Tax Declaration in Canada: Step-by-Step Guide

Embarking on your tax declaration in Canada can feel like preparing for a cross-country trip from the rugged shores of Newfoundland to the majestic mountains of British Columbia.

It’s a journey that requires preparation, understanding, and perhaps a bit of caffeine. Fear not, intrepid traveler!

This guide is your roadmap, offering step-by-step directions to ensure your tax journey is as smooth as a ride on the TransCanada Highway.

Let’s dive in!

What Is A Tax Declaration?

Employers seek a tax declaration from their employees at the beginning of a financial year. This declaration lists all tax-saving investments an employee commits to make in that particular year.

Based on the information in the tax declaration, the employer calculates and deducts tax at source (TDS) proportionately from the employee’s monthly income. 

TDS on salary payments is governed by Section 192 of the Income Tax Act, 1961.  

Declaring tax-saving investments is not all! Employees must submit proof of expenses or investments during the year to support their declaration. 

If they fail, the employer must recover the tax shortfall from the employee’s salary in the remaining months.

Employers managing payroll traditionally use spreadsheets to collect investment proofs in physical copies or via email. 

Then, the concerned team verifies the details and approves the tax declarations. 

The whole process becomes cumbersome and confusing.

But, this process can be simplified for employers and their employees through automation. 

When Do You File Your Taxes In Canada?

Winter, spring, summer, fall… you might think there are four seasons in Canada. But there’s one more to add: tax season.

For personal taxes, or if you run a business that’s not a corporation, the income tax year matches the calendar year: January 1 to December 31. 

Then, the following spring, you must do “filing your taxes” or “doing your tax return.” 

This means filling out an income tax return and sending it to the Canada Revenue Agency, or CRA.

Here are some deadlines to pay attention to:

  • Personal income tax deadline: The deadline to file personal taxes is April 30. So, for tax year 2023, you’ll have to file by April 30, 2024.
  • Self-employment tax deadline: If you or your spouse or common-law partner have self-employment income, your filing deadline is a bit later, on June 15
  • Deadline for taxes owed: If you owe income tax to the government, you still have to pay the amount by April 30, even if you file your taxes on June 15.
  • Weekend blackout: If April 30 or June 15 are a Saturday or Sunday, the deadline gets pushed to the following Monday.
  • Newcomer tax filing date: When should newcomers file their taxes for the first time? Usually, on the filing deadline for the year when you become a resident for tax purposes. 

For instance, if you moved to Canada in July 2023, you would file your first tax return by April 30, 2024. You can also apply for some benefits and credits earlier than that.

Note: If you file your return later than the due date, you may have to pay penalties and interest on any amounts owing.

What Are The Advantages Of Filing A Tax Return?

Do you need to file a tax return? Even if it’s not required (like if you have a zero-income tax return) or you think you could leave it until later, there are still some good reasons to file.

For instance: 

  1. To receive a tax refund. A tax refund happens when the government sends you back all or part of the taxes you’ve already paid because you didn’t earn enough income during the year or paid too much tax.
  1. To avoid penalties on taxes owed. As a resident of Canada, you pay income tax on all worldwide income earned while a resident of Canada, both foreign and domestic sources. 

Be sure to report all sources of income and file by the deadline to avoid penalties and interest charges from the CRA. 

  1. To set up your CRA My Account. Once you have filed your tax return for the first time, you can use that information to complete your registration and access CRA’s My Account.

The online system helps you track and maintain your tax information and communicate with the CRA.

  1. To take advantage of benefits. If you’re 19 or older, you may also be eligible for a larger refund through refundable credits such as the GST/HST credit, Canada child benefit (CCB), or Canada Worker Benefit. 

Even if you did not receive income during the year, it’s a good idea to file a return so that the CRA can determine whether you’re eligible for any tax benefits for newcomers.

  1. To find out your residency status. What if you’re an international student studying in Canada? Well, you may have to file an income tax return. 

Whether you have to file or pay income tax in Canada depends on your residency status and whether you earn income in Canada. 

It’s a good idea to determine your residency status and how that affects whether (and when) you must file taxes.

