Basically, all income is taxed in Canada. If you have a job, you must submit a percentage of this money to the government. Often, employers will deduct a set amount from your paycheque. Some employers take too little and you will owe money; others take too much and you will receive a refund. Those who are self-employed are responsible for calculating what they owe.
You will need:
– pay stubs or income information
– a few hours
– some coffee
– peace of mind
Tax returns are available in several forms, specifically for the blind or partially sighted. You can get the publications in braille, large print, etext or MP3.
There are also many benefits you may be eligible for, such as the GST/HST credit, the Canada Child Benefit, and Working Tax Income Benefit. If you are a temporary resident, you must live in Canada for 18 months in a row, with a valid permit, to apply for the Canada Child Benefit and related programs.
There are a number of ways to file taxes in Canada. Each year, from as early as January 1st through April 30th, each citizen must file their income taxes. This involves submitting your annual income information and all expenses to the government.
This is one of our responsibilities as taxpayers. Taxes cover things like universal health care, infrastructure (water, electricity, etc)., and roads, as well as many other social services that are available to us in Canada.
Newcomers to Canada
If you are new to Canada, and this is your first tax year, you will submit your income tax as such. This only applies to those who are in Canada for their first year: after this first year you are no longer considered a newcomer.
For income tax purposes, you are considered a resident of Canada if you have residential ties. These can include protected persons under the Immigration and Refugee Protection Act, people who have applied for or received permanent resident status from Immigration, Refugees and Citizenship Canada, and people who have received approval-in-principle from Immigration, Refugees and Citizenship Canada.
As a newcomer, you will need a Social Insurance Number.
To apply for the Canada Child Benefit, or to register your children for the GST/HST credit by filling out two forms – RC66 Canada Child Benefits Application and RC66 Status in Canada/Statement of Income – and submitting them to the Canada Revenue Agency.
To apply for the GST/HST credit for yourself or spouse, you can fill out RC151 GST/HST Credit Application for Individuals Who Become Residents of Canada. You will have to include a valid mailing address, proof of birth, Notice of Decision or Temporary resident’s permit, citizenship certificate, or Record of Landing.
You do not have to apply for the benefits and credit every year, but every year you must file an income tax return, keep your personal information up to date, and keep your supporting documents in case the government asks for them.
You will use the general income tax and benefit package for the province or territory where you resided on December 31st of that tax year. You can submit electronically or by letter mail.
Living in Canada Permanently
If you live and work exclusively in Canada, you will have to submit an income tax return. You will have to submit if:
You have to pay tax for the tax year; you and your spouse elected to split pension income; you received working income tax benefit advance payments; you sold capital property (real estate, your own residence, etc); you have to repay any old age security or employment insurance; you have to contribute to the Canada Pension Plan (if your income is more than $3500); you are paying employment insurance premiums on self-employment income.
If none of these apply, you should file a return if you want to claim a refund; you want to claim the working income tax benefit; you want the GST/HST credit; you or your spouse want to receive Canada Child Benefit payments; you want to carry forward or claim the unsued portion of paid tuition or textbook amounts; you want to contribute to Registered Retirement Savings Plan and report income; you reeive income supplement under the old age security program.
You may have to refer to other guides or forms that require completion, depending on your situation.
Some provinces and territories have different tax forms. For example, all citizens must fill out a T1 form, but those in Alberta, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Saskatchewan and Nunavut use the 5000-R T1. All provinces except non-residents will use the 5000-G General Income Tax and Benefit Guide.
There are 13 schedules, including:
Schedule 1: Federal Tax
Schedule 2: Federal Amounts Transferred from Your Spouse or Common-Law Partner
Schedule 3: Capital Gains (or Losses)
Schedule 4: Statement of Investment Income
Schedule 5: Amounts for Spouse or Common-Law Partner and Dependants
Schedule 6: Working Income Tax Benefit – Alberta
Schedule 7: RRSP and PRPP Unused Contributions, Transfers and HBP or LLP Activities
Schedule 8: Canada Pension Plan Contributions and Overpayment
Schedule 9: Donations and Gifts
Schedule 11: Tuition, Education and Textbook Amounts
Schedule 12: Home Accessibility Expenses
Schedule 13: Employment Insurance Premiums on Self-Employment and Other Eligible Earnings
If you are the legal representative of the estate of a person who died in the income tax year, you will have to file a return for that person using the T4011 form, Preparing Returns for Deceased Persons.
You will use the according package for the province or territory where the deceased lived at time of death. If the death occurred between January 1st to October 31st, the final tax return is due April 30th of the following year. If however the person died between November 1st and December 31st, the final return is due six months after the date of death. If you are the surviving spouse or common law partner of the deceased, your tax return is due the same date as the deceased’s final return.
If the person dies after December 31st but before the tax return due date, then the tax form is due six months after the date of death.
On the tax return, you have to:
- write “The Estate of the Late” before the name of the deceased
- provide your address as return address
- select the box that applies to the deceased’s marital status at time of death
- enter date of death on the proper line
- ensure the province or territory of residence is where the deceased was living at time of death
- report total income such as salary, interest, rent, royalities
- report CPP, EI, and investment income
- report RRSP income
If the RRSP is matured, meaning it is paying retirement income usually in monthly payments, you must report this. If the surviving spouse or common law partner is the beneficiary of the RRSP, they will begin receiving the remaining payments from the plan. These amounts must be claimed on the spouse’s income tax return.
If the RRSP is not matured, therefore not yet paying retirement income, then the receiver of the pension would have received an amount equal to fair market value of all property of the plan at time of death. This will be shown and issued as a form to the deceased annuitant (annuitant: a person who receives a payment such as a pension from a financial institution, where the person invests money that is later repaid to them in installments). The will of the deceased will specify who is to receive the property held in the RRSP. When the RRSP is not matured, the payment will be transferred from the RRSP of the deceased to the beneficiary.
How to File
There are a number of options available when it comes to filing the income taxes. This process can be overwhelming and frustrating for some. No matter your line of work, whether you are self-employed or not, you can choose to do it yourself and file electronically or submit paper forms; you can hire an accountant; you can get them done at a bank/financial institution; you can take your taxes to a tax service who will complete the forms for you. Also, in Ontario in the past few years, low income citizens could take their forms to a New Democratic Party office who provided free community tax filing services.
Do it yourself
The trick to successful income tax filing is to remain organized throughout the year. You should keep all pay stubs or valid forms together in a file so they are easy to find, come tax season. Most people do their taxes themselves. It typically takes a few hours to go through all of the forms and complete them. You will need tax return slips from your employer (if applicable) that will list your total annual income and any paid contributions to CPP and EI. Of course, this method is free, but is time-consuming, and frustrating for many people. When you submit your return, the government will double check your numbers to ensure against fraud.
Hiring an accountant will take the stress off of you. This is where most business owners or self-employed persons will take their taxes, as there will be many expenses and other things to claim. The accountant will know exactly what is required, and will complete your tax return in a timely fashion. The only drawback is that an accountant can cost, on average, a few hundred dollars. If you are due to receive a tax refund, it may become null and void after having paid the accountant. If you are not self-employed or owning a business, hiring an accountant may cancel out any tax refund you are owed. However, it will take the stress off of you.
There are several small tax filing services that pop up during tax season, such as Liberty Tax, which disappoints many people as they are slow to complete the returns and act unprofessionally. The most reputable tax services would be professional and chartered accountants.