Filing your taxes might be one of the most important financial actions you’ll take each year. It can also feel confusing or stressful at times. Find out more about how income tax works, including tax deductions and tax credits, and try our interactive chart to see what tax bracket you are in.
On this page you’ll find
How does income tax work?
When you file your taxes each year, you report how much money you have earned that year, and from what sources. This includes employment income, but also things like employment insurance (EI), pension income, or income from your investments. You also report details on your household such as where you live, whether you have a spouse, children, or other dependents, and whether you have moved in the last year.
If you have a full-time job, then your tax may be deducted directly from your paycheque. This will be shown on your pay stub. Some types of income are not taxed. For example, you don’t pay tax on life insurance proceeds following someone’s death, most gifts and lottery winnings. Learn more about which sources of income that are not taxed.
How much income tax you might owe depends on how much you earned, and how much of that income is considered taxable. Income is taxed at different rates, depending on how much taxable income you have. This is also sometimes called your tax bracket. Income tax rates increase from one tax bracket to the next. In Canada, the lowest tax rate is 14% for the lowest income group, and the highest is 33% for the highest income group.
Income tax rates are progressive. That means that if your income increases enough to put you into the next highest tax bracket, the new higher tax rate does not apply to all of your income. It only applies to the amount that is over the threshold of the previous tax bracket.
When you file your taxes, you will either owe tax or be owed a tax refund. This depends on how much tax you have already paid through your employer, and how much you can lower your tax through deductions or credits.
Income tax rates are set by the federal and provincial governments and change from year to year. Find current tax rates.
What are tax deductions and credits?
Tax deductions, benefits, and credits are ways you can either reduce how much tax you owe, add to your refund, or receive income back at different times of year.
- Deductions – these reduce your taxable income, and could add up enough to put you into a lower tax bracket, which would mean you will be taxed at a lower rate. You claim deductions on your tax return. Tax deductions tend to be worth more in terms of tax savings if you are in a higher tax bracket, because there is the potential to reduce your taxable income and put you in a lower tax bracket. However if you are already in a lower tax bracket, then deductions such as RRSP contributions will have less of an effect. Some common deductions include RRSP contributions, moving expenses, childcare expenses, and union and professional dues. Learn more about what you can deduct.
- Non-refundable tax credits – these are credits that reduce the amount of tax you owe, rather than reducing your taxable income like deductions. Non-refundable means they will not add to your refund, so if your non-refundable credits add up to more than the amount of tax you owe, the result will be that you owe no tax. Some examples of non-refundable tax credits are the child care expenses deduction, the disability amount, the charitable donation tax credit, the Home Accessibility Tax Credit (HATC), the adoption expenses amount, and the Canada caregiver credit.
- Refundable tax credits – these credits do contribute towards a refund at tax time, or may be paid to you in amounts throughout the year. The government will pay you the refundable tax credits you qualify for, whether you owe tax or not. To claim them, you must file a tax return. Some examples are the Canada Groceries and Essentials Benefit (formerly the GST/HST credit), and the Canada Workers Benefit (CWB).
Keep your receipts
Many deductions and credits require you to keep receipts in order to claim them. For example, your total RRSP contributions will be shown on receipts provided by your financial institution where you hold the RRSP account. It’s a good idea to keep a digital folder or paper folder to save your tax receipts along with any other information you will need to file your return. You do not need to send them with your tax return, but the CRA may ask to see them later.
What are some common benefits and credits for households in Ontario?
There are many potential tax benefits and credits available, depending on your personal situation.
- Canada Groceries and Essentials Benefit – As of July 2026, the GST/HST credit is replaced by the Canada Groceries and Essentials Benefit. This is a refundable benefit for low to moderate income Canadians who are 19 or older, who meet the income eligibility criteria. It is paid quarterly. The amount you can receive depends on your household size, marital status, and your household income. Learn more about the Canada Groceries and Essentials Benefit. You can apply for this benefit by filing your tax return.
- Canada Child Benefit – If you are a resident of Canada and are a primary caregiver for a child under 18 years of age, then it’s likely you are eligible for the Canada Child Benefit (CCB). The CCB is a tax-free monthly payment for eligible families. There are a couple of different ways you can apply for the CCB. This can be done at the same time as when you register your child’s birth, or online through your CRA account. The amount you receive depends on your income – the higher your income, the less you are eligible for. The Canada Revenue Agency (CRA) determines the amount you are eligible for based on the income reported on your tax return each year. This means it’s important to stay up to date on filing your taxes.
- Ontario Child Benefit – In Ontario, when you apply for the CCB you are automatically assessed for the Ontario Child Benefit (OCB). The OCB is an additional monthly payment which is determined by your income level.
- Home buyers’ amount – This is a non-refundable tax credit that helps first-time home buyers with some of the costs of purchasing a qualifying home. You can claim up to $10,000 for the purchase of a qualifying home. It may be split between eligible spouses or common-law partners. There are rules for who can claim it. Learn more about the home buyers’ amount.
- Home accessibility expenses – The Home Accessibility Tax Credit (HATC) is a non-refundable tax credit designed to help homeowners cover the costs of renovations to improve the accessibility and safety of their home. If you had expenses for a qualifying renovation, you can claim up to $20,000 per year.
- Disability tax credit – The disability tax credit (DTC) is a non-refundable tax credit for Canadians living with a disability. It aims to offset some of the costs related to living with a disability. You must apply for the DTC before you can claim it on your tax return. Being eligible for the DTC can is also a requirement for opening a Registered Disability Savings Plan (RDSP), as well as for other benefits like the Canada disability benefit. Learn more about eligibility for the disability tax credit.
Use the Child and Family Benefits Calculator from Canada.ca to estimate how much you could receive from tax benefits programs.
Summary
- When you file your taxes each year, you will either receive a refund or owe tax.
- How much income tax you might owe depends on how much you earned, and how much of that income is considered taxable.
- In Canada, tax rates depend on how much income you earn, also called your tax bracket.
- Tax rates are progressive, which means that if your income increases enough to put you into the next highest tax bracket, the new higher tax rate only applies to the amount that is over the threshold of the previous tax bracket.
- You can reduce the amount of tax you owe by claiming tax deductions and credits.
- Tax deductions will reduce your taxable income, non-refundable tax credits reduce the amount of tax you owe and refundable tax credits contribute towards a refund.
