Personal tax

Types of tax breaks and concessions

There are two types of tax credits

Non-refundable tax rebates can reduce the amount of tax you owe; for example, you can get a tax bonus on gifts and donations

Refundable tax rebates can reduce the amount of tax you owe but are also available if you don’t owe any taxes, such as Ontario Energy and Property Tax Credit.

The benefits can help with various living costs, such as child-rearing, housing, loss of income, and health care costs.

Basics of income tax

Information on income tax

You can pay taxes on your income.

The amount you pay depends on the income you earn per year. You can reduce or eliminate the amount of income tax you have to pay by applying for tax credits and certain expenses. For example, a basic personal amount, a non-refundable tax credit, allows each Canadian resident to earn more than $ 10,000 per year before income tax is due.

How income tax works

Federal and Ontario income taxes are paid to the Canadian Tax Agency (CRA), which is part of the federal government.

Income tax is usually deducted from the employer’s salary or pension and sent directly to the CRA. You may need to calculate the tax due and submit a CRA payment.

You must file a tax return with the CRA every year for:

Declare the income earned
Make sure you pay the correct amount of income tax
Access to tax credits and concessions

Understanding Canada’s Personal Income Tax Zones

Tax rates apply to personal income received between a predetermined minimum and maximum amount, also known as tax brackets.

Knowing where your income falls within your tax bands can help you decide when and how to apply for certain deductions and credits. Understanding which tax bracket you currently fall in can also help you understand income tax changes if, for example, you start a side gig or have additional earnings that move you to the next bracket.

This year’s income tax preparation may explain why you have tax due or why your refund amount is different from last year.

It is essential to note that these rates apply to taxable income, which is the total income on line 15,000 minus any deductions to which you are entitled.

Remember that all provinces and territories also have their own tax zone. When using tax bands and annual earnings to decide on contributions, be sure to consider the tax rates in the province where you live. Click this link to get federal and provincial rates.

How much federal taxes do I have to pay based on my income?

An example of how Canadian federal income tax rates work

If your taxable income is below the $ 48,535 threshold, you will pay 15% federal tax for it. For example, if your taxable income (after requesting deductions and amounts) is $ 30,000, the CRA requires you to pay a federal income tax of $ 4,500.

If your income is $ 200,000, you risk different tax rates. This shows how much “federal” tax you paid on taxable income in 2020. You need to make calculations for your provincial tax.

• The first tax group – from 0 to 48 535 CAD is taxed at 15% plus
• Second tax group: $ 48,535 to $ 97,069 is taxed at 20.5% plus
• Third tax group – more than 97,069 to 150,473 CAD is taxed at 26% plus
• At this time, $ 150,473 of your income has been taxed. The final amount of the remaining $ 49,527 is taxed at 29%.
• If you earn above $ 214,368 in taxable income in 2020, some over $ 214,368 will be taxed at the federal rate, i.e., 33%. This is called the “highest tax group,” and the common misconception is “if your taxable income is in this highest category, you will be taxed at 33% of your entire income”.

How progressive tax system works in Canada

The Canadian tax system is a progressive (graded) system, which means that low-income people are taxed at a lower rate than high-income people; the more money you earn, the more taxes you pay.

In Canada, all taxpayers pay income tax to the federal government and the government of the province/territory in which they reside. In all provinces/territories, except Quebec, the federal government collects a provincial/territorial tax and returns it in the form of various programs. Quebec collects and administers its own income tax.

You must submit your tax return if:

• If you owe tax to the CRA.
• You are self-employed and must pay Canadian Retirement Plan (CPP) premiums.
• The same applies to the payment of professional insurance (EI) premiums from self-employment income.
• You and your spouse/partner want to distribute your retirement income.
• You have participated in a Home Buyer Plan (HBP) or a Lifelong Learning Plan (LLP) and have installments to pay.
• You got rid of your capital assets. If you have sold your house, you must file a tax return, even if you don’t have to pay any capital gains tax (CGT) on the sale (this is referred to as the primary residence exemption).
• You must reimburse all your benefits in old age or in employee insurance
• During the tax period, you received advances to the Canadian Workers’ Benefit (CWB).
• The CRA sent you a request for a file.
• If the CRA has sent you a request to file, it means that they are serious about your lack of submission, and you should be more able to do so.

Making money in Canada

Your Canadian residency status does not affect whether or not you need to file a Canadian tax return, but it does affect how you file your taxes, the income you must report, and the availability of certain rebates/ deductions. For example, if you meet one of the CRA criteria above, you must file a tax return regardless of your state of residence.

If you live in another country but have income from a business you own in Canada, or from an investment you have in Canada, or if you have a property in Canada, you will need to file a tax return.

No exceptions for age or occupation

Whether you are 9 or 90, age has no effect on your tax return. If you meet any of the above requirements, CRA expects to receive a tax return from you.

Students are also not exempt from submitting. If your 20-year-old is an entrepreneur who earned over $ 3,500 (after expenses) running a small business last summer, he or she must file a tax return while still in school. All working children should file a tax return as soon as they start earning.

