Filing taxes in Canada will not give you heartburn and sleepless nights. The process is easy and streamlined, and anyone with a basic grasp of math can file his or her return quite easily.
Who Has to File Taxes?
Most Canadian residents are required to file an income tax return for the income they have earned in the previous year. You must file a return if you owe taxes to the government or if you have earnings on which you are required to make contributions towards the Canadian Pension Plan (CPP). There are other criteria for filing taxes as well. If you are an international or a non-resident individual who has earned income in Canada within the previous tax year, you are required to file a Canadian income tax return.
The taxation year for Canada is January to December and, in general, you are required to file your tax return on or before April 30. For example, for the income you earned from January 2011 to December 2011, you should have filed your tax return by April 30, 2012.
Self-employed individuals, or individuals whose spouses or common-law partners own a business, are required to file their personal returns on or before June 15. If you have a balance owing, the deadline to pay is April 30.
If you owe tax to the government and/or don't file your taxes by the due date, you will be liable to pay interest and penalties to the Canada Revenue Agency (CRA). Compound daily interest is charged on the unpaid amounts starting from May 1, at a prescribed interest rate. For 2011 tax returns, the penalty for late filing is 5% of the balance owing, plus 1% of your balance owing for each full month that your return is late, up to a maximum of 12 months.
Canadian Income Tax Package
In order to file a tax return, you need the general income tax and benefits package for the province in which you lived as of December 31 of the previous year. The package includes an information guide, the T1 return form, related schedules, and the provincial or territorial schedules. You can download, print the package online, order a tax package by phone, or even pick up the tax package in person from any postal outlet or Service Canada office between February and May.
Gathering Information and Documents
Before you begin filing your tax return, make sure that you have collected all relevant tax-related information and documents. This includes documents such as your social insurance number, T4 slips, other tax information slips sent by employers and others to tell you and the CRA about how much you earned and how much tax was deducted, and information on other income such as that earned from self-employment. You can claim many deductions and tax credits that will help reduce your income tax liability. It is important, therefore, that you keep all the receipts related to these deductions. Some important deductions are contributions to Registered Retirement Savings Plan (RRSP) and Registered Education Savings Plan (RESP).
Preparing Tax Returns
The tax package comes with detailed information about how to calculate your tax owing and how to fill out the forms. If you are not comfortable with numbers and don't want to fill the forms yourself, however, you can get professional help and hire an accountant or tax expert to help you for a nominal fee. There are also several easy-to-use tax software and online tax filing programs that can make your job easier. If you are filing your own taxes, make sure that you have not ignored any documents or details. You can avail the services of a professional to review your forms before you file it.
Filing Your Tax Returns
The Canada Revenue Agency provides a number of ways to file tax returns. These include online (NetFile or EFile), by phone (TeleFile), by mail or hiring someone to do it for you. You need to select the method that is most suitable for your needs and comfort level.
Whatever method you choose, you should keep a copy of your tax return in a safe place along with the documents and calculations. If you are called by the CRA for a review or an audit, this documentation will come in handy for providing details to the authorities.
The Bottom Line
Canada follows a tax system under which the percentage of tax you pay increases with any increases in your income. This means that individuals with higher incomes will pay higher taxes.
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