If a refundable tax credit reduces your client’s tax liability to less than zero, it allows them to receive a refund in excess of the income taxes for which they were otherwise liable. In contrast, a non-refundable tax credit doesn’t reduce your client’s tax liability below zero. The Working Income Tax Benefit is the most commonly used refundable tax credit, while the Eligible Educator School Supply Tax Credit is a relatively new refundable tax credit that went into effect in 2016.
Working Income Tax Benefit
The Working Income Tax Benefit is a refundable tax credit that reduces the tax liability of qualifying low-income individuals and families who work for salaries or wages. The credit is deducted from your client’s tax liability, dollar for dollar. If the resulting difference is less than zero, your client receives a refund for that amount. To be eligible for this credit, your client must meet all of these criteria for the tax year:
- Income of over $3,000
- At least 19 years of age as of December 31
- Canadian resident during the entire tax year
However, they are not eligible if they meet any of these criteria:
- They do not have an eligible dependant and are full-time students at certain schools for more than 13 weeks during the year.
- They were incarcerated for at least 90 days during the year in a penal or similar institution.
- They are not required to pay taxes in Canada, for example, because they are an officer of another nation.
Some individuals and families qualify to receive up to 50% of this tax credit in advance payments. Applicants for advance payments must file for them prior to the September 30 deadline and receive the advance in quarterly installments, if approved.
Eligible Educator School Supply Tax Credit
This Eligible Educator School Supply Tax Credit is a refundable tax credit allowing an eligible educator to claim a credit of 15%, up to $150, on purchases of qualifying teaching supplies. Qualifying purchases include consumable items used to facilitate teaching and do not include most durable items, such as furnishings or computers. However, some non-consumable items qualify, including puzzles, classroom books, and educational software. For the purposes of this credit, your client qualifies as an eligible educator if they are employed at an elementary or secondary school or a regulated child care facility and possess a valid teacher’s certificate or a valid certificate or diploma in early childhood education. For a purchase to qualify for the tax credit, your client must not be eligible for reimbursement under any other form of assistance and must not deduct the purchase when calculating income reported on their tax return. They must take the tax credit for the tax year in which they purchased the items.
Sometimes your client may have deductions that would result in a refund, but they’re not refundable tax credits. If you take the deductions during a given tax year, your client loses the benefit of the deduction to the extent it would otherwise push their tax liability below zero. To avoid losing such a deduction, consider carrying it forward to future tax years. Some deductions eligible for carry-forwards include certain donations and medical expenses. Others, such as eligible tuition, education, and textbook expenses, can be carried forward or transferred to someone else. The CRA may require your clients to show receipts for purchases of educational materials to keep that deduction, and some low-income clients may benefit greatly from receiving advance WITB payments. These examples highlight the importance of educating your clients about available deductions promptly.