Do I still have to file a refund?

Even if you are not required to apply, it is sometimes in your interest to do so for the following reasons; you may need to file for a refund.

The records in your tax return determine whether you are eligible for certain federal and provincial benefit programs. Even if you have earned no income, you may still be eligible for GST / HST credit or provincial benefits such as the Ontario Trillium Benefit. Here you will be able to find a complete list of provincial grant programs.

Your RRSP contribution limit will start accruing as soon as you earn any income. While you don’t expect a refund, the larger RRSP’s contribution room, the better.
If you wish to claim Canadian Employee Benefit (CWB) or continue to receive Canadian Child Allowance (CCB)
If you went to school and are eligible for college tuition, you must declare the amounts on your tax return; regardless of your intent to use them. You may not need to use the credits this year, but to transfer or transfer them, they must be listed on your current tax return.
If you or your spouse wish to continue receiving a Guaranteed Income Supplement (GIS) for Old Age Insurance (OSA) payments.

In addition to federal income tax, a natural person who resides or earned income in any province/ territory is subject to provincial or territorial income tax. With the exception of Quebec, provincial and territorial taxes are calculated on a federal statement and collected by the federal government. Prices vary by jurisdiction. The two provinces also impose surcharges that can increase provincial income taxes due. Provincial and territorial taxes cannot be deducted in calculating federal, provincial, or territorial taxable income.

Quebec has its own tax system that requires a separate calculation of taxable income. Recognizing that Quebec collects its own taxes, federal income tax is reduced by 16.5% of the basic federal tax for Quebec residents.

Instead of a provincial or territorial tax, non-residents pay an additional 48% of the basic federal tax on taxable income in Canada that is not earned in the province or territory. Non-residents are subject to the provincial or territorial rates of income from employment and business associated with a permanent establishment (PE) in the province or territory of relevance. In other circumstances, different rates may apply to non-residents.

Alternative Minimum Tax (AMT)

In addition to the normal tax calculation, individuals are required to calculate adjusted taxable income and include certain “tax preference” elements that are otherwise deductible or exempted in the calculation of regular taxable income. The taxpayer then pays whatever is higher of the current tax or AMT. Taxpayers who’re required to pay the AMT are entitled to credit in future years when their regular tax liability exceeds the AMT level for that year. If the adjusted taxable income goes above the minimum tax exemption of CAD 40,000, a combined federal and provincial/territorial rate of approximately 25% will be applied to the excess, resulting in AMT.

Tax on children

A minor who receives a certain passive income under an income-sharing agreement is taxed at the highest combined federal/provincial marginal rate (i.e., up to 54%), called the “child tax.” Personal tax relief other than dividends, disability, and foreign tax relief or other deductions cannot be applied to reduce child tax.

Income sprinkling

(meaning the transfer of income that would otherwise be made by a highly taxed individual (e.g., through dividends/ capital gains) to family members with a low or no tax rate) used by private companies is limited by ‘introduction of some aspects of the “child tax” rules also apply to adults in certain situations. The “split income”of an adult family member will be taxed at the combined federal/provincial marginal rate (or territorial) higher (i.e., up to 54%). Personal tax relief other than dividends, disability, and foreign tax relief or other deductions cannot be applied to reduce this tax.

Deductions: Your earnings can be reduced to a lower tax group by deducting the amount paid in retirement plans, registered retirement savings plans (RRSPs), union and occupational contributions, childcare expenses, and other deductions. Moving expenses may be claimed against a certain income if you are only moving for business purposes and meet other conditions.

Non-Refundable Tax Credits: Canadian residents receive a basic personal amount of non-refundable tax credits. Tax credits can help to reduce the amount of tax you are required to pay. Therefore, you can receive from the CRA a refund of the income tax already deducted from your payment. If you were not initially taxed enough, you might have to pay additional taxes.

If you had no income in the tax year you are filing, you most likely have no reason to seek tax relief other than college tuition (as these can be carried over to the next tax year) and the rent paid for the Ontario Trillium Benefit.

Tax concessions for residents

GST / HST credit is paid to low- and low-income individuals to help offset the portion of GST / HST paid for the purchase of goods and services. You can apply for a loan for people who become a resident of Canada in the first year that you become a resident of Canada. You can then file a tax return for a GST / HST credit each year.

The Ontario Trillium Benefit is paid to low- and low-income individuals residing in Ontario to help offset the portion of Ontario sales tax on goods and property or Ontario property tax paid.

Canadian Child Allowance is a monthly tax-free payment paid to eligible families to help them meet the costs of raising a child under the age of 18. On the CRA website, you will find an overview of all tax breaks for children and families and other tax breaks you may be entitled to, based on your situation.

Bookkeeping service for small businesses

Missed the submission deadline?

The tax year runs from January until December of each year, and the deadline for submitting the tax return is April 30 of the following year. If the deadline of April 30 is not met, it is still possible to file a late tax return. However, if you owe government taxes, there may be daily interest charges and late payment penalties.