Input union fee $200.



• On T1 page 3, double click Annual union, professional, or like dues on line 212.
• Input $200 on the other due in the pop up window, click OK.

5. Check the result.



• Net Federal tax Line 420 is $5731.01.
• Provincial tax Line 428 is $2934.09.

Now, he will get tax refund $967.64, instead of paying $652.16. By claiming tax deduction, he got tax saving $1619.8.

The total tax deduction we added is $5200 ($5000 RRSP + $200 union fee), so the saving rate of tax deduction is %31.15 (1619.8/52000), which is the same rate as his marginal tax rate.

Read the post Marginal Tax Rate – How You Get Taxed to know more about how tax deduction reduces taxes.

6. Get back to the summary.



He is not getting GST/HST and OTB credits any more, since his income increased.

Now you understand how tax deduction reduces taxes, in the next post, we will show you how tax credits save your taxes.

Click to read all articles about Tax Courses.

Let’s start with a very basic tax return.

John Smith, single, living in Ottawa, has only T4 tax slip and pay rental payment $8000 in 2014. His T4 slip is below.

1. Continue with course 2, Input his T4 tax slip.

You can read the post How to read your T4 slip to understand the meaning of each box on your T4 slip.

2. Click next button until the wizard finish, then you will see the screen below. Save the file first, then double check the name, address, birthday and marital status.

3. Claim rental paid for his Ontario Trillium Benefit.

Click ON-BEN on the left, then you will see the “Ontario Application for the 2015 Trillium Benefit”. Check the box 6118.

Scroll down, on the Part A of the form box 6110, input his rental payment $8000.

4. Claim Working Income Tax Benefit.

Click Form on the main menu to open tax forms. Select Schedule 6: Working income tax benefit, and add it.

Click Schedule 6 on the left, open the working income tax benefit form. Since John is single with no dependant, check No on box 381 and 382.

Scroll down, and select Yes on box 391. If John is disable and has Disability Tax Credit Certificate from CRA, he can also click box 392 to apply WITB disability supplement for himself. More details about Disability Tax Credit Certificate, please read post How the Disability Tax Credit reduces your taxes.

More details about Working Income Tax Benefit, please read the post working income tax benefit-an extra pay cheque for low income workers.

5. Click T4 page 4 on the left to check the amount of tax refund, you will see

• Line 437 is the tax deducted from his T4 Slip. Since he is low income, he can get it all back.
• Line 448 is CPP overpayment. Canada Pension Plan (CPP) payment deducted on his T4 slip is more than he should pay, so he can get the overpayment back.
• Line 453 is the working income tax benefit, which we apply on step 4.
• Line 482 is the total tax refund.

6. Click Summary on the left and you will see the summary sheet.

• GST/HST credit estimates $272. This credit is calculated based on your income.
• Ontario Energy and Property Tax Credit estimate $435. This credit is calculated based on your income and rental payment.
• Sales Tax Credit estimate $287. This credit is calculated based on your income.

All done. Any question, leave comment below, thanks.

After knowing how to prepare a basic tax return, I will show you more tax knowledge be on the following posts.

You can choose different tax software to prepare your tax return. Here, we use Studiotax to show you how to do it step by step. It is free for personal use. You can download it at http://www.studiotax.com/en/

Open Studiotax and click “create a new tax return”, it will start a wizard to guide you input your personal information. You will see,

Your name

Make sure it spells correctly, especially your last name. It must match with CRA’s record. If not, you can’t efile your tax return.

Fill your name, check if you change your name or not, fill your birthday and click next to next section.

Your mailing address

It must be your current mailing address, and it can be different with your living address. Canada Revenue Agency will mail your notice of assessment and tax review letters to this address. If you move, make sure you notify CRA as soon as possible.

Your email address

It is optional for you to sign up CRA online email service. After you sign up, your notices of assessment will no longer be printed and mailed to you. Instead, an email notification will be sent to your email address, and you will have to register and log in to CRA My Account to view it.

Your province of residence on December 31

The province you live on the last day of the year will determine which province tax you have to pay and benefits you are entitled to receive. For example, if you live in Quebec on December 31, 2014, you will be considered as Quebec resident and you have to file Quebec tax.

