Whether you are new to Canada or you’ve been living in Canada for a while, the Canada tax system can seem pretty complicated. The annual task of filing taxes can be really daunting and overwhelming. When I had to file my first tax return, I was fortunate to have a knowledgeable Canadian friend who kindly helped me, otherwise I would have been trawling the internet for hours to figure it all out. So here is a run through of the basics which will hopefully make filing your Canada tax return much easier.
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Canada Tax System Basics
Tax laws for the federal, territorial and most provincial governments in Canada are administered by Canada Revenue Agency (CRA). There is one exception which is Quebec where Revenu Quebec administers its own provincial income tax.
Your personal tax return is called a T1 General. If you are self-employed, you will file your self-employment income and expenses on this same tax return.
There are three types of tax in Canada; Income Tax, CPP (Canadian pension plan) and EI (employer insurance).
Canada Income Tax
In Canada there are two types of income tax that you will have to pay: federal income tax and provincial/territorial income tax. Your provincial/territorial taxes will be determined by your residency as of December 31st the previous year.
Canada Pension Plan (CPP)
Everyone in Canada aged between 18 and 65, and employed has to make mandatory contributions to the Canada Pension Plan. Your employee will automatically deduct CPP contributions from your paycheques. These are called employee contributions and they are matched by your employer and remitted to CRA monthly.
More info on how CPP is calculated is available here
Employment Insurance (EI)
Similar to the UK. Employment Insurance is an unemployment insurance program that provides temporary financial assistance to individuals who lose their job or cannot work through no fault of their own. Generally you would need between You will need between 420 and 700 hours of insurable employment to qualify for regular benefits.
Canadian Tax Returns
Your tax return is basically a comprehensive account of the previous calendar year’s (January 1 to December 31) income and deductions, along with federal, provincial and territorial taxes paid and owed. It also helps determine if you’re entitled to a refund from the government of some or all of the tax that was deducted from your income during that year.
In Canada, income tax returns for individuals (other than self-employed individuals) any given calendar year are due by April 30th of the following year. Note that there is a penalty for not filing your returns on time.
If you have overpaid any of these taxes or are due any tax credits you will receive a refund, and if you have underpaid you will owe the CRA the amount of the overpayment. You can check how much you’re due back at this tax refund calculator.
Important Dates & Deadlines
The deadlines for preparing and filing your taxes vary depending on your personal situation.
These are the key dates for 2021.
Feb 22, 2021: Earliest you can file online
Mar 1, 2021: Deadline to contribute to a RRSP, PRPP, or SPP
April 30, 2021: Deadline to file your taxes
April 30, 2021: Deadline to pay your taxes
June 15, 2021: Deadline to file your taxes if you or your spouse or common-law partner are self-employed
There is a penalty for not filing your tax return on time so make sure you meet these deadlines.
If you have overpaid and are due a refund you have up to 10 years to file. So if you worked in Canada in 2020 you can apply for your refund from February 2021. However if you worked in Canada anytime from 2011-2020 you can apply for your tax refund now providing it is within 10 years.
Benefits of Filing Your Tax Return
As a resident, deemed resident or non-resident, if you don’t have any Canadian income and have been in Canada for a very short time (less than 183 days in a year), you may not be required to file a tax return. However, filing tax returns has certain benefits:
- GST/HST credits, the Canada Child Benefit (CCB), the Canada Worker Benefit formerly known as Working Income Tax Benefit and other provincial or territorial benefits and credits.
- A tax refund is issued when you didn’t earn enough income during the year or you paid excess tax. The government sends you back all or part of the taxes you’ve already paid.
Note: A majority of benefits and credits in Canada are income based and eligibility is often determined by your income tax return (T1).
Your Residency Status
If you’re a permanent resident (PR) or a deemed resident of Canada, you are required to file a tax return for the entire tax year or any part of the tax year when you’ve lived in Canada.
In some cases, non-residents may also need to file their returns too.
You should definitely file a tax return if:
- You’ve had a Canadian or international source of income
- You owe the government money or want to claim a refund or benefit
- You want to claim goods and services tax/harmonized sales tax (GST/HST) credit or any provincial credits
- You were contacted by the CRA to file a tax return
- You’ve received any kind of tax benefits from the government or earned income from selling capital property
Determining When Your Residency Began
In Canada, residency is usually determined by the CRA based on when you have established significant residential ties in Canada. There are no strict rules and only the CRA can determine your residency status.
Residential ties can consist of factors such as:
- Whether you have established a home or permanent residence
- Whether you have a spouse or dependents who have moved to Canada to live with you
- Whether you have personal property like a car or furniture in Canada.
- Having things like social memberships, a driver’s licence, health cards, and bank accounts also further support your residential ties to Canada.
