Plain meaning
A credit that can be paid even when it is larger than the tax otherwise payable.
Also called
refundable tax credits
Key points
- A refundable tax credit can generate a payment even when the taxpayer has little or no tax payable.
- Some refundable credits are income-tested, while others depend on specific expenditures or eligibility criteria.
- Refundable credits are usually claimed through a tax return or administered through periodic benefit payments.
- Governments often use refundable credits to deliver targeted affordability or business-support measures.
Why it comes up
Refundable credits can affect cash flow directly because they may produce payments rather than only reducing tax payable.