Click next to next section.

Marital Status

If you are married and living common-law, it is strongly suggested to prepare both of your income tax returns at the same time. This is because one spouse net income has to be shown on another spouse’s tax return, and another significant benefit is spouses may be able to transfer non-refundable tax credits to each other and achieve high tax saving. You can see this example in the coming blog posts.

Click next to next section.

Entry day

If you become a resident of Canada in the tax year, you need to provide the date you arrived Canada. If you are a new immigrant or an international student, you have to provide the entry day on your first income tax return, and your world income at the year.

Click next to next section.

Foreign property

If you own foreign property with a cost in excess of $100,000 at any period during the year, you must make an annual disclosure with the Canada Revenue Agency. It doesn’t include any property you own primarily for personal use, including your automobile, cottage, paintings and jewellery. If you are that rich guy, you have to fill form T1135 and submit it to CRA each year.

Click next to next section.

Tax slips

Click the boxes for the tax slips you have.

If you need to change your personal information, you can always come back to the wizard through the main menu.

To file your tax return, you must have one of the two identity number below:

Social Insurance Number (SIN):

A SIN a nine-digit number that you need to work in Canada or to have access to government programs and benefits. If you are Canadian citizen or permanent resident, you should already have one. If you don’t, you can apply for a SIN in Service Canada.

Individual Tax Number (ITN):

An ITN is a nine-digit number (09x xxx xxx) for individuals who need an identification number to file their Canadian income tax return but are not eligible to obtain a Social Insurance Number (SIN). ITNs are issued by Canada Revenue Agency (CRA) and are usually applied for by international students who do not have a work permit and SIN card. You can download the application form on the CRA website.

Most common tax slips and documents you may have:

T4 tax slip

If you work as an employee, you should get a T4 tax slip from your employer. If you can’t get it from your employer, you can register and access Canada Revenue Agency (CRA) online account My Account to get your past 3 years tax slips. If you can’t register with CRA, you can authorize us as your representative, so we can get your T4 tax slip for you. You can click the CRA link to find out how a representative can help you.

T2202A tax slip

If you are a college student and you pay tuition fees, you should get a T2202A from your school. If your college has online student account service, you can get the tax slip on your online account.

Rental receipts / property tax receipts for Ontario residents

If you are low and middle income, you can claim the rent or property tax you paid, and receive Ontario Trillium Benefit.

RRSP contribution tax slip

If you make RRSP contribution to your bank or financial institution, you should receive RRSP contribution tax slip from them.

You can use our income tax checklist to make sure you have gather all your tax slips and documents.

Perhaps one of the most commonly missed and often the most valuable tax credit available to people with disabilities is the Disability Tax Credit (DTC). The CRA’s own estimates show that at least 1.1 million Canadians are eligible for the disability tax credit, half of them seniors. But only 620,000 claimed it in 2012-13, saving themselves a total of almost $1 billion in federal tax.

What is the Disability Tax Credit?

It is a non-refundable tax credit that people with disabilities can use to reduce the amount of income tax they have to pay. If you have dependent with disability living with you, you can claim the Infirm Dependent Credit.

Who is eligible?

The requirements to be eligible for the disabled tax credit are laid out in the T2201 DTC certificate application form. In order to be eligible, a medical professional has to fill out and sign the T2201 tax form, the Disability Tax Credit Certificate, and the CRA has to approve the application. There is no harm in applying if you are not sure that you would be eligible.

How much tax can you get back?

Many people in the special needs community are giving the Government thousands upon thousands of dollars in tax revenue that should stay in our community. But this doesn’t have to continue. By following a few simple steps, people with disabilities and their caregivers can claim the DTC from this year onward and for up to 10 years in the past where they have not claimed the credit. These credits could result in you receiving tax refunds of $10,000, $16,000 and even much more when combined with the other tax credits or deductions that you may have missed over the years and which are still available to you.

How to claim or reclaim the disability tax credit

1. Get the T2201 tax form from CRA website.

2. Get the form signed by your doctor.

3. Mail it to CRA.

4. If you have been approved for a period of time for which you have not claimed the credit, you can request tax adjustments for those years and receive a refund for taxes that you have previously paid for as many as 10 years.

