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Quiz: Deductions versus credits

6 questions

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1 Why is a deduction worth more to a high earner than to a low earner, while a non-refundable credit is not? There is no difference in value; the two are alternative labels Credits are reduced as income rises, while deductions are not Deductions are only available above an income threshold A deduction reduces income subject to tax, so its value depends on the marginal rate; a non-refundable credit applies a fixed percentage set in the Act, so its value does not vary with income

Answer key unconfirmed — rests on 3 unverified claims.

2 A taxpayer with children is choosing between two ways of reducing tax by the same amount. Why might a deduction be better than a credit for her? A deduction reduces provincial tax and a credit does not A deduction can be carried forward and a credit cannot A deduction applied before net income can increase entitlement to income-tested benefits; a credit does not affect benefit entitlement A deduction is refundable and a credit is not

Answer key unconfirmed — rests on 2 unverified claims.

3 What is the order of the calculation on the return? Net income, then total income, then taxable income, then tax Total income, then net income after certain deductions, then taxable income after further deductions, then tax calculated and credits applied against it Total income, then tax, then all deductions and credits applied against tax Total income, then taxable income, then net income, then tax

Answer key unconfirmed — rests on 1 unverified claim.

4 Which of these are deductions rather than credits? Select all that apply.

Select all that apply.

Child care expenses RRSP contributions Tuition amounts Union and professional dues Medical expenses Charitable donations Carrying charges on money borrowed to earn income

Answer key unconfirmed — rests on 2 unverified claims.

5 A taxpayer with no tax payable asks whether the GST/HST credit and the Canada workers benefit are still worth anything to her. Only if she has employment income in the year No — like other credits they only reduce tax payable Only the GST/HST credit; the Canada workers benefit is non-refundable Yes — both are refundable and are paid whether or not she has tax payable

Answer key unconfirmed — rests on 1 unverified claim.

6 A taxpayer asks whether reducing her taxable income helps with provincial tax too. No — provincial tax is calculated independently of federal taxable income Only in provinces with a tax collection agreement Yes — a deduction reduces both, since both are calculated from the same taxable income, though the province has its own rates and credits Yes, and the provincial credits are identical to the federal ones

Answer key unconfirmed — rests on 1 unverified claim.

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