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Canadian Tax Guide For Newcomers

Written by CNN Team

As a newcomer, do you have to file taxes? This is everything you need to know about the ins and outs of Canada’s tax season. 

In Canada, citizens and residents are required to pay taxes each year. Filing your taxes for the first time can be confusing and overwhelming. There is a lot of information and numbers to review. Before you begin the process, make sure you understand how Canada’s taxes work, how to maximize your tax refund, and the importance of paying them on time every year.

If you are not sure how to file taxes online or you need general tax help, then you have come to the right place. This article aims to equip newcomers with a tax guide that will prepare them for Canada’s upcoming tax season. 

Income Tax Filing in Canada

Canada uses a graduated tax system, which means the more you earn the more you pay. Money is divided into income brackets. These brackets determine the applicable tax rate. All income is charged progressively. This means that you pay the rate in the lowest bracket and only pay higher on each additional dollar (known as a marginal tax rate). 

Not all income is treated equally. The government provides a tax break to money earned from selling an investment. This is meant to encourage economic