Don’t be misled by some companies which seem to indicate almost anyone is eligible for the disability tax credit. See the CBC news article Disability Tax Credits Under Investigation for more information. If you actually are disabled, then you shouldn’t have to pay someone a percentage of your tax credit in order to claim it, when all you need is a form completed by your doctor. If you do decide to use a paid service to help you get the credit, make sure you ask them what happens if you are subsequently audited and have to repay the refund you received. Make sure you get the answer in writing.

One of the most common tax slips is T4 tax slip. If you work as an employee, your employer should mail you T4 tax slip for you to do your income tax return. If for any reason you can’t get it, you can contact CRA, login your CRA online account or authorize your account to get it for you.

T4 tax slip contains important information such as your employment income, taxes already deducted on your payques, your pension deduction and union dues. Knowing how to read your T4 tax slip, you can avoid tax mistakes and make a tax plan to save your taxes.

Below are some of the important boxes:

• Box 14: Your employment income. This is your total salary before paying taxes, CPP and other benefit payment.
• Box16: The amount you pay to Canadian Pension Plan (CPP).
• Box 17: The amount you pay to Quebec Pension Plan(QPP) if you are Quebec resident.
• Box 18: The amount you pay to Employment Insurance Premium(EI).
• Box 20: The amount you pay to Register Pension Plan (RPP), which is a pension plan that has been set up by your employer, to provide you with a pension when you retire. You can deduct it on your tax return.
• Box 22: Income tax already deducted on your payques. If the tax deducted is more than you are supposed to pay, you will get tax refund; if it is less than that, you have to pay the balance.
• Box 44: Union dues you paid. You can deduct it on your tax return.
• Box 46: Charitable donations you made. You can claim it as tax credit.
• Box 84: Public transits pass. You can claim it as tax credits.
• Box 85: Employee-paid premiums for private health services plans. You can claim it as medical expenses.

You can still prepare your tax return without understanding every detail of these boxes on your T4 tax slip. However, the more you know, the more clearly you will understand how you get taxed and how to plan ahead to reduce taxes.

If you think there is an error on your T4 tax slip, you should discuss it with your employer’s payroll department. And if there is an error, the department needs to issue an amended T4. You cannot alter your T4 tax slip yourself, even if you know there is an error.

After the tax season, you may get letters about CRA tax review. Don’t be panic. In many cases, you are not their particular target. Your tax return is simply selected for review randomly.

However, never ignore a letter from CRA. If the CRA doesn’t receive a response to its review letter within 30 days, it will adjust your claim based on the information they have. You may end up owe CRA money and have further tax examination coming.

Most common CRA tax review requests including:

• Request documents to support your claim for tuition fees. You will need to submit documents such as T2202A, which is from your school, and Schedule 11 and Schedule S11, which you can get from your accountant.
• Request the date you change your marriage status. If you change from single to common-law or married, or versa, CRA will need to know the date you change your marriage status and recalculate your GST/HST, OTB, child benefits and other benefits based on your updated family income.
• Request for your rental receipts to support your Ontario Trillium Benefit claimed.
• Request for child care expenses receipts.
• Request for bus pass receipts.

Tips to handle CRA tax review smoothly

1. Make sure CRA has your correct mailing address. It seems easy, but many people get into trouble because of having wrong address with CRA. Double check your mailing address before filing your tax returns. If you move, notify CRA as soon as possible. CRA phone number is 1-800-959-8281. You will need details from your account or your most recently notice of assessment, reassessment, or other tax document to identify yourself.

2. Always include the reference number for your case – That way, the CRA can quickly match the additional information you give them to your tax return.

3. Organize the information and documents to make it as easy as possible for the CRA tax review response.

CRA tax review does not represent a tax audit. Review programs promote taxpayer education by identifying common areas of misunderstanding. Analysis of results and feedback from taxpayers are used to review and improve the guides and forms that CRA provides to the public.

