Tax season can be daunting and intimidating for so many of us. In fact, 1 in 3 Canadians dread tax season, while one in four say that they are clueless on how to go about filing each year.
The key to understanding tax in Canada is to be prepared and educate yourself on the process. Taxes in Canada have to be filed every year to prevent accruing interest charges or late payment penalties.
If you're unsure about whether you need to file, remember that it is good practice to do so. Filing taxes can be advantageous in helping receive a tax refund, benefits, grants, and more. Learn more below.
How to File Taxes in Canada
Tax season starts early, with forms and publications available to view by January. As of 2020, the tax filing deadline was the end of April.
There are many ways to file your taxes in Canada, including:
The CRA has an online setup that allows individuals to send their returns via NETFILE. Tax filing software such as TurboTax, SimpleTax, or other equivalent platforms will help you prepare your returns following the CRA prompts. A certified tax preparation company is ideal for maximizing tax savings and filing convenience.
Mail-in a Paper Copy
You can view and download tax forms on the CRA website. Fill them out and mail your returns to complete the process. Tax accountants can also help you with tax advice and organization if you're struggling.
File by Phone
Individuals with low, fixed, or stable incomes may be invited to file using the CRA's automated phone service.
Your Tax Resources
Tax season doesn't need to be stressful and rushed. We've developed this guide to help you navigate your taxes with ease. Here are all the answers to your tax-related questions.
What Is the Average Tax Refund in Canada?
Canada has differing tax brackets with varying rates, which help individuals determine how much they can expect back. For example, if you earn between $27,069 and $150,473, you'll be taxed at a rate of 26%
According to the CRA, the average refund amount for 2021 was $1,573. However, remember that factors like employer withholding, deductions, self-employment, and more are likely to affect your refund amount.
How Long Should I Keep Income Tax Records?
Generally speaking, it's advisable to keep all required records and supporting documentation for six-years from the end of the last tax year that they pertain to. The tax year is defined as the calendar year for individuals and the fiscal period for corporations. In the case of trust accounts, the amount of time you'll need to keep your records for is dependent of the type of trust. The CRA determines how long you need to account for and document your taxes. For example, anyone who has to pay or collect taxes, file a tax return, or engages in the commercial activity must keep their records.
Invoices, receipts, deposit slips, bank statements, ledgers, and past returns are some of the financial documents you should keep. The main reason to do so is to provide documentation for deductible expenses to get tax savings.
Do Students Pay Income Tax?
Some students are exempt from paying tax if they fall under the 'full-time student' status. The CRA qualifies such an individual as one who regularly attends an educational institution at the post-secondary level.
In addition, the student must be enrolled in a qualifying educational program with at least 10 hours of instruction a week. However, those who are enrolled part-time but eligible for the Disability Tax Credit (DTC) could still qualify.
Students will need to pay income tax if they receive income while working at school, irrespective of status. This includes part-time work and working for yourself.
How Being Married Affects Your Tax Rate
The CRA has rules in place that apply to common law or married spouses. You will not need to file your income tax returns jointly, but individuals will need to indicate their marital status and report the details of their spouse.
However, filing as a couple will maximize tax benefits and claims such as GST/HST or CCB.
Failure to disclose marital status can be considered tax fraud and render you liable to penalty and interest.
A Guide to Filing Taxes After a Separation
The first step after separation is to notify the CRA of your new marital status. You will need to wait a minimum of 90 days before making a claim. Prove the change through documentation such as car insurance, household bills, or mortgage papers.
In addition, the CRA will recognize your separation only if you are living officially in separate households.
The amount of taxes you owe will then depend on your household income. You may be eligible for CCB, GST/HST, and other refundable tax credits as well. Continue reading here for a more in-depth explanation on filing taxes when separated.
Home Equity Tax Explained
The Government of Canada is thinking of introducing a home equity tax for homeowners in Canada. This might lead to taxing those with higher income brackets. It might also lead to increasing taxes involved in selling a house in Canada.
The Home Equity tax hasn't been introduced yet, but it can mean less money gained from selling property. To keep up to date on home equity tax, be sure to check out Insurdinary's blog here.
How Charitable Tax Credit Works
Donations are tax-deductible in Canada. No matter the amount you donate, you are likely to get some of it back as a tax credit.
You may qualify for the Charitable Donation Tax Credit (CDTC) if you've donated to a qualifying donee. A qualifying donee is defined as a registered charity or public organization.
Keep a receipt of your donation to claim the CDTC. Remember, anyone qualifies for this tax credit, so if you're donating, be sure to make your claims.
The Best Tax Return Software
Having all of the different types of taxes explained above is one thing, knowing how to file them is a separate story altogether. For that reason Insurdinary has put together a comprehensive article on the best tax return software. There are so many to choose from and you'd be surprised at how simple they are to use. Many are free, and some are paid for extra features but all offer easy to understand walk throughs on the often mundane task of tax filing
Get Started on Your Taxes Today
In conclusion, don't forget to research some of the best tax return software for Canadians. With taxes, education is key. Arm yourself with the knowledge on how to go about filing and managing your taxes, and you'll be golden.
If you need more help with your taxes, be sure to check out the Insurdinary blog for valuable insights.
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