HOW DOES THE CANADIAN TAX SYSTEM WORK?
It is important to understand that a tax CREDIT in not the same as a tax DEDUCTION. An RRSP is an example of a deduction. So is a business expense. A deduction reduces your income from the top down, therefore reducing your taxes payable on that extra chunk of income. It also means that as your income drops below certain thresholds [approx $60K and $30K] your “return” is less and less for every dollar spent on purchasing deductions. A CREDIT can be seen as a tax COUPON or VOUCHER…For every $1 of credits you own, you are entitled to save $1 dollar of tax!
