What is The Difference Between Tax Credits and Deductions

Income deductions lower your taxable income. Tax credits are amounts that help you pay less tax on your taxable income. The more tax credits you qualify for, the lower your income tax will be. Tax credits are available from the federal, provincial, and territorial governments, which you can use to reduce your taxes.

Some tax credits are non-refundable, meaning they would lower or cancel the amount of taxes you owe. A refundable tax credit is one that you can get even if you don't owe any money in taxes.

Example:

Rebecca, for example, has a taxable income of $18,000. Her taxable income is $2,700, and she owes $2,700 in federal income tax.

She has $2,850 in non-refundable tax credits. Her taxes are reduced to zero by the nonrefundable tax credits, but she does not receive any additional credit for the $150 she did not utilize.

She does, however, have $600 in refundable tax credits. Her refundable tax credits are paid to her every three months in the amount of $150.