Personal income tax filing, everyone’s favourite annual task. Right?
Most Canadians dread having to complete their taxes and with good reason. The tax code in Canada is complex and convoluted. We hope the information presented below will help you make sense of your personal income tax filing in Canada.
- Income taxes owing need to be paid by April 30th of the following year.
- Income tax filing is also due April 30th.
- Except if you have self-employed income, then the filing deadline is June 15th. Keep in mind the amounts owing are still due by April 30th.
Common Tax Slips
- T4 slips – Received in February or early March
- T4 – Employment income – Provided by each of your employers
- T4A – Pension, Retirement, Annuity and Other Income – You will receive this if you have pension or annuity income. It is also a “catch-all” tax slip.
- T4RSP/T4RIF – RRSP/RIF income – Withdrawals from your RRSP/RIF
- T4A(P)/T4A(OAS) – CPP/OAS income – CPP and OAS pension income and any withholdings tax taken
- T4E – EI benefits – EI benefits received in the year
- T5 slips – Received in February or early March
- T5 – Investment income – Income from any non-registered investment accounts or bank accounts.
- T5007 – Benefits – You will be issued this slip if you received more than $500 in Worker Compensation benefits, social assistance or provincial supplements.
- T5008 – Securities Transactions – Disposals or redemptions of any non-registered investments
- T5013 – Partnership Income – If you were invested in a partnership you will be issued this slip for any income or loss.
- T3 slip – Investment income (trusts) – Some investments (such as mutual funds) are structured as trusts and they issue T3 slips for any income distributions. These are often issued in March or early April.
- T2202 – Tuition payments – Tuition payments made in the year will be included on this slip. Issued in February or early March.
- Foreign Income – If you have income from another country, such as a foreign pension, you will need to report it on your Canadian tax return.
Common tax deductions
These are deducted from your taxable income meaning you save taxes at your marginal tax rate.
- RRSP/RPP contributions – Contributions to your RRSP or pension plan reduce your taxable income.
- Split pension deduction – Certain types of pension/retirement income can be split with your spouse, moving income from the higher income spouse to the lower.
- Union and professional dues – If you pay union or professional dues (that are not reimbursed) these can be deducted.
- Child care expenses – Payments for child care can reduce your taxable income.
- Employment expenses – If you are required to work from home, drive to clients (and not reimbursed) or paid through commission there may be an opportunity to deduct some employment costs.
- Spousal support payments – If you are paying spousal support to your ex-spouse these are deductible from your income. If you are receiving spousal support this would be taxable income.
- Carrying charges and interest – If you pay investment management fees or you pay interest on a loan used to invest you can claim that as a deduction on your return. Keep in mind this is only deductible on non-registered investments.
Common tax credits
Credits are applied against your taxes payable. In most cases they are at the lowest federal tax bracket of 15% plus your lowest provincial tax bracket. Most credits are indexed to inflation. The majority of credits are non-refundable, which means they can reduce your income taxes to zero but they cannot create a refund on their own.
- Basic personal amount – Every filer receives this deduction ($13,808 for 2021).
- Age amount – If you are age 65 or older on December 31st of the tax year you may receive an age amount deduction. It is reduced and eventually eliminated as your income level rises.
- CPP and EI contributions – You receive a credit for your personal CPP and EI contributions.
- Employment income credit – You receive a small credit if you have employment income ($1,257 in 2021).
- Home buyers’ amount – If you are a first-time homebuyer (did not live in a home you own for the tax year and 4 previous years) you get a credit of $5,000.
- Pension income amount – If you are receiving pension income you receive a maximum credit of $2,000.
- Disability amount – If you or one of your dependents have a disability please complete a disability tax credit form. If approved you would receive the disability tax credit ($8,662 in 2021).
- Tuition/education – amounts paid in tuition and education can be claimed as a tax credit. They can also be carried forward if they cannot all be used in the current year.
- Medical expenses – Only the amount in excess of the lower of:
- 3% of your net income, or
- $2,421 (in 2021) can be claimed.
- Donations – donations to registered charities create a credit on your tax return. On the first $200 they are credited federally at the 15% rate applicable to other credits. Any donations over that amount are credited federally at either 29% or 33% depending on your income tax level. These can be carried forward if they cannot all be claimed in the current year.
These are a selection of the most common and relevant federal tax deductions and credits. There are additional federal and provincial deductions and credits not included in the above lists.