Every year, Canadians need to report their income and benefits to the CRA, a process referred to as a tax return. A tax return outlines all income and benefit sources as well as any eligible deductions and credits. The catch with a tax return is it must be completed to comply with the Income Tax Act, or ITA for short. Filing taxes can be challenging if you’ve never done it before or had an abnormal year. You can learn more about how to file personal taxes in Canada below.
What Do I Need to File Personal Taxes?
For those who were employed or earned investment income in the previous year, they will receive statements from their employer or financial institution displaying the monetary transactions. These statements are referred to as slips. An example of a slip received from your employer is the T4 Statement of Remuneration Paid while a T5 Statement of Investment Income may be something sent to you from your brokerage to show investment earnings. Self-employed individuals and those earning income from a side hustle will need to compile all their invoices and receipts related to their income earning activities.
When completing your tax return, you will need to provide your personal information, report your income (whether it is earnings from employment, self-employment or investments), and claim any deductions or expenses against your income.
Commonly Used Tax Credits
There is a long list of tax credits that Canadians can claim against their earnings to reduce their taxable income. Below are some of the most commonly used tax credits:
- Basic Personal Amount. The basic personal amount for 2020 is $13,229 and everyone can claim it. This claim ensures that no tax is paid on a certain amount of basic income to protect people below the poverty line.
- Spouse or Common-Law Partner Amount. Those who supported their spouse or common law partner who had a net income of less than $13,229 can claim the applicable amounts against their own earnings. Support payments made to a former spouse or common law partner are also eligible under this claim.
- Employment Expenses. Salaried employees may claim a deduction for expenses that they incurred on behalf of their employer. Note that this does not include expenses incurred during the ordinary course of work, for example travel to the office is not an eligible deduction. Some examples of eligible employment expense deductions include: accounting and legal fees, supplies, parking, allowable motor vehicle expenses, salary expenses, office rent and home office expenses.
Resources for Filing Taxes
Many Canadians consider filing tax returns to be a daunting and gruesome task, but there are resources available to help you through the process. Let’s take a look at some helpful resources to ensure you receive all the benefits and credits that you are entitled to.
The Canada Revenue Agency, or CRA, has a list of publications that provide greater clarity and instructions on tax related topics. This includes everything from downloadable forms to tax guides on reporting rental income. A landing page for commonly requested services and information can be found here, while a full list of the CRA publications can be found here. You can also search the CRA website for any other resources.
General Information and Help
For more information, the CRA offers an automated service by telephone or by teletypewriter to assist those who have a hearing or speech impairment. More information can be found here. If further assistance is required, there are volunteers from the Community Volunteer Income Tax Program who work at free tax clinics across Canada.
The deadline for filing personal tax returns is typically at the end of April and the payment deadline for any amounts owing usually falls two months afterwards. Keep in mind that the taxation year is always January 1 to December 31 for individuals.
Due to COVID-19, the deadline for filing personal income tax returns has been extended from April 30 to June 1, 2020. For those who are self-employed, the deadline has been extended to June 15, 2020. The payment deadline for both personal and self-employed tax returns has been extended until September 1, 2020. Any late filing penalties and associated interest will be waived if returns are filed and payments are made prior to this date.
Ways to File Taxes
There are several options individuals can choose from to file their income tax return:
- There are a number of electronic software programs which can help to simplify and expedite the tax return process. An example is TurboTax online. Click here for a full list of programs that are certified by the CRA and must be used to file electronically. Some of the options are free.
- Paper Return. For those that filed their tax return on paper the previous year, the CRA will automatically mail the new income tax package to your registered address. The complete package can also be downloaded or ordered here.
- By Telephone via File My Return. Eligible individuals will be mailed an invitation letter to use CRA’s automated tax return service called File My Return. This service is generally offered to individuals who have low or fixed incomes that don’t vary significantly each year.
- The Community Volunteer Income Tax Program. There are free tax clinics nationwide where volunteers may be able to help file your taxes at no cost. This service is typically for those with a moderate to low annual income and a straight forward tax situation.
Filing Taxes in Canada
Although the thought of having to file your taxes each year may seem stressful, there are many tools and resources available to help guide you through the process. It does get easier each year as you accumulate tax knowledge. Try your best to always file and pay on time to avoid penalties and use a specialist when needed.