Rounding it up
Taxes are due on April 30 each year for most Canadians; those who are self-employed have until June 15th. Payments are due at the time you submit your return.
There are various types of income you’ll need to include on your return, including employment income, investment returns, and payments from retirement accounts.
Deductions, expenses, and credits can reduce your overall taxable income and help you offset some costs you’ve incurred during the year, like childcare or medical expenses.
They say there are only two certainties in the world: death and taxes. Whether this outlook is true or not, the fact is that you will almost certainly have to pay taxes throughout your life. Taxes can be a pain for the individual; you have to do quite a bit of math and figure out what you owe in addition to what you already paid on your hard-earned income. Sometimes, things turn out nice and you end up with a tax refund.
It’s important to remember though, that taxes pay for a lot of critical infrastructure in Canada. They pay for the health system, roads and bridges, regulators of all kinds, and more. They also help pay for a social safety net that helps Canadians who are experiencing financial hardship. In short, those taxes you don’t love paying are crucial to the well-oiled functioning of a modern society. Let’s take a look at when tax season is in Canada and what you need to be thinking about before, during, and after it.
When do I have to pay taxes?
The deadline to file your taxes and pay anything you owe is April 30. That means you have about four months to find all your receipts, prepare your return, and get it sent to the Canadian Revenue Agency (CRA), which is in charge of taxation. If you’re self-employed, you get a bit more time; you have to file by June 15. If you live in Quebec, the dates remain the same, but you’ll submit your return to Revenu Quebec.
Remember too, that you may not owe anything at all. If you’re withholding the correct amount of each paycheque, you may have already met your tax obligation for that year. After you’ve calculated your taxes, you could even be entitled to a refund.
Super! How should I get started?
Well, the first step is to understand a bit about how taxes work and what you need to report. In essence, there are two key parts of completing your taxes with which you’ll be concerned:
Reporting all of your income, and
Claiming deductions, expenses, and credits.
You’ll calculate your income first and then, working from that number, determine what deductions and credits can make that number a bit lower. Remember, deductions are things that lower your taxable income, and credits are added on after you’ve calculated your taxable income in the first place. This is important because, in practice, you won’t be getting any money back from a deduction; you’ll only be reducing what you may owe. Credits are added on top and could result in a refund.
Calculating your income
Any type of compensation you receive for work or as a result of an investment is subject to taxation. This includes things like tips or gratuity, pension income, and even COVID-19 benefits. Employment income is the most common type reported on your tax return. You’ll receive a tax slip that details the amount your employer has withheld, and paid to the CRA on your behalf and the amount of money you’ve made in the past year.
You’ll also receive tax slips from banks or financial institutions that hold your investment accounts. These include everything from your normal savings account to investments you’ve held and sold in that year. Anything that earns interest is subject to taxation. Note, that retirement accounts such as Registered Retirement Savings Plan (RRSP) accounts are not subject to taxes year after year. You only have to pay taxes on the amount that you withdraw. So if you’re retired and are taking advantage of your hard-earned savings via your RRSP or a similar account, you’ll have to pay taxes on that amount.
You also have to pay taxes on any amount that you received as part of a social welfare program. From COVID-19 benefits to workers’ compensation, these payments are subject to taxes.
Calculating your deductions, expenses, and credits
So, now you know how much you’ve made in the previous year and what your taxable income is. It’s time for the fun part! Kind of. There are more than 50 different deductions, expenses, and credits for which you can take advantage. These can lower your tax liability and provide credits. The Canadian government uses tax credits such as the tuition tax credit to take certain actions and make it a bit easier to do those things.
Charitable donations: It’s the right thing to do anyway, but charitable donations will also net you a very sizable tax deduction. This is an example of a deduction that lowers your overall taxable income in the first place.
First-Time Home Buyer: You can get a nice chunk of change back just for purchasing your first home. Most Canadians realize about $750 in federal tax savings. This is a tax credit so it’s added on after everything else.
Student loan interest: The government wants to encourage education and they do that by allowing you to deduct the cost of your educational loans’ interest.
Age amount: Set by the age of the individual and their income, the age amount tax credit helps older Canadians get a bit more cash in their pocket.
Canada Child Benefit: This benefit is claimed when you submit your tax returns but is delivered to your mailbox or bank account monthly. There are a whole host of requirements so be sure to read up on what's needed.
Childcare Deduction: Let’s be real, kids are expensive and the government doesn’t want to tax you on income you flipped directly to your childcare provider. This deduction can be as much as $8,000 for each child under six and $5,000 for kids from ages 7 to 15.
Putting it all together
Once you’ve combined these two portions of your taxes, you’re ready to submit! You can file your taxes by mailing in the hardcopy return or submitting your taxes online. Make sure you take note of whether you need to pay additional tax or if you’re due a refund. If the former, you’ll have to submit payment with your return. If the latter, the CRA will accept your return and forward along your payment in a few weeks.
Submitted my taxes — I’m all done right?
Yes and no. The CRA will do a cursory glance over your return to ensure it’s correct before marking it complete. It does, however, have three years to more thoroughly review your return and amend its decision. This can sometimes mean you have to pay more than you originally did and, unfortunately, you’ll have to pay interest on the amount you didn’t pay the first time around. The CRA, though, understands that mistakes happen and so they will work with individuals to sort out payment plans to help with repayment.
This sounds like...a lot. Can I get help?
Absolutely. Taxes are complicated, but there are lots of resources about taxes to help you complete yours correctly. You can authorize a representative to take care of your taxes for you, such as an accountant. You’ll likely have to pay for this service, though. Certified tax prep software helps make the confusing web of deductions and credits and payments easier to understand; most people have a relatively straightforward tax situation and can take care of theirs with software. Finally, many communities offer tax clinics to help residents file. The CRA also offers assistance to Canadians who need a bit of direction on the proper way to file.
Whether you’re just getting going with part time jobs after school or taking distributions from your RRSP, you’ll have to pay taxes. Understanding what’s taxable and taking advantage of the variety of credits and deductions available to you will make the process less painful than it needs to be.
Dan is a runner and writer living in the Washington, D.C. area, where he currently works for a financial services trade association as the Communications Director.