Ultimate Canadian Tax Guide

If you earn money in Canada, you must report it when filing your taxes. It might take time and even cost you money to file your taxes, but it’s a requirement according to the Canada Revenue Agency (CRA). Even if you don’t earn any income, you may still need to file your income taxes to be eligible for certain tax credits and benefits. But filing your taxes can be pretty complicated, especially if you’re unfamiliar with all the nuances or have a particularly complex financial situation. 

Even still, it’s important to understand the rules, rates, and benefits to ensure you meet your obligations while maximizing your return to keep more money in your pocket. All of which we’ll help you with this ultimate Canadian tax guide.

Income Tax Basics

There’s a lot to know about filing your income taxes. Let’s start with the basics:

When Do You File Your Taxes? 

The deadline to file your taxes depends on the type of return you’re filing:

• Employed Individuals  – The standard tax filing deadline for employed workers in Canada is April 30. This is also the day that any taxes owed must be paid. Late payments will accrue interest charges. 
• Self-Employed Individuals – The deadline for self-employed individuals to file their income tax returns is June 15. Any taxes owed must be paid by April 30 to avoid interest charges.

What Is The Maximum Tax Return?

In Canada, no “maximum” income tax return amount is written in stone. The most you can get back after filing your taxes depends on several factors, such as your income, tax deductions and tax credits you qualify for.

How Long Does It Take To Get A Tax Refund?

The time it takes for you to get your tax refund depends on how you filed:

Income Tax Rates And Brackets 

Canada has a tiered tax system. Higher income brackets come with higher tax rates. So, the amount you earn determines the amount you’ll pay in income taxes. Tax brackets in Canada are structured this way so low-income Canadians pay less in income taxes than higher-income earners.  

However, where you live in Canada also determines your income tax payment amounts. Your tax rate is a combination of the federal and provincial income tax rates. These rates may change yearly based on inflation and the cost of goods and services. 

The following chart outlines the federal income tax brackets for 2024:

How Much Money Do You Take Home After Taxes?

As mentioned, the portion of your income that goes toward paying income taxes depends on your income tax bracket, both federal and provincial. To calculate your take-home pay, subtract other deductions such as Employment Insurance (EI) and Canada Pension Plan (CPP) payments. 

The formula for calculating your take-home pay is as follows: 

Take-Home (Net) Pay = Gross Salary – Federal Taxes – Provincial Taxes – EI – CPP

How To File Your Taxes

There are a few ways to file your income taxes:

• Manually on your own via paper application: You can do your taxes yourself, which may be an option if you have a relatively simple return or have some expertise. This option is free, and processing time is about 8 weeks. 

• Online using tax software: You can simplify the process of filing your taxes on your own by using CRA-approved tax software. Some software platforms are free to use, while others come with a cost. 

• Using a tax clinic: Free community tax clinics are available and run by volunteers to complete income tax returns for anyone who needs assistance.  

• Paying a professional: The easiest way to have your income taxes filed is to enlist the services of a tax specialist. However, you’ll need to pay for these services.  

Best Income Tax Software

Using tax software can be a more cost-effective way to have your taxes done compared to paying a tax specialist to do your taxes for you. These tools are also user-friendly and will walk you through the process step-by-step. Moreover, if you require assistance, many offer professional help for a fee. 

Check out the following top-rated tax software products available in Canada:

Tax Documents You Should Know About 

When filing your income taxes, there are several documents that you’ll need to complete your return fully and accurately, including the following:

• T4 Slips – A T4 slip is a document that employees working for an employer receive. It contains information on their income earned, taxes paid, as well as the contributions they’ve made such as CPP and EI.
• T4A Slips – A T4A slip is similar to a T4, except the source of income listed differs. While T4 slips detailed information about income received from an employer, the income resources on a T4A are from other sources, such as income from the following, self-employment, Old Age Security (OAS) Pension and any other non-employment income.
• T4E Slips – A T4E slip is a Statement of Employment Insurance (EI) and other benefits you received or repaid in a calendar year. If you’ve received EI or EI-funded payments, you’ll receive a T4E slip that you can use to file your income taxes.
• T1 General Form – A T1 General Form is the main document Canadians use to file income taxes. It includes information about all the income you earned and your expenses from the previous fiscal year. More importantly, the T1 General Form will tell you whether you will get a tax refund or owe the CRA. 
• T1213 Slip – The T1213 form is used when you request reduced tax deductions at source.
• Donation Tax Receipt – If you wish to report a charitable gift on your income taxes to help reduce your income taxes, you’ll need an official donation tax receipt from a registered charity acknowledging your donation.

What Is A Notice Of Assessment (NOA)?

The CRA sends income tax filers an NOA after filing a tax return. It includes information including the date the CRA processed your tax return. It also includes information regarding how much you owe or how much you’ll receive as a tax refund.  

