Taxes. We have all heard of them, but what are they? Why do we need to pay them? And what about filing our own tax return? Let’s break down the basics so we’re all on the same page.
What’s the purpose of taxes? Where does my money go?
Every year, the government takes a portion of everyone’s income to cover shared costs: highways, national defense, healthcare service, public education… You probably won’t be able to afford any one of those things entirely on your own (unless you’re Elon Musk), but when everyone contributes a little through tax, everyone can afford it.
What is a tax return?
If you’re new to Canada or haven’t had a job before, this whole concept might seem confusing to you! So let’s simplify it. Every year, you file a tax return, where you basically report how much money you made in a year and how much money you’ve already been taxed. Once you submit it, the government will calculate a more accurate amount of how much tax you actually need to pay. If you paid more than your fair share, you get money back! If it’s not enough, you will pay more taxes. If you paid just enough, you’re spot on and don’t need to make any adjustments.
Why is a tax return important?
Submitting a tax return helps you and the government keep track of who owes who what. It helps make sure that everyone is paying and getting their fair share. If you receive any federal and provincial or territorial benefits and credits, you will need your tax return to get them. ALSO - filing a tax return declaring your income helps build up contribution room in your Registered Retirement Savings Plan.
What if I don’t file my taxes?
We should all strive to pay our fair share of taxes. It is the backbone of what helps our country work and helps you get access to many more goods and services.
If you don’t file your taxes, you could be missing out on certain benefit programs and grants, such as the Canada Child Benefit (CCB), Old Age Security Benefits, OSAP Grants, and the Guaranteed Income Supplement (GIS). Because your eligibility for each of these benefits is determined by the numbers on your tax return, not filing your taxes could result in a delay or cancellation of your benefits.
There may also be a penalty for late taxes. Anything you owe will be charged a penalty of 5% plus 1% for each month it’s late, for up to 12 months. After that, you will need to pay a penalty of 10% plus 2% per month. Yikes! There’s your incentive to get it filed ASAP.
When do I need to file my tax return?
You can file your tax return at any point during the year. The typical “Tax season” is usually March and April, and there is a deadline at the end of April that you should file before to avoid paying any interest or penalties on money you may owe. Bonus: filling your taxes before the deadline also helps you get your refund earlier.
What documents do I need?
When filing your tax return you’ll need certain forms and supporting documents. For starters, you’ll need to have your personal information on hand including Social Insurance Number (SIN), and if applicable, your partners or children or other . If you’ll be claiming the Canada Caregiver Amount, you’ll need the net income amounts (the amount after total after deductions) for your spouse and any dependents (eg. children or aging parents!).
As for income, most people who are employed will receive a T4 slip. This is typically issued out to employees who work on a . This slip is a summary of your employment earnings and deductions for the year. If you’re not a salaried employee, and have odd jobs here and there (this could include like driving Uber and Doordash deliveries), you can report your earnings under the “occasional earnings” section of your return. If you’re self-employed, you can report everything under the T2125 slip.
And don’t worry if you’re not getting any of this right now. There are many support systems available to help you through the process.
How do I file my taxes?
There’s a bunch of options to file your taxes. You can try a government certified electronic filing software that does most of the work for you. You can also file online or by paper yourself or go to a community volunteer tax clinic, where an authorized representative, like an accountant, guides you through the process. The government also has agents to help you file! No method is better than another, so the method you choose completely depends on your comfort level or budget.
What are “credits” and “deductions”? What am I eligible for?
The CRA offers A LOT of credits and deductions, which can help you get more money back in your pocket. For instance, just for filing your return every year, you could get up to: $467 if you are single, $612 if you are married or have a common-law partner, and $161 for each child under the age of 19. The Climate Action Incentive can provide from $600 up to over $1,000, with an additional 10% if you live in a rural or small community. If you contribute to your Registered Retirement Savings Plan, you can enter the deduction onto your tax return to increase your tax refund or reduce your balance owing. If you’re eligible for these, you should take full advantage of them - it’s all money back in your pocket!