Protected persons, individuals who have applied for or received permanent residency status from Citizenship and Immigration Canada or individuals who have received approval in principle to stay in Canada are all classed as ‘Newcomers to Canada’.
The CRA offers a form called NR74 called Determination of Residency Status (Entering Canada) which you can complete and submit if you are unsure about when you became a resident of Canada. After you submit this form the CRA will issue a decision to determine when it considers that you became a resident of Canada, and it will give you a date of when you became a resident for tax and benefit purposes. This date is your starting point for filing your tax return.
Your First Year Tax Obligations
Once you are considered a resident of Canada for tax and benefit purposes, you will need to report your worldwide income from all sources earned since your residency began.
You must file a tax return if you have to pay tax or you want to claim a refund. Even if you didn’t receive any income during the year, you should still file a return so that the CRA can determine if you are eligible for any benefits which good include the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit, the Canada Child benefit, and payments from certain related provincial or territorial programs.
In some cases, income you earn from outside of Canada may be exempt from tax in Canada due to a tax treaty with your previous country. You still have to report the income on your tax return but you can deduct any income that is exempt.
How To File Your Tax Return
Aside from providing your basic personal information such as your name and address, you will need the following to file a tax return in Canada:
Mandatory
- Social Insurance Number (SIN).
- For recent newcomers, you will need to provide employment and income information prior to your arrival in Canada.
- Details for dependents (spouse, children or elderly parents).
Optional
- If you’re already employed in Canada, you will need your T4 slips. These are provided by employers.
- For entrepreneurs or business owners, you’ll need to show income earned and expenses paid.
- You’ll need to report foreign income after moving to Canada or foreign assets over $100,000.
- Medical expense receipts for yourself, your spouse or children.
- Childcare expense receipts.
Understanding Your Tax Slip (T4)
To file your tax return in Canada, you’ll need either your T4 or your final cumulative payslip from your employer for the previous year end.
Employers usually send out T4’s by around February 28 at the latest. You will need to make sure you get a T4 from every employer that you have had for the previous calendar year (i.e. Jan to Dec 2020 for the 2021 filing).
Your T4 slip from your employer will give you your breakdowns of how much you earnt, and the taxes that you paid. You will find your income tax in box 22 of your T4 slip, CPP contributions in box 16, and EI in box 18.
Your tax slip will also give you a breakdown of any other deductions from your pay like a company pension or union.
If you are missing any T4’s and are unable to get them from employers, there is a document retrieval service at taxback.com.
Ways To File Your Tax Return
The two most common ways to file your tax return is either by mail or online
By Mail
You can fill out a paper return and mail it to your local tax services office. You can get a paper return from a post office, local tax services office, or you can download tax forms from the CRA website.
If applicable, you will get your refund in about 4 – 6 weeks.
Online
Use NETFILE to file your return online. You cannot use this service if you are filing your tax return in Canada for the first time, unless the CRA has your birthdate on file. There are also other NETFILE eligibility requirements.
You must use NETFILE-certified software. Some software is free.
If applicable, you will get your refund in about 2 weeks.
Filing Your First Canada Tax Return
When you are filing your tax return for the first time, you have to file it by mail. But you can still use online income tax software like Turbo Tax to create your tax return and then you can just print it off and mail it. This is what I did and it made it much easier to do.
Using Turbo Tax
I’ve been using Turbo Tax for the last 4 years to do my Canada tax return because there is a free version, and it is just really easy to use. It basically walks you through every step of completing your tax return, and guides you on claiming every tax deduction and benefit possible.
Canadian Tax Return Resources
Newcomers to Canada– This guide for first time tax filers in Canada, will help you further in determining if you are a resident for tax purposes.
Canada Revenue Agency (CRA)– You can find detailed information about everything relating to Canadian tax issues on the CRA website.
Frequently Asked Questions about Individual Taxation– This page on the CRA website provides lots of useful information and answers about Canada tax rates and how to file your return.
General Income Tax and Benefit Package– On the CRA site, this page has forms and information sheets which you will need to file your income tax return.
Services Near Me – If you search for “settlement services” in your area, you can find help about filing your tax return from a local community agency
Ontario Tax Credits and Benefits– If you live in Ontario, this Ministry of Finance page will give you information about different tax credits and benefits you can get to help you with living costs when you file your income tax return.
Filing your Canada tax return doesn’t have to be a complicated overwhelming task. I hope that this run through of the basics will make filing your Canada quick and painless.
Related Posts:
Moving Overseas: Your Quick Guide To Canada
Gemma Lawrence is the creator of This Brits Life. Born and raised in England, she has been living in British Columbia, Canada as a permanent resident since 2016. A solo traveler for the past 9 years, she hopes to inspire and help others to enjoy solo adventures too. As someone who has always struggled with her self-confidence and mental health, she also shares tips and inspirational stories relating to self-love, self-care, and mental health.
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