Common Tax Questions Series 2 – Tax Credits

by Guest on October 24, 2011

It’s important for us to be aware of the various tax credits available to us in order to reduce the amount of income tax we have to pay.  Check out these commonly asked tax questions and find out what tax credits you can take advantage of.

How does the tax credit work when I donate to a charity?

Your donations up to $200 will receive a 15 percent non-refundable tax credit. Every dollar over $200 will receive a 29 percent non-refundable tax credit. If your donations do not add up to $200 in one year, you can consider carrying them in the next year to maximize your tax benefits. You are able to collect donation receipts up to five years before making a claim.

I’ve been approached to donate $10,000 to a charity. They said I’ll get a tax receipt which I can use on my tax return. But they also said I would receive a $50,000 tax receipt from a global gifting initiative for my tax return as well. Is this legal?

A registered charity should only issue receipts for the actual amount of the donation. Even if you make the donation in good faith, if you claimed the $50,000 receipt on your tax return and it was not a legitimate deduction, you would be responsible for paying back any refund received plus penalties and interest.

Only registered charities can issue receipts for income tax purposes. Make sure you check that the charities are listed on the Canada Revenue Agency site before you donate at http://www.cra-arc.gc.ca/charitylists/index.html.

What is a tuition credit and how does it work?

Students attending post-secondary education will receive a T2202A Form from a registered institution for all eligible programs. This receipt will show tuition paid and will include the number of months the student was full time or part time which is used to calculate the education credit.

This tuition and education receipt is then reported on your tax return and will be used to reduce the taxes you owe. Since most students don’t have a large income, you may not need all of your credits. There are two options for the unused amount. A portion may be transferred to a parent, grandparent, or spouse, but only in the year the receipt is issued. The decision to transfer is made by the student and you need to make sure you sign the back of your T2202A to acknowledge the transfer.

Students can also carry forward the unused credits to be used in future years. This can be handy once you start on your career and are earning a higher income since the carry forward credits can be used to reduce your tax payable.

 

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