Tax Credit
A tax credit directly reduces your tax payable, dollar for dollar. Canada has two types: non-refundable credits reduce your tax to zero but no further, while refundable credits can generate a refund even if you owe no tax. Non-refundable credits are applied at the lowest federal tax rate — 14% for 2026 (14.5% for 2025, the blended year of the mid-2025 rate cut from 15%).
Common non-refundable credits include the Basic Personal Amount, spousal amount, age amount, pension income amount, disability tax credit, tuition credit, medical expenses, and charitable donation credit. Refundable credits include the GST/HST credit, Canada Workers Benefit, and the Canada Child Benefit.
Tax credits differ from deductions in an important way: a deduction reduces your taxable income (saving you tax at your marginal rate), while a non-refundable credit saves everyone the same dollar amount regardless of income. This makes credits more equitable but less valuable for high-income earners compared to deductions like RRSP contributions.
How it works
Non-refundable credits are calculated by multiplying an amount set out in the Income Tax Act — like the Basic Personal Amount or the disability amount — by the lowest federal rate, 14% for 2026 (14.5% for the blended 2025 year), then adding a similar provincial calculation at your province's lowest rate. You claim them on Schedule 1 of your T1 return, and the CRA applies them against your gross tax payable, not against your income the way a deduction does.
Refundable credits work differently: the CRA determines the amount you're entitled to based on your income and family situation, then pays it out even if you owe no tax at all. The GST/HST credit and the Canada Child Benefit are both refundable, which is why they arrive as periodic payments rather than as a line reducing your tax bill.
A common misconception is that claiming a large non-refundable credit will generate a refund on its own — it won't, beyond zeroing out your tax bill. Some non-refundable credits, like tuition amounts, can be transferred to a spouse or parent, or carried forward to a future year if you don't need them now, but most (the age amount, medical expenses, charitable donations) must be used or lost in the year you're eligible unless the Act specifically allows a carry-forward.
Example: how a $1,000 credit compares to a $1,000 deduction
A $1,000 non-refundable tax credit is worth the same to every taxpayer: at the lowest federal rate of 14% (2026), it reduces your tax payable by $1,000 x 14% = $140, regardless of whether your marginal rate is 14% or 33%.
Compare that to a $1,000 tax deduction, like an RRSP contribution: it reduces your taxable income by $1,000, so its value depends on your marginal rate. At a 40% marginal rate, that same $1,000 saves $400 in tax — nearly three times as much as the credit, even though both start from the same $1,000 figure.
Frequently asked questions
Can a non-refundable tax credit ever generate a refund on its own?
No. A non-refundable credit can only reduce your tax payable down to zero — any leftover credit amount is generally lost rather than paid out, though a few specific credits like tuition can instead be transferred to a spouse or parent, or carried forward to a future year.
How is a refundable credit like the GST/HST credit different from a non-refundable one?
A refundable credit is paid out based on your income and family situation regardless of how much tax you owe, and can put money in your pocket even if your tax bill is already zero — a non-refundable credit can only offset tax you actually owe.
Do all non-refundable credits use the same 14% calculation?
No. Most amount-based credits, like the Basic Personal Amount or medical expenses, are calculated at the lowest federal rate, but some credits, like the dividend tax credit, use a different mechanism entirely — a gross-up-and-credit calculation rather than a flat-rate multiplication.
Related Terms
Tax Deduction
A tax deduction reduces your taxable income before tax is calculated, effectively saving you money at your marginal tax rate.
BPA (Basic Personal Amount)
The Basic Personal Amount (BPA) is a non-refundable tax credit available to every Canadian taxpayer.
GST/HST Credit
The GST/HST credit is a tax-free quarterly payment from the CRA designed to help individuals and families with low and modest incomes offset the GST/HST they pay on everyday purchases.
CCB (Canada Child Benefit)
The Canada Child Benefit (CCB) is a tax-free monthly payment from the CRA to eligible families to help with the cost of raising children under 18.