Filing taxes is a necessary part of Canadian life that many newcomers may find intimidating the first time they need to file. However, this process is usually simpler than it appears.
The following will cover important information for newcomers, including when and why to file taxes, how to do so, and the possible benefits for tax-filers in Canada.
How do income taxes work in Canada?
Towards the start of a fiscal year, all private individuals are required to file their taxes for the previous year, with the Canadian Revenue Agency (CRA). Employers usually give employees a tax form (known as a T4 slip) which details their income and tax information for the previous year. This is a crucial document to file personal taxes.
All individuals working in Canada are subject to two different tax rates. The first is the provincial income tax, which is set by the province or territory that an individual is working in; and the second is the federal tax rate, which is set by the Canadian government.
Tax rates can vary depending on a person’s level of income. Canada uses a marginal tax rate, meaning that people are taxed based on how much they earn. Put simply, the more one earns, the more they are taxed, but this is not a flat rate. For example, if an individual earned $60,000 CAD last year in Ontario, they would pay 5.05% on the first $49,231 CAD, and 9.15% on the next $10,769 CAD.
This gets more complicated when combining the provincial tax rate, with the federal tax rate—all tax filers in Canada are subject to both—however tax filers can use programs such as online tax calculators, which help calculate this total. Most salaried employees have this tax automatically applied to their income upon receiving their pay and it will appear as deductions from their gross pay
The deadline to file personal taxes in Canada is April 30th. Taxes can be filed after, but individuals may be subject to a penalty. Separate rules apply for those who are self-employed. Failure to file one’s taxes can result in worse penalties, and even possible criminal charges for tax evasion.
On the opposite end of the spectrum, filing one’s taxes can bring multiple benefits to individuals.
How can I file my tax returns in Canada?
There are multiple ways that individuals can do their taxes in Canada. More specifically CRA recognises five different ways that individuals can file their personal tax returns.
Certified Tax Software (electronic filing)
This is the most common method of filing tax returns. The CRA approves various software or websites for different tax years, which individuals may use to file their tax returns. These electronic tools must be authorised to NETFILE services, which is an electronic service that connects directly to the CRA—and allows for instantaneous electronic filing.
Electronic filings are estimated to take roughly two weeks to process from the time of filing, and are generally free—though pricing can change based on different services and tiers of service used by filers. After tax returns are processed, filers may be eligible for a tax refund, which usually compensates individuals with any extra money that CRA has collected from them throughout the year; or with rebates and credits received through different programs.
The CRA has compiled a list of approved software and websites to electronically file taxes, which can be found here. CRA estimates that this method typically allows a return to be assessed within two weeks.
Authorise a Representative
Tax filers in Canada can also authorise a representative to do taxes on their behalf. This could be an accountant, friend, family member, or anyone else that the filer trusts to manage their financial information. In this case, steps must be followed to authorise the representative.
Costs can vary depending on agreements made between the filer and their representative. The CRA estimates that this method usually yields a wait time of roughly two weeks.
Community Volunteer Tax Clinic
Those in Canada with a relatively modest income, or a simple tax situation may be able to use a free community tax clinic in their area. These are often clinics in an area that can help individuals file their tax return for no cost.
= Clinics can be walk-in, drop-off or by appointment, with some even offering virtual appointments as well. The CRA estimates that taxes filed this way may be processed within two weeks.
To find a tax clinic close to you, find the CRA’s dedicated webpage here.
Discounter / Tax Preparer
A discounter or tax preparer is an individual who can calculate a filer’s tax return upfront and pay them a discounted amount right away. Costs can vary for this method, but the advantage here is that individuals are able to obtain their tax return immediately—though as mentioned a portion is taken away by the discounter for the service.
The CRA conducts compliance programs with these individuals, to make sure that filers who utilise these services are protected under the Tax Rebate Discounting Act.
Paper Tax Return
Those who are not comfortable filing online or through one of the methods already mentioned can also file their taxes by paper. This method has become increasingly unpopular in recent years, as it tends to take longer to process—roughly 8 weeks from the time of filing, if done before April 30th.
This method is however free of cost, and is still available, for those that would like to use it. who use this method will require a T1 income tax package.
Filing by invitation
Certain individuals may also be invited by the CRA to file their taxes through an automated phone line, or with the help of a CRA agent. These methods can only be used if filers have specifically received an invitation, and they have a modest income or simple tax situation.
To learn more about filing your taxes in Canada, find our dedicated webpage here.
In addition, the CRA will hold an interactive webinar on the 20th of March, to give further information about Canada’s tax system, different credits available to filers, and ways to get help when doing one’s taxes. Find the registration link here.