What Is The Impact Of Residency On Taxes?

According to the CRA, you are considered a resident for tax purposes when you establish significant residential ties in Canada. 

These ties most often happen on the date when you arrive in Canada. Examples of significant residential ties include:

  • Establishing a home in Canada
  • Having a spouse or common-law partner in Canada
  • Having dependents (such as children) in Canada

The CRA’s criteria to determine whether you are a resident for tax purposes differ from those used for permanent residence status or Canadian citizenship.

If you are considered to be a resident of Canada or a deemed resident of Canada, you should file an income tax return for either the entire tax year or the part of the tax year you’ve lived in Canada. 

Suppose you are still determining the exact date you officially became a resident. In that case, the CRA offers the NR74 Determination of Residency Status (Entering Canada) form, which you can complete and submit. 

The CRA then issues a decision letter with a date they consider you to have become a resident of Canada. 

Do Refugees Pay Taxes In Canada?

Yes, refugees pay taxes in Canada. 

As a refugee, the income tax you pay depends on how much money you make, where you live and any deductions or credits you might have. 

How Do You File Your Taxes For The First Time?

As a new Canadian, there are two ways to file your taxes. 

  1. Online: A certified tax preparer can submit your tax return online on your behalf, or you can use NETFILE (that is, you prepare your return yourself using certified tax software, such as TurboTax).
  2. Mail: You can print and mail your first income tax return to the CR.

What Information Do You Need To File Your Return?

Generally speaking, to do your taxes, you’ll have to provide basic personal information, such as your full legal name, address, and all income from the previous year (the easy stuff).

Other important things to note: 

  • Ensure you have applied for and received your Social Insurance Number (SIN), which is used to identify you for income tax and benefits.
  • If you are already employed in Canada, you’ll receive a slip from each employer you worked for during that tax year. 

The slip is called a T4 – Statement of Remuneration Paid; you should receive it from your employer by the end of February.

  • If you recently arrived in Canada, you must include information about your income earned before arriving.
  • If you received employment income from outside Canada after the day you relocated, you’ll need those numbers as well.
  • If you have foreign assets over $100,000, you must report them on Form T1135 on your tax return.
  • If you have dependents, such as a spouse, children, or elderly parents, you’ll have to provide all of their details, too.
  • Credits and deductions you can claim depend on your tax situation. For example, if you have childcare expenses, you may be eligible to claim those on your return. 

You can also claim those if you paid medical expenses for yourself, your spouse, or your children. (Make sure you have official receipts!)

  • If you bring any assets to Canada, you must include details and market value on arrival. 

Your capital gains or losses will be calculated based on this amount if and when you sell them.

  • Québec residents must also file a tax return with Revenu Québec. (Québec is the only province in Canada where you need to file two tax returns.)

What Are The Steps For Filing A Tax Return?

Don’t stress—it might seem like a lot, but filing taxes yourself isn’t that hard. It all comes down to these four steps:

  1. Gather all the documents and information you need, as listed above. 
  1. Choose how you’re going to file your taxes and get prepared. If you want to mail your tax return, request a copy of the paper filing package from the CRA. 

If you want to file taxes online, create an account with a tax preparation tool like TurboTax. 

If you’d prefer to hire an accountant, ask for referrals for someone in your community. (As a newcomer, you may be eligible for free tax help—the CRA has information on how to find a free tax clinic.)

  1. Work through your tax return, filling out the forms step by step. If you’re working on paper, be sure to double-check your maths! 

If you’re doing your taxes online or with an accountant, ensure they’ve included all your income, deductions, credits, and expenses.

  1. Send in your tax return by the deadline. Once the CRA has processed your return, you’ll receive a Notice of Assessment.

This outlines their conclusions and gives you essential information on your tax situation; it also lets you know whether you owe money or will receive a refund. 

Keep this document somewhere safe—you’ll need it again in the future.

How Do You Declare Foreign Income?

Any income you earned before you arrived in Canada is not subject to Canadian taxes. 

