Preparing for your taxes- 2025

While tax season isn't until the end of the year, there are some benefits to planning

ahead so you have a clearer idea if you will receive a bill or a refund. One of the best ways is to be aware of the tax deductions and credits you may qualify for.

Tax deductions vs. tax credits

So, what’s the difference between a tax deduction and a tax credit, anyway?

Both can help lower the amount of tax you might have to pay, but they go about it differently.

Deductions work to lower your taxable income, so less of your earnings are subject to tax in the first place, potentially dropping you into a lower tax bracket.

Tax credits, by comparison, reduce the amount of tax you pay, potentially lowering your tax bill. There are two types of tax credits: refundable and non-refundable.

Refundable credits are paid out even if you don’t owe any income tax.

Non-refundable tax credits,however, can only be used to offset income tax you owe. While non-refundable tax credits can reduce your tax bill to zero, they won’t qualify you for a tax refund.

Popular tax deductions in Canada

Registered Retirement Savings Plan (RRSP) contributions

RRSP contributions are arguably the best-known tax deduction. They are so popular

that a whole event has been built around the filing deadline. But it’s important to

remember there’s a limit on how much you can contribute each year. For 2024, the

contribution limit is $31,560, or 18% of your income earned the previous year,

whichever is less. That said, unused contribution room carries over, so you may be able to contribute more if you haven’t maxed out your available contribution room from the previous year. Although you can make contributions at any time, the deadline to be able to apply those tax credits to your previous year’s earnings is typically 60 days after the end of the calendar year.

Keep watching our posts for more tax deductions..