Canada’s federal income tax system is administered by the Canada revenue agency. Canadian federal income taxes, both personal and corporate are levied under the provision of the Income Tax Act. Provincial and territorial income taxes are levied under various provincial statutes.
Canada levies personal income tax on the worldwide income of individual’s resident in Canada and on certain types of Canadian-source income earned by non-resident individuals. As per the income tax act, “An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year.”
After the calendar year, Canadian residents file a T1 Tax and Benefit Return for individuals. It is due April 30, or June 15 for self-employed individuals and their spouses, or common-law partners. It is important to note, however, that any balance owing is due on or before April 30. Outstanding balances remitted after April 30 may be subject to interest charges, regardless of whether the taxpayer’s filing due date is April 30 or June 15.
The amount of income tax that an individual must pay is based on the amount of their taxable income (income earned less allowed expenses) for the tax year. Personal income tax may be collected through various means:
- Deduction at source – where income tax is deducted directly from an individual’s pay and sent to the CRA.
- Instalment payments – where an individual must pay his or her estimated taxes during the year instead of waiting to settle up at the end of the year.
- Payment on filing – payments made with the income tax return
- Arrears payments – payments made after the return is filed
Employers may also deduct Canada Pension Plan/Quebec Pension Plan (CPP/QPP) contributions, Employment Insurance (EI) and Provincial Parental Insurance (PPIP) premiums from their employees’ gross pay. Employers then send these deductions to the taxing authority.
Individuals who have overpaid taxes or had excess tax deducted at source will receive a refund from the CRA upon filing their annual tax return. When it comes to assessing your personal tax situation, you should be sure that you comply with tax laws, but you should also know that you are benefiting from any tax credits available to you. Our customizable tax software allows us to analyze scenarios and strategies and identify opportunities to better manage your personal tax burdens.
Generally, personal income tax returns for a particular year must be filed with CRA on or before April 30 of the following year.
An individual taxpayer must report his or her total income for the year. Certain deductions are allowed in determining “net income”, such as deductions for contributions to Registered Retirement Savings Plans, union and professional dues, child care expenses, and business investment losses. Net income is used for determining several income-tested social benefits provided by the federal and provincial/territorial governments. Further deductions are allowed in determining “taxable income”, such as capital losses, half of capital gains included in income, and a special deduction for residents of northern Canada. Deductions permit certain amounts to be excluded from taxation altogether.
At MMCA our team of professionals provide you all services in understanding the deductions, calculating and filing the personal tax return which will increase maximum refund claimed and reduce tax liabilities.
