
About to do your taxes for the first time? Whether you opt to do
them yourself or entrust the job to a tax specialist, there are some
basic notions you should be familiar with. Here are some of the most important ones:
Because it’s mandatory. In Canada, taxes pay for services we all benefit from, everything from schools and roads to social programs like employment insurance and family allowance payments.
If your annual income is below a certain level, you may not have to pay taxes. But it’s still a smart idea to file a return, because you could receive money or qualify for tax benefits from different levels of government.
If you have a job, chances are your employer deducts a certain amount from your cheque for tax purposes. If too much is deducted during the year, the only way for you to get it back is by filing a return. Learn to make a budget to manage a potential tax refund.
Good to know: In addition to paying income tax to the federal government, you also need to calculate and pay tax to the government of your province or territory. The Canada Revenue Agency (CRA) receives your return and payments and administers the tax system at both the federal and provincial levels, except for the province of Quebec.
If you live in Quebec, you have to file two tax returns, because Revenu Québec handles the provincial portion.
Every year. If you are an employee, the deadline for filing and paying any taxes you owe is April 30. Self-employed workers have until June 15.
All of your income. Here are some examples of the type of income you have to declare:
You must declare all amounts paid by your employer or earned through self-employment, even money that you earned abroad.
If you’re an employee, your employment income is shown on the T4 slip your employer must provide you with. If you worked on a contract basis as a self-employed person, each of your customers must provide you with a T4A slip whenever payment exceeds $500.
You will be issued a T4A slip (and a Relevé 1 in Québec) showing the amount, which is taxable.
If you were awarded a scholarship, it must also be declared as income. You will also be issued T4A and Relevé 1 slips for the amounts you receive, which are generally tax deductible under certain conditions.
Do you have any investments? Investment interest and dividends must be declared as income. If you don’t have any investments, it’s never too late to start saving.
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True. There are two main ways to reduce your income tax bill: tax credits and deductions.
Tax credits are tax measures put in place by governments to help part of the population or a particular sector of the economy. They don’t reduce your taxable income, but they do reduce the amount of tax you have to pay. If the sum of your tax credits is greater than what you have to pay in taxes, your balance will be positive, and you may receive money under certain conditions.
There are many tax credits available. Learn more about them on the Canada Revenue Agency website. You’ll see that there are several measures available to help students, including the tuition credit and the student loan interest credit. Other measures are for workers, including the Canada employment amount to encourage employees.
What’s the difference between a deduction and a tax credit? In the case of a deduction, you must incur an expense and provide proof of payment. You can report the expense in your tax return to reduce your taxable income. For example, if you go back to school as an adult to finish your primary or secondary school education you can deduct your tuition fees.
Subject to certain conditions, you may also qualify for deductions for scholarships, moving fees, and your RRSP contributions.
Good to know: You can withdraw up to $35,000 from your RRSP to finance the purchase of your first home. How Does the Home Buyers’ Plan Work?
You’ll receive some documents by mail, and others electronically. Whether you do your taxes, or someone does them for you, keep your supporting documents. Government revenue agencies have up to six years to request them after your return is filed.
Other documents that are useful for doing your taxes:
If you’re self-employed, you can also deduct work-related expenses. Learn more about the ins and outs of taxes for the self-employed.
To facilitate the tax reporting process:
Friendly tip: Receive your government payments quickly by signing up with direct deposit.
Show me how
You will have to file taxes every year for the rest of your life. Learn now how taxes work and develop good habits to get a bigger tax refund. Do you have questions about your personal finances? We’d be happy to help.
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