What’s the difference between a non-refundable and a refundable tax credit?

Non-refundable tax credits are designed to reduce your federal tax payable but they don’t create a tax refund. Refundable tax credits not only reduce the amount of tax you have to pay, but they can help you get a tax refund from the government.

The key difference between a non-refundable and a refundable tax credit is that in the event your total non-refundable tax credits equals more than the amount of tax you owe, your amount owing will only be reduced to zero; this means that the excess amount of credit will not be refunded to you. With refundable tax credits, even if you don’t owe any tax, the total amount of your refundable tax credits will result in a tax refund and will be paid to you.

 

What are some examples of non-refundable tax credits?

Some common non-refundable tax credits you might be familiar with include:

Eligibility requirements of these types of credits are based on your personal and family situation (things like your household income, number of family members that live with you, marital status, etc.).

While these credits don’t result in a tax refund, you can however transfer the unused portion of certain non-refundable credits to your spouse or common-law partner. Some of the non-refundable credits that you can transfer to your spouse include the age amount, disability amount, and tuition, education, and textbook amounts. Remember, these amounts can only be transferred if they aren’t needed to reduce your own tax payable.

Example:

Tyler’s tax owing for 2016 is $250; fortunately, he’s eligible to claim $600 in non-refundable tax credits on his return. While these credits will reduce his amount owing to zero, the remaining credit amount ($600 - $250 = $350) won’t be added to his refund amount.

 

What are examples of refundable tax credits?

Here are a few examples some refundable tax credits you might be claiming this year: