Paying taxes can be daunting, especially if you’re already struggling with a low income. But the good news is, there are plenty of tax credits and deductions available to reduce the amount you owe and potentially boost your refund. Here’s how you can make the most out of your tax situation in 2025 and beyond.
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Key Low-Income Tax Credits You Should Know About
Whether you’re earning a modest income or even no income at all, filing a tax return is crucial. It ensures you’re eligible for several tax credits and benefits that could significantly ease your financial situation. These include federal credits like the Canada Workers Benefit, GST/HST tax credit, and Basic Personal Amount, among others.
Below are the key tax credits and strategies to help low-income earners in Canada save money during tax season:
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1. Canada Workers Benefit (CWB)
The Canada Workers Benefit (CWB) is a refundable tax credit aimed at supporting individuals and families with low income who are actively working. Formerly known as the Working Income Tax Benefit (WITB), this credit can provide up to $1,428 for individuals and up to $2,461 for families with income up to $33,015 (individuals) and $43,212 (families).
This credit is designed to encourage low-income earners to stay employed while receiving additional financial support.
2. Defer Tax Credits for Future Use
If you’re earning a low income or have no taxes owing, some tax credits might be better used in the future. Certain expenses like tuition, charitable donations, and moving costs can be carried forward and claimed later when your income is higher and you’re in a better position to benefit from the credits.
3. GST/HST Tax Credit
The GST/HST tax credit is another benefit for individuals and families with low incomes. The good news is, you don’t have to apply for this credit—simply file your income tax return, and the CRA will determine if you’re eligible. Payments are made quarterly and can range from $496 for adults, $171 for each child under 19, and $650 for those in a common-law relationship.
4. Let Your Spouse Claim Some of Your Tax Credits
If your spouse or common-law partner earns more than you, consider transferring some of your tax credits to them. This strategy can be especially useful for credits such as caregiver credits, medical expenses, charitable donations, and tuition. It’s often more advantageous for the higher-income spouse to claim these credits, as it could result in a lower overall tax liability.
5. File Your Tax Return – Even If You Have No Income
Even if your income is low or nonexistent, always file a tax return. Doing so will automatically make you eligible for a variety of benefits, such as the Canada Child Benefit, GST/HST tax credit, and other federal or provincial tax credits. It’s essential for accessing the financial support you need.
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6. Take Advantage of RRSPs and TFSAs
Tax-deferred accounts like RRSPs, TFSAs, and FHSAs offer excellent ways to minimize your taxable income and grow your savings:
- RRSPs: Contributions lower your taxable income, potentially reducing your tax burden. However, if your income is low, contributing to an RRSP may not have as much of an impact.
- TFSAs: While contributions are made with after-tax dollars, withdrawals are tax-free, making them a powerful tool for saving without incurring taxes later on.
- FHSAs: Designed for first-time homebuyers, these accounts allow tax-free growth and withdrawals for eligible home purchases.
7. Refundable Provincial Tax Credits
In addition to federal credits, some provinces offer their own refundable tax credits. For example:
- Ontario Trillium Benefit (OTB): This benefit offers up to $265 for low- and moderate-income households in Ontario to help with energy bills and taxes.
- Quebec Solidarity Tax Credit: Quebec residents can receive up to $800 (or more) to help cover the cost of housing and sales tax.
8. Claim the Basic Personal Amount
The Basic Personal Amount is a non-refundable tax credit that reduces the amount of taxes you owe. At the federal level, it’s currently $15,000. In certain provinces, like Ontario, this amount is slightly different. The Basic Personal Amount can significantly reduce your taxable income.
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9. Pension Income Splitting
If you’re retired and receiving eligible pension income, you may be able to split that income with your spouse or common-law partner to reduce the overall tax burden. This can be especially useful if one partner is in a higher tax bracket than the other.
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10. Explore Tax Credits Based on Your Life Situation
There are numerous other tax credits that may apply based on your specific situation. Some of the most common ones include:
- Medical Expense Tax Credit – Up to $2,635 in claims.
- Home Accessibility Tax Credit – Up to $3,000 for qualifying home improvements.
- Disability Tax Credit – Up to $9,428 if you have a disability.
- First-Time Home Buyers’ Tax Credit – Up to $1,500.
How to Find Out Which Tax Credits You’re Eligible For
The Canada.ca website is a valuable resource that lists all available tax credits along with eligibility criteria. Additionally, the Benefits Finder tool can help you navigate the credits and benefits available to you. If you’re filing your taxes using tax software, the program will also identify relevant credits based on your profile.
Bottom Line: Maximize Your Tax Return
As a low-income earner, taxes don’t have to be overwhelming. By filing your tax return and taking full advantage of available credits and deductions, you can minimize your taxes owed and maximize your refund. Remember, always file on time and explore all possible credits, from federal benefits to provincial tax credits.
FAQs About Taxes for Low-Income Earners in Canada
Do I have to file a tax return if I have no income?
Yes, you should file your tax return even if you have no income. This ensures you qualify for various benefits such as the Canada Child Benefit and GST/HST tax credit.
What happens if I can’t pay my taxes?
If you owe taxes but can’t pay, you may be penalized with late fees. The CRA allows you to make a payment arrangement or apply for Taxpayer Relief.
Where can I file my taxes for free?
Many platforms, like Turbotax, Wealthsimple Tax, and UFile, offer free tax filing services for Canadians.
By understanding these strategies and using available credits, you can relieve some of the tax burdens and make your financial situation more manageable in 2025.
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