Let me share a real-life scenario. Let’s talk about Ms. Sophia. He hadn’t filed his tax return for a few years mainly because he had a T4, thought he didn’t have to pay any taxes, and was just procrastinating on an unpleasant task. In 2020 he receives a settlement notice from the CRA saying he owes several thousand dollars with no further details other than they added $25k to his actual income. She has called them many times over the past year to get an explanation and each time she has been told that the file has been forwarded and someone will contact her. To this day, no one has returned to her. To make matters worse, the CRA passed this information, i.e. the additional revenue, to Revenue Quebec (without any details), resulting in a significant appreciation on their part. To this day, she has no idea why she was assessed this amount and is now in the position of calling both agencies every week to resolve the situation.

It is important that every Canadian over the age of 18 file an income tax return each year. While not necessarily the most fun thing to do, tax software has made the process relatively painless, especially if your situation is simple enough.

Talk to a tax return accountant or a personal tax accountant for more details.

Benefits Of Filing A Tax Return

Get a refund or avoid penalties and interest! Even if you have the simplest situation as an employee who receives a T4 at the end of the year and nothing else, it is possible that the taxes calculated and withheld from your paycheck are not accurate. This happens in situations where your earnings vary from paycheck to paycheck or the payroll software used by your employer may not be 100% correct. In this case, you may have overpaid or underpaid taxes. It is better to prepare your taxes annually than to receive an assessment from the CRA that assesses additional taxes and related interest and penalties.

Save tuition fees. If you have paid tuition fees to an authorized educational institution, you must always file a tax return, even if you have no other income to report. Although the tuition discount will have no impact on your tuition in the current year, you can carry it forward indefinitely to reduce the tuition payable in future years. You also have the option to transfer part of it to your parents or spouse to reduce their taxes.

Get GST Credits. If your income is below a certain amount, you will be eligible for GST credit. You only get it if you file a tax return.

Get a child tax credit. If you have children, you are entitled to a child tax credit, which is only available if you file a tax return.

Build up RRSP contribution room. If you plan to contribute to an RRSP in future years, you need the CRA to calculate your contribution room, which is done when you file your tax return.

Save credits from donations. Donations to eligible Canadian charities can be transferred for up to 5 years.

Get a medical tax rebate. You may qualify for a refundable health tax credit if your income is below a threshold and your medical bills exceed a certain amount.

Get an employee benefit. If your income is below a certain threshold, you may be eligible for Canada Worker’s Benefits, which means you’ll get a tax refund simply for working.

Save capital loss credits. If you have investments that were sold at a loss during the year, you can apply them against investment gains in future years to reduce taxes.

Get senior benefits. You are a senior and want to apply for Guaranteed Income Supplement (GIS).

Reduce household taxes. If you are older, you and your spouse can reduce your taxes by splitting your retirement income.

Talk to a tax return accountant or a personal tax accountant for more details.

Situations In Which It Is Necessary To Submit A Tax Return

There are also situations where you need to file a tax return:

  1. Any amount of tax you owe for the year. Failure to file will result in penalties and interest that will accrue until the tax return is filed and the balance is paid.
  2. The CRA has sent you a request to submit a return.
  3. You sold an investment or primary residence (the house you live in) during the year. Although you usually don’t pay taxes when you sell your primary residence (your home), you still have to report the sale on your tax return.
  4. Your annual income reaches a threshold above which you must repay some or all of your Old Age Security (OAS) benefits.
  5. You have a balance to pay in a Home Buyer’s RRSP or Lifelong Learning Plan.
  6. You have income from self-employment. Note that while the personal basic amount (the amount below which no income taxes apply) is currently around $13,000, CPP contributions are payable on any earned (asset) amount in excess of $3,500.

Filing your own tax return also makes it less likely that you will end up in the same situation as my friend, where the CRA and/or RQ send you an assessment telling you that you owe them money. Once you are on this list, your chances of future audits increase dramatically. Finally, missing a tax return leads to ongoing low-grade stress for many people. Given how easy (or outsourced) this is for most people, there’s no reason not to do it as soon as possible and get it done.

Talk to a tax return accountant or a personal tax accountant for more details.

Call Now!