In Canada, residents who earn income must declare that income and pay taxes to governments, otherwise the taxpayer, whether an individual or a corporation, will be subject to financial and legal penalties. The purpose of taxation is to ensure fairness among taxpayers with the same fiscal and financial characteristics and thus contribute to the various social and economic programs of the country.
In the past, most citizens found the preparation of their tax file to be a tedious task due to the amount of information to be provided and the number of calculations (including complex formulas) to be made. However, today, the Canada Revenue Agency (CRA) and Revenu Québec offer access to « My Account », a reliable, secure and easy-to-use online service. In the next few paragraphs, you will also find tips and tricks for properly documenting your personal tax file so that you can file your tax return without hassle.
First, let's summarize the Canadian tax system:
● Tax rates are proportional to the increase in income (Tax Bands).
● For workers, income tax is deducted at source (from pay) at a predetermined rate.
● Municipal and school taxes must be borne by property owners and in the case of rentals, they are included in the rental fee.
● Tax reports detailing income and deductions must be completed and filed with the IRS each year, according to the filing deadline provided in each individual's case.
● There are many tax programs that help reduce tax liability, especially for families, seniors and low-income taxpayers.
● Testamentary estates may be subject to taxation at graduated rates
A tax file is a file in paper or electronic format that contains all the tax information for the last few years (tax returns, financial data, payments, social credits, support programs, taxes, etc.).
In order to determine the right amount of income tax you will have to pay, it is important to list all the sources of taxable income you have to report:
● Employment and self-employment income: employment and self-employment income, commissions and foreign income, stock option benefits, income from a salary insurance plan, etc;
● Benefit income: income from employment insurance and other benefits, workers' compensation, social assistance benefits, etc;
● Income from pension and savings plans: income from pension and savings plans, such as Old Age Security (OAS) pension, CPP or QPP benefits, or pensions from other countries, etc;
● Investment income: income from investments such as interest, dividends and capital gains;
● Rental income: income from rental fees from the movable or immovable property you own (house, apartment, cottage, room, etc.);
● Income from a registered retirement savings plan (RRSP), registered retirement income plan (RRIF) or registered education savings plan (RESP);
● Scholarships, fellowships, and grants received by an artist for a project, etc.
If you file electronically, you must retain all supporting documentation for any future requests from the Canada Revenue Agency (CRA) or provincial tax authorities. If you are filing on paper, refer to the tax filing guide for information on what supporting documents should be attached, such as: tax statements, certificates, forms, schedules, and receipts.
All supporting documents must be kept for at least six years, as the CRA (and provincial tax agencies) may request them for future audit. Important documents to keep include slips showing the income you received during the year and the amounts that were withheld from that income, copies of medical expense statements, contribution statements for registered plans, etc.
● What's new
Before you start preparing your income taxes, find out what's new in terms of tax updates, changes in calculations, credits, and deductible expenses for individuals and self-employed workers.
The government can introduce new measures or change regulations based on the economic circumstances of the country. Take, for example, the impact of COVID-19 benefits on your taxes.
To do this, we suggest that you consult the tax guides that are updated every year on the revenue agency websites:
To avoid the bad consequences of missing deadlines, you should find out about the following deadlines (example of the year 2020):
2020 Tax Filing Dates
April 30, 2021: Deadline to file your taxes
June 15, 2021: Deadline to file your taxes if you or your spouse or common-law partner are self-employed
2020 Tax Payment Deadline
April 30, 2021: Deadline to pay your taxes
● Updating personal information with the tax authorities
Don't forget to update your contact information (address, telephone number, marital status, direct deposit account, etc.) with the Canada Revenue Agency, Revenu Québec and your financial institution to facilitate the payment and refund process.
The CRA urges all taxpayers to file their tax returns or any amendments electronically. This helps you avoid any delays in processing documents and speeds up the receipt of your refund.
To register and log in to your personal space, simply select a connection partner. Many financial institutions are partners of the CRA and allow a connection to your file. Otherwise, you must register for « My Account for Individuals » and provide some information such as your date of birth, social insurance number (SIN) and address.
The same procedure and the same type of online file is available with Revenu Québec.
What are the benefits of the « My Account » service?
The CRA provides an online platform, « My Account », for any individual or corporation to manage all your tax obligations in a confidential manner. The « My Account » service allows you to:
● View and edit your tax returns from previous years;
● Check Registered Retirement Savings Plan (RRSP) contribution limits;
● Keep track of unused amounts for tuition, losses, etc;
● If you are required to provide proof of income (Option C) for a mortgage, you can print it at home by logging into « My Account » without calling the CRA.
What other services are available online?
In addition to « My Account », there are other similar online tax services such as:
● Amended tax information slips
Amended tax slips may be issued if your employer makes a change to your income, earnings, source income, and benefits. For example, if an overpayment for the year 2020 is reported in 2021, after the original tax slips are issued, your employer will have to issue new tax slips and you may be able to file a claim with the tax authorities (source).
Although the preparation of a tax file is less complex than it used to be, certain tax information requires the intervention of a professional tax specialist. Thanks to his financial and legal expertise, he can help you save thousands of dollars by proposing the best strategies for building and analyzing your tax file, in accordance with current regulations.