Q. This tax year would be my first full year of employment since graduation. My tuition and education deductions carried from past years are slightly greater than my total employment income. Technically, I should have no income after deductions. However, why does my accountant disagree and say I will not get all my taxes back?
— Masoud
A. Don’t we all love this time of year! Where’s my T4s? What receipts do I need? Is this deductible? Who cares, I will give it all to my accountant!
It’s important to distinguish between a tax credit and tax deductions. They will not impact your taxes the same.
Income taxes payable are calculated based on taxable income. Taxable income is determined by adding all sources of income, less tax deductions. Non-refundable tax credits reduce income taxes payable at the lowest marginal tax rate (with the exception of charitable donations) while tax deductions reduce taxable income.
If your tax deductions exceed your employment income, an individual would have a taxable income of nil.
Therefore, income taxes payable are zero and a refund for all taxes withheld are refunded. Alternatively, tax credits do not reduce income to nil, but reduce taxes payable at the lowest tax rate and may not completely eliminate taxes owing.
Some examples
Non-refundable tax credits:
• Spousal or common law amount (same sex or not)
• Eligible dependent
• Canada employment credit
• Public Transit credit
• Children’s fitness credit
• Caregiver amount
• Tuition and education amounts
• Medical expenses
• Donations
Tax deductions:
• Childcare expenses
• RRSPs
• Professional, union dues
• Interest and carrying charges
• Business losses
• Rental losses
• Capital losses
• Employment expenses
– Reach Henry Choo Chong, CGA, at choochonghcga@yahoo.ca or 416-489-7800, ext. 227.
