Taxes explained: a beginner friendly guide

Hey hey, I trust you are doing well and staying safe this period. It is that time of the year again, tax season and I thought it would be nice to share some tax knowledge from all I’ve learnt in the last few years. This post mainly has the basics and is geared towards individuals who are filling taxes for the first time or don’t have a clue what it entails. If you know someone who would find this super helpful, please share this with them! Also, a BIG disclaimer: this is solely in regards to filing taxes in Canada.

Who can file taxes in Canada?

You can file your taxes if you want to claim a refund or pay an outstanding tax bill. For an extensive list of who is required to file their taxes, click here

What if I didn’t live in Canada for most of the year but made some income in Canada?

If you lived in Canada for more than 183 days in the calendar year or have primary ties in Canada, you are deemed a resident for tax purposes, irrespective of your nationality. As a deemed resident, you are taxed on your world wide income. However, if you are not deemed a resident, only your Canadian income is taxable. For more info, read here

What are the deadlines for filing taxes?

April 3oth, 2021 to file for individuals and June 15th for individuals who own businesses and their spouse. The balance owing is due on April 30th. So, as an individual, whether or not you have till June 15th to file your taxes or April 30th, you have to pay the estimated amount you owe by April 30th. Note: Filing taxes is different from paying your tax bill. For corporations, your return is due six months after your year end; so if your company has a December year end, your return is due on June 30th. Note In the United States the deadline to file your taxes is April 15th.

Why is it so important to file my taxes anyways, they already deduct taxes from my paycheque?

You file your taxes so the CRA (Canada Revenue Agency) can assess how much you actually made in the year and ensure the right tax brackets were applied on the income you were taxed. You could also file your tax returns to claim credits that would be used in future years. If you owe taxes or think you might be owing taxes, you must file your a tax return.

Keep this is mind: you can get charged interest or have to pay penalties if:

  • You file a return late
  • You don’t pay an instalment on time 
  • You don’t pay your taxes owing by April 30th. 

Note: Interest is compounded daily and the prescribed rate on overdue taxes is currently 5% on ; this changes every quarter. If you file your taxes before the deadline and are unable to pay the full balance, you could avoid paying the late-filling penalty.

What if I made a mistake and understated my taxes while filing them?

If you made a mistake while filling your taxes, you would either have to pay $100 or 50% of the understated tax whichever is higher. However, this penalty might be waived if you voluntarily come clean to the CRA. 

I have to pay instalments, what is that about?

If after filling your taxes, the amount you owe is greater than $3,000 for the previous year, you would have to pay quarterly instalments in the preceeding year. 

I am a student with no income, do I need to file my taxes?

Yes; so you can claim your education credits that will be applied once you start working. This also applies to international students. 

Can I file my taxes from previous years and how far back can I go?

Yes you can. The CRA’s Netfile allows you to file as far back as 2015 electronically. Other years might have to be done via paper filing.

How long should I hold on to receipts I kept for tax purposes?

You should hold on to documentation for six years after you file the return for that year. So, if you are filling your 2015 return in 2021, you would have to hold on to the documents till 2027. 

What are some documents I would need and where do I find them?

  • Social Insurance Number
  • T2200 Declaration of condition of employment (If you worked at home last year and want to claim your home expenses). – You can get this from your employer.  
  • T2202 Tuition and Enrolment Certificate from your university or educational institute.
  • T3 Statement of Trust Income Allocation and Designations – brokerage firms, the companies you invest with, companies that are holding your mutual funds and non registered investments
  • T4 Statement of Remuneration Paid- from your employers
  • T5 Statement of Investment Income – brokerage firms, the companies you invest with
  • Donation receipts from registered charities 
  • RRSP contribution receipt return

How can I file my taxes?

You can file your taxes either by paper, on the phone, online or through the use of a representative. If you are filling your taxes yourself you can check out these free online softwares such as netfile, simple tax or turbo tax.

Am I eligible for a refund?

You can expect a tax refund if you overpaid your taxes in the previous year or you have enough tax credits that would have offset the taxes you had already paid in the year.

Where can I get help?

I hope you have picked up a thing or two from this post and found it helpful. In the next couple posts, I’ll share more on taxes for individuals and small businesses.

Talk soon,

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