The Canada Revenue Agency (CRA) warns you to beware of telephone and email scams that claim to be from the CRA but are not. These are phishing and other fraudulent scams that could result in identity and financial theft.

You should be especially aware of phishing telephone and email scams asking for information such as credit card, bank account, and passport numbers. The CRA would never ask for this type of information.

Email Scams

Some recent email scams involve telling you that you are entitled to a refund of a specific amount or telling you that your tax assessment has been verified and you are getting a tax refund. These emails often have CRA logos or Internet links that look official. Some contain obvious grammar or spelling mistakes.

Some of these scams ask for this personal information directly, and others refer to a website resembling the CRA’s, where you are asked to confirm your identity by entering personal information. You should not click on links included in these emails. Email scams may also contain embedded malicious software that can harm your computer and put your personal information at risk.

Telephone Scams

Some recent telephone scams involve threatening or forceful language to scare you into paying fictitious debt to the CRA.

The caller told victims they owed back taxes, and would be arrested if they didn’t pay the debt immediately.

In most cases, the caller has had some of the victim’s personal information, including their name, address and even bank account details.
Victims are told to pay the debt with prepaid credit cards or through a money transfer service, and are kept on the phone until the transaction is complete.

The CRA has established procedures in place to make sure your personal information is protected. If you want to confirm the authenticity of a CRA telephone number, call the CRA by using the number for business-related calls is 1-800-959-5525, for calls about individual concerns is 1-800-959-8281.

Guidelines from CRA

To help you identify possible telephone and email scams, you can use the following guidelines: The CRA:

• never asks for information about your passport, health card, or driver’s licence;
• never shares your taxpayer information with another person, unless you have provided the appropriate authorization; and
• never leaves personal information on your answering machine or asks you to leave a message containing your personal information on an answering machine.

When in doubt, ask yourself the following:

• Am I expecting money from the CRA?
• Does this sound too good to be true?
• Is the requester asking for information I would not include with my tax return?
• Is the requester asking for information I know the CRA already has on file for me?
• How did the requester get my email address or telephone number?
• Am I confident I know who is asking for the information?
• Is there a reason that the CRA may be calling? Do I have a tax balance outstanding?

Starting in February 2016, you will receive a new Notice of Assessment (NOA) after filing your income tax return.

After you filed your income tax returns, Canada Revenue Agency will send you a Notice of Assessment. It usually takes up to 8 weeks to get it by mail. It is important to keep it on file because you will need it for many purposes such as mortgage loan, student loan application, retirement benefit application and child benefit calculating.

Your Notice of Assessment has important information for your tax planning and is also quite a useful document when preparing your next tax return. It includes:

Refund or balance owing:

The CRA’s Notice of Assessment lets you know if you are getting a refund or if you have a balance owing. You will also see if any corrections have been made to your tax return. For example, if you forgot to claim one of your T4 slip, the CRA will have added it to your tax return and adjust the result accordingly. If you claimed something you shouldn’t, the Notice of Assessment would indicate the change with an explanation. It will also tell you if they have charged any penalties or interest.

RRSP information:

You will see your RRSP deduction limit which represents the maximum amount that you can contribute to your RRSP. You can also see your unused RRSP contribution available for the next tax year.

Repayment required for the Home Buyers’ Plan:

If you have withdrawal money from your RRSP for the Home Buyers’ Plan (HBP), your first repayment starts the second year after the year you withdrew funds from your RRSPs for the HBP. Each year, the CRA will send you a Home Buyers’ Plan (HBP) Statement of Account in the Notice of Assessment to notice you the minimum repayment you have to make.

Tuition, education and textbook carry forward amounts:

If you are a college student and you pay tuition, you should claim your tuition and education amount, which will reduce your taxes when your income is high enough to pay taxes. In your Notice of Assessment, you can see the remaining amount so you can claim it in a future year when you have enough income to use them all up.

Unused net capital losses amount:

If you lost money in investment or business and you claim capital lost in your tax return, in your Notice of Assessment, you may see unused net capital losses amount which can be carried back three years and carried forward indefinitely to be applied against capital gains.

If you lost your Notice of Assessment, you can call CRA or you can sign up for the MyAccount service and access it there.