Why do I have to do my taxes?
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.
When should I do my taxes?
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.
What do I have to declare?
All of your income. Here are some examples of the type of income you have to declare:
How do tax rates work?
Employment and self-employment income
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.
Registered education savings plan and scholarships
If you are a student and you or your parents withdrew funds from a registered education savings plan (RESP) in the form of an educational assistance payment (EAP) during the year, the amount must be reported on your tax return, not on your parents’.
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.
True or false: it is possible to pay less income tax?
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.
How to prepare to file your tax return in Canada?
Gather all your documents and keep them in a safe place
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:
- Invoices for education-related expenses
- Moving bills
- Charitable donation receipts
- Receipts for medical expenses
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.
Update your information and sign up for direct deposit
To facilitate the tax reporting process:
- Update your personal information with federal and provincial authorities.
Use the proper resources
Software and web applications
Want to do your taxes yourself? There are software and web applications to help you every step of the way. Some of these tools even ask you questions to find out what credits or deductions you are entitled to. All calculations are performed automatically.
The federal and provincial governments make a wide range of information and resources available to you. The Canada Revenue Agency site has an entire page devoted to doing your tax return, with lots of useful links to help you.
Specialists and experts
Many educational institutions and community organizations offer tax workshops where volunteers can help you and answer your questions. You can also have a specialist, such as an accountant, prepare and file your return for you.
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.