However, once you are a Canadian resident, you must declare all income from anywhere in the world on your tax return for tax purposes.

If you declare foreign income on a Canadian tax return:

  • Indicate the country the funds came from.
  • Declare the total amount of any income (that is, the amount before foreign taxes were withheld).

In some cases, income you earned from a country other than Canada may be exempt from tax in Canada due to a tax treaty. 

But you must still report the income on your tax return. You can deduct the exempt part on line 25600 of the form.

Declaring foreign property

When you’re a Canadian resident, you have to report any foreign property you own with an adjusted cost base above $100,000 during the year. 

This includes bank accounts, stocks, bonds, and real estate. You make the declaration on Form T1135, Foreign Income Verification Statement.

Why Should You File Your Tax Return?

International students are encouraged to file a tax return even if they don’t have any income. The Canada Revenue Agency (CRA) lists reasons you should file a tax return.

Most international students completing a degree in Canada on a study permit are considered residents of Canada for income tax purposes; however, taxes are based on an individual’s specific circumstances. 

You must cancel your residential ties to Canada and determine your residency status before submitting your tax return.

For more information about Canadian taxes, please see filing an income tax return as a student on the Government of Canada’s website or contact the Canada Revenue Agency (CRA). 

What Happens If You File Your Taxes Late?

While you should always try to file your taxes on time, late filings will only trigger a penalty if you owe money to the government. 

A 5% late-filing penalty on the balance owing will be levied the moment you miss the deadline, plus an additional charge of 1% for each whole month you file after the due date to a maximum of 12 months. 

Depending on what you owe, these fines can significantly add to your tax bill if left unchecked.

Changing Your Taxes After Filing

You can change entries on specific lines of your tax return up to 10 years after filing, but you cannot file an entirely new return. 

You can use a function called “Change my return” on the Canada Revenue Agency’s MyAccount portal, or taxpayers using NetFile can use ReFILE to amend any of their past four tax returns. 

These provisions are meant to effect changes resulting from new or changed information. It is an offense to submit false information on your return knowingly.

What Are The Main Steps To Filing Taxes In Canada?

Gather your documents.

The most important one is your T4 from your employer, but other “T” slips may also be applicable. 

If you contributed to an RRSP, you’ll need proof from the financial institution that holds your assets. 

If you donated to charity, get those official receipts, plus any applicable childcare, medical, education or business expenses.

Decide how you are going to prepare your taxes.

Most people these days use cheap (in some cases, free) tax preparation software that can often also file your return electronically with the Canada Revenue Agency (CRA). 

You can also engage a tax preparer, an accountant or a volunteer at a free tax clinic if you need advice. 

If you prefer to complete your tax return by hand, you can download and print a paper form or order one online or by phone (1-855-330-3305) from the CRA. Once it’s filled in, you can mail it to the CRA.

Fill out your return or tax software or meet with a tax preparer.

You probably cannot complete this task in one sitting. 

It would help if you always had documents and information as you go through the return. Leave yourself at least a week to get it finalized.

Double-check your personal information.

Ensure your address, marital status and Social Insurance Number (SIN) are correct and up to date, or your refund could be delayed.

Arrange to pay any balance owed or receive a refund.

Using tax preparation software will guide you to direct deposit and payment options with the CRA. Paper filers have to make do with cheques by mail.

What Do You Do If You Miss The Deadline To File Your Taxes?

The tax year runs from January to December, and the deadline to file an income tax return is April 30 of the year after. 

If you miss the April 30 deadline, you can still submit a late income tax return

However, there could be daily interest charges and a late penalty if you owe the government taxes. 

Conclusion

And just like that, you’ve reached the end of your tax declaration journey in Canada. With this guide, you’ve navigated the twists and turns of the tax system, from gathering your documents to submitting your return.

Now, it’s time to sit back, relax, and enjoy the peace of mind that comes with having your taxes in order.

Remember, successful tax filing is like a well-planned road trip: it’s all about preparation, knowing the route, and enjoying the satisfaction of a journey well-completed. Here’s to smooth sailing (or driving) on your financial voyage.

Happy filing!

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