Paid-Up Capital

A tax deduction is an amount subtracted from your income before tax is worked out, so it reduces the income being taxed rather than the tax bill directly. Its worth depends on your marginal rate: the higher the rate, the more the deduction saves. Common examples are RRSP contributions, child care costs, union dues, moving expenses and business expenses. Credits work the other way, reducing the tax calculated on that income.

Canada runs three systems. The federal GST is 5% for 2026 and applies nationally. Five participating provinces fold a provincial share into one harmonised rate: 13% in Ontario, 15% in New Brunswick, Newfoundland and Labrador and Prince Edward Island, and 14% in Nova Scotia since 1 April 2025. Others add their own tax to the 5% GST, giving 12% in British Columbia and Manitoba, 11% in Saskatchewan and 14.975% in Quebec. Alberta and the territories charge 5% only.

A non-refundable credit reduces the tax you owe to zero but no further, so any unused part is lost, carried forward, or transferred to a spouse or parent where the rule allows it. A refundable credit is paid to you even when no tax is owed, which is how benefit-style payments reach people with little or no income. Most personal credits on the federal return, including the basic personal amount, are non-refundable.

EI benefits are taxable income. Service Canada withholds income tax before each payment reaches you, and the total benefits plus the tax withheld appear on your T4E for the year. That withholding follows a basic calculation rather than your full marginal rate, so people who also worked during the year often end up with a balance owing at filing. Asking Service Canada to withhold more, or setting money aside yourself, avoids a surprise. Higher-income claimants can also have to repay part of their regular benefits through the return.