Here’s What You Need to Know About Low Income Tax Reduction in Canada

If you’re a low-income Canadian, paying less tax can make a real difference in helping you manage everyday costs like rent, groceries, and bills. Fortunately, there are several tax reduction programs that can help, including federal credits like the Canada Workers Benefit and provincial programs tailored to specific needs. These programs are designed to reduce tax liability, giving low-income earners more financial flexibility to cover essential expenses and better manage debt.

In this article, we’ll explain how these programs work, who qualifies for them, and how to make sure you’re getting all the benefits you’re eligible for. Read on to learn how to maximize your savings and how Credit Canada’s free financial counselling can support you through the process.

What is Low-Income Tax Reduction?

A low-income tax reduction refers to a reduction in the amount of taxes that individuals or households with low income are required to pay. Essentially, it reduces the amount of income that's taxed, so you end up owing less to the government when it comes time to file your taxes. These measures are aimed at helping those earning below a certain threshold and are struggling to cover basic costs of living.

A reduction can come in several forms including tax credits, tax deductions, lower tax rates, and exemptions. For example, a low-income tax credit directly reduces the tax you owe, while tax deductions lower the amount of income that gets taxed, reducing your overall tax liability. In some cases, low-income earners are taxed at a lower percentage compared to higher earners.

In Canada, both the federal and provincial governments offer these types of reductions. At the federal level, there’s a basic personal amount that everyone can claim to lower their taxable income. On top of that, each province has its own programs, like the Ontario Trillium Benefit and the Alberta Family Employment Tax Credit, which can further reduce the taxes you owe.

Who Qualifies for Low-Income Tax Reduction?

To qualify for a low-income tax reduction in Canada, you need to meet certain income thresholds set by the federal and provincial governments. Federally, the basic personal amount allows individuals earning $15,705 and under in 2024 to avoid paying federal taxes. On top of that, there are targeted tax credits, like the GST/HST credit, for those who meet certain criteria including income level, marital status, and household size. 

Each province also has its own income thresholds, criteria, and eligibility rules for tax credits and benefits. For example, some provinces may have higher or lower income limits for programs like rental or sales tax credits, and the specific requirements can vary based on age and household size. This means that even if you qualify for federal tax reductions, you'll need to check your province's rules to make sure you're getting all the benefits you're eligible for.

Federal Programs for Low-Income Canadians

For low-income Canadians, there are federal programs like the Canada Workers Benefit (CWB) and the GST/HST credit that can provide extra financial support. To qualify for the CWB, you need to file your taxes and meet the income requirements. The GST/HST credit is also based on your tax return and helps offset the cost of sales taxes. Both programs are applied for through your annual tax filing, so make sure you file your return—even if you don't owe taxes.

When filling out your return, double-check key details like your total income, marital status, and number of dependents to ensure everything is accurate. Small mistakes could delay or cause you to miss out on these programs. Once you've filed, the Canada Revenue Agency (CRA) will assess your eligibility and automatically let you know if you qualify for these credits, which will be paid out either monthly or as a lump sum. Always keep your contact information with the CRA updated, and review your account regularly to track any benefits you’re receiving.

"I’ve had many conversations with people who fear they may owe the government taxes. Therefore, they delay their filing or don’t file at all for many years. Those decisions impacted rebates, credits and potential refunds they could have received. Even if you don’t file, the CRA does their own assessment of your taxes each year. If you don’t owe them, they won’t reach out, but if you do owe them, they will send you a notice requiring you to file."

- Mike Bergeron, Counsellor Manager, Credit Canada 

Provincial Low-Income Tax Reduction Programs

Filing your taxes doesn't just affect federal credits—each province offers its own tax reduction programs that can help lower your tax bill or boost your refund. Some of these provincial tax credits are available for all residents to help with everyday living costs, while others are aimed at specific groups, like low-income families or those who make environmentally conscious choices. Here’s a look at some of the key provincial programs:

• Ontario Trillium Benefit: This program combines three different credits into one monthly payment—the Ontario Energy and Property Tax Credit, the Ontario Sales Tax Credit, and the Northern Ontario Energy Credit. It’s aimed at helping low-income individuals and families with the burden of high living costs.

• B.C. Climate Action Tax Credit: A quarterly payment designed to offset the cost of carbon taxes, this credit helps low-to-moderate-income residents cope with the added financial impact of living in a province with higher environmental taxes.

• Newfoundland Low-Income Tax Reduction: This program is unique because it directly reduces the amount of provincial income tax low-income residents need to pay. If you live in the province and earn below $19,000 as an individual or $25,000 as a family, you may qualify for a reduction.

• Quebec Solidarity Tax Credit: This credit is a mix of multiple benefits aimed at reducing the cost of living for low-income individuals and families in Quebec. It helps with expenses like sales tax, housing, and energy costs.

• Manitoba Family Tax Benefit: Aimed at low-income families with children, this program provides additional support with the costs of raising kids in Manitoba.

• Nova Scotia Affordable Living Tax Credit: This program provides financial relief for low-income residents in Nova Scotia when it comes to essential living expenses, such as food and housing.

• Alberta Family Employment Tax Credit: This refundable benefit is designed to support low- and moderate-income working families with children. It aims to help ease the financial burden of raising kids by offsetting some of the costs associated with child care, housing, and daily expenses.

How to Maximize Tax Reductions

If you're wondering how to make the most of your tax reductions, the first step is getting organized. Gather all your important documents, like your T4 from your job, any T5 or T3 slips for investment income, and receipts for any deductions and eligible credits you plan to claim. Set up a file folder to organize receipts throughout the year as they're received. That way come tax time, you’ll already have all the paperwork you need to file so you’re able to easily meet the deadline.

It’s also a good idea to login to your CRA account to check your tax history and confirm your eligibility for any benefits. This will ensure you don't have any overlapping benefits or miss out on any credits that could lower your tax bill. When you're ready to file, consider using NETFILE, an online service that lets you file your taxes directly with the CRA using certified tax software. It’s quick, secure, and more accurate with fewer chances of mistakes. You’ll get immediate confirmation that your return was received, and if you're expecting a refund, you’ll get it sooner by using direct deposit. 

When Free Tax Resources Aren’t Enough

Free resources can be helpful, but they might not cover everything when your financial situation gets more complicated. If you’re self-employed or earn rental income, free tools might not give you the personal advice you need, especially when it comes to taxes, budgeting, or dealing with debt. In these cases, you may need expert guidance from a professional with specialized knowledge.

As a trusted non-profit offering free financial advice, Credit Canada is here to help you navigate tax filing in Canada. Our certified Credit Counsellors can provide financial advice tailored to your situation and answer your tax-related questions. Chat with our AI Agent, Mariposa or sign up for our newsletter for expert tips.

Final Tips and Next Steps

Low-income tax reductions in Canada can significantly ease the financial strain on those who need it most. By understanding the eligibility for both federal and provincial tax programs, you can make sure you're getting all the credits and benefits available to you. Staying organized and filing your taxes correctly can help you get the most out of these savings.