Taxes & Accounts

Deductions and Credits

A deduction reduces an income amount used in the tax calculation. A credit reduces tax according to the rules of that credit.

4 min

Taxes 101 • 04

Deductions and credits reduce tax in different ways.

They appear at different stages of the calculation.

A deduction generally reduces an income amount before tax is calculated.

A tax credit generally reduces tax after the tax calculation reaches the credit stage.

Examples in the tax system can include

01RRSP deductions02FHSA deductions03Pension-related deductions04Non-refundable tax credits05Refundable tax credits

The mechanism is different.

01

Deduction

Reduces an income amount used in calculating tax.

02

Credit

Reduces tax according to the credit’s rules.

A deduction is not a dollar-for-dollar refund.

DeductionExample $1,000
Tax savedDepends on applicable tax rates
Tax creditUses its own calculation rules
Bottom lineSame dollar amount can have different tax effects

Not every deduction or credit is available to everyone.

Eligibility, limits and calculation rules depend on the specific item and tax year.

When you see a tax break, ask

01Is it a deduction or a credit?02What does it reduce?03Who qualifies?04Is there a limit?

Remember this

A deduction changes the income side. A credit changes the tax side.

Knowing which one you are looking at prevents a lot of tax confusion.

Lesson complete

Reviewed 2026-08-18

Sources

Canada Revenue AgencyAll deductions, credits and expenses ↗
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