If you don’t agree with your NOA, you can file a Notice Of Objection. A Notice of Objection (Form T400A) is a form you can submit if you wish to dispute a Notice of Assessment. The CRA will conduct a formal review of your NOA to determine whether your objection is approved. 

Types Of Tax Credits, Benefits, And Deductions

You may be eligible for various tax credits and deductions to help reduce how much you owe the CRA. It’s in your best interests to understand what these are to keep more money in your pocket come tax time. 

Homeowners

The government offers various tax credits and deductions for homeowners to help reduce their tax liability. Some programs help with home buying, while others help cut the cost of renovating or making homes more ‘green’ or accessible. 

Each program has eligibility requirements, so take the time to verify these criteria to make sure you qualify before applying:

Parents/Children

Federal and provincial governments offer financial assistance for new parents to help offset the high costs of raising children. 

Here are some programs parents may qualify for:

Many provinces provide additional programs that assist with children’s development and education, as well as child care subsidies to bring down the cost of child care.

Seniors

Federal and provincial governments offer eligible seniors a variety of financial assistance programs. Not only can seniors get financial help with retirement income, but also assistance covering the cost of medical care, mental health support, and home renovations.

Here are a few programs available at the federal level to senior citizens in Canada:

General

Depending on your situation, there are other tax deductions and credits that may be available to you, including the following:

Tax Saving Tips

There are plenty of legal and savvy strategies you can employ to fulfill your income tax obligations while reducing how much you ultimately pay in income taxes. Here are a few tax-saving tips to consider: 

Donate To Charity

When you donate to a registered charity, you’ll receive part of your donation back in the form of a non-refundable tax credit. A donation tax credit is required to acknowledge this donation to help you reduce the amount of taxes you have to pay. 

Tax-Loss Harvesting

You have to pay capital gains tax on any profits you make when selling an asset. But if you realize a loss on an investment at any time, you can use this loss to reduce the tax you pay through tax-loss harvesting. This strategy allows you to reduce your overall tax liability by offsetting capital gains with capital losses. 

Use Tax-Saving Accounts

Several accounts are available to help Canadians save money and grow their investment earnings while minimizing their tax exposure:

• Tax-Free Savings Account (TFSA). A TFSA is a government-registered savings account that allows you to earn interest without paying taxes on these gains when you withdraw them. You can even hold multiple investment products in a TFSA, unlike a regular savings account.
• Registered Retirement Savings Plan (RRSP). An RRSP is a savings plan that allows you to save for retirement by making contributions and deferring taxes on your earnings. This helps you grow your retirement fund faster. An RRSP also helps reduce your taxable income, thereby reducing your tax bill.
• First Home Savings Account (FHSA). An FHSA is a program that helps young Canadians save up to $40,000 to use for a home purchase. This account is tax-free, which means any gains earned are not taxed. It’s also tax deductible, which means your contributions reduce your taxable income by the same amount, thereby reducing the amount of taxes you have to pay. 

Tax Law In Canada

Not only are you required to file your income taxes every year if you earn more than the basic personal amount, but you’re also required to ensure that your income tax filings are accurate and include all required income information. 

Tax Avoidance And Tax Evasion

More specifically, any income that should be reported must be included in your tax return. However, it’s important to differentiate between tax avoidance and tax evasion, each of which involves excluding certain income, but one breaks the law and the other does not: 

• Tax avoidance is when you use strategies to minimize the income taxes you have to pay while still complying with Canada’s tax laws. 
• Tax evasion is when you break the CRA’s income tax reporting criteria, such as purposely not reporting income, fraudulently increasing expense deductions or falsely claiming a refund. 

Tax Audit

A tax audit occurs when the CRA decides to take steps to verify the accuracy and legality of the claims you’ve made on your income tax returns. 

Anyone can get audited, but the CRA may target those who may be considered at a higher risk of inaccuracies or non-compliance with Canada’s tax laws. It should be noted that the CRA is looking for signs of tax evasion and potential innocent mistakes that some people might make when filing their taxes. 

If the CRA determines that your tax returns match your records, they will close your audit file and the process will be complete. However, if errors are found, a reassessment will be required. In this case, you’ll receive a letter explaining the reason for this reassessment and will have 30 days to either agree or disagree with it.

How To File Taxes If You’re Self-Employed

Filing your taxes as a self-employed individual is more complex than filing as a salaried employee. There may be a few extra steps or documents that may be required to file your income taxes accurately:

If You’re A Business, Don’t Forget About Sales Taxes

As a business, you need to make sure you collect sales tax from your clients. The sales tax you charge is based on the customer’s location, not yours. That means you’ll need to understand the sales tax types and amounts in each province to ensure accuracy.

Final Thoughts

As a working Canadian, you’re required to file and pay your income taxes. While there are several rules surrounding filing and paying income taxes, there are also plenty of tactics and programs you can take advantage of to keep your tax payments to a minimum while complying with CRA requirements.