“Deduction” and “credit” are two of the most frequently confused terms in Canadian tax, and the difference decides what a claim is actually worth. A deduction comes off your income before tax is calculated, so its value depends on your marginal rate. A credit comes off the tax itself, at a rate set in law, and whether any unused part is paid to you depends on whether the credit is refundable. This page is the one place in the guide to Canadian tax deductions and credits that explains how each kind of claim is valued; the pages for individual claims link back here.
The fundamental difference
Deduction: lowers your taxable income before tax is calculated. Credit: lowers your tax owing after income tax is calculated.
Worked example
Suppose you have $85,000 in taxable income and face a combined federal + Ontario marginal rate of 29.65% at that income level (federal 20.5% + Ontario 9.15%).
Scenario A: $1,000 deduction
- Taxable income falls from $85,000 to $84,000
- Tax saving: $1,000 × 29.65% = $296.50
Scenario B: $1,000 tax credit (non-refundable, at 14% federal rate)
- Tax owing falls by $1,000 × 14% = $140
- (Plus any provincial component from your province)
In this bracket the $1,000 deduction is worth roughly twice the $1,000 credit amount. A deduction’s value scales with your marginal rate; a non-refundable credit reduces tax at a flat credit rate (14% federally for most credits), whatever your income.
Tax deductions: how they work
A deduction reduces the income figure that the tax rates are applied to:
Tax owing = (Taxable income − deductions) × applicable marginal rates
Value depends on your marginal rate
| Your marginal tax bracket | Value of a $1,000 deduction |
|---|---|
| ~20% (approximately $15K–$55K, varies by province) | ~$200 |
| ~33% (approximately $55K–$100K, varies) | ~$330 |
| ~43% (approximately $100K–$150K, varies) | ~$430 |
| ~53% (top combined bracket, varies by province) | ~$530 |
The same contribution or expense saves more tax on a higher income, which is why the timing of a deduction matters.
Common deductions
| Deduction | Reported on | Guide |
|---|---|---|
| RRSP contribution | Schedule 7, line 20800 | RRSP guide |
| Union / professional dues | Line 21200 | Union dues deduction |
| Child care expenses | Line 21400, Form T778 | Child care expense deduction |
| FHSA contributions | Line 20805 | |
| Employment expenses (T2200) | Line 22900, T777 | Employee car expenses |
| Moving expenses (40 km rule) | Line 21900 | Moving expenses deduction |
| Investment carrying charges (interest) | Line 22100 | Investment fees and carrying charges |
| Spousal support paid | Line 22000/22010 | |
| Self-employment expenses | Form T2125 | Self-employed tax deductions |
Timing a deduction
Some deductions can be deferred. An RRSP contribution made in one year doesn’t have to be deducted on that year’s return: you can carry the deduction forward to a year when your income, and so your marginal rate, is higher.
Example: deferring an RRSP deduction
- 2025: You earn $55,000. An RRSP deduction would save you ~31%
- 2026: You earn $125,000 after a promotion. An RRSP deduction saves you ~46%
- Contributing in 2025 but deducting on the 2026 return: ~$1,500 extra saving per $10,000 contributed
Tax credits: how they work
A credit directly reduces the dollar amount of tax you owe:
Net tax owing = Gross tax owing − applicable tax credits
Non-refundable vs. refundable credits
Non-refundable credits:
- Reduce tax to zero, but if the credit is larger than your tax owing, the rest is lost (not refunded), unless a carry-forward or transfer rule applies
- Most personal tax credits are non-refundable
- Federal non-refundable credits are calculated at 14% of the base amount (the credit amount listed on Schedule 1), and provinces add their own credits
Refundable credits:
- Reduce tax to zero AND can generate a cash payment even if your tax bill is already zero
- Worth more to a low-income filer than a non-refundable credit of the same amount
- Examples: the Canada Groceries and Essentials Benefit (formerly the GST/HST credit), the Canada Child Benefit, the Canada Workers Benefit and the Canada Training Credit
Common non-refundable credits
The base amounts change each year and are set out on each credit’s own page:
| Credit | Line | Guide |
|---|---|---|
| Basic personal amount | 30000 | Basic personal amount |
| Spouse or common-law partner amount | 30300 | Basic personal amount and spouse amount |
| Disability amount | 31600 | Disability Tax Credit |
| Canada caregiver amount | 30425/30450 | Canada Caregiver Credit |
| Medical expenses | 33099/33199 | Medical expense tax credit |
| Tuition amount | 32300 | Tuition tax credit |
| Home buyers’ amount | 31270 | First-time home buyers’ tax credit |
| Home accessibility expenses | 31285 | Home accessibility tax credit |
| Donations and gifts | 34900 | Charitable donation tax credit |
Two credits that don’t use the flat rate
Charitable donations are a non-refundable credit, but with two federal rates: 14% on the first $200 of gifts in a year and 29% (33% in the top bracket) on the rest, plus a provincial credit. The rates by province and the carry-forward are on the charitable donation tax credit page; political contributions have their own credit, covered in how to check a donation is tax-deductible.
Summary table: deduction vs. credit
| Tax Deduction | Non-Refundable Credit | Refundable Credit | |
|---|---|---|---|
| What it reduces | Taxable income | Tax owing (can’t go below zero) | Tax owing (CAN go below zero → payment) |
| Value varies by income? | Yes, scales with marginal rate | Generally no, fixed rate | No |
| Examples | RRSP, union dues, child care | BPA, DTC, pension credit | CCB, CGEB, CWB |
| Unused amount | Carry forward (RRSP) or lost | Lost (unless transfer or carry-forward rules apply: tuition, DTC, donations) | Paid out |
| Effect of a higher income | Saves more | Saves the same | Saves the same, but may shrink if the credit is income-tested |
| Effect of a low income | Saves little | Can be wasted if there is no tax to reduce | Still paid in full |
For more ways the two kinds of claim lower a tax bill in practice, see how to pay less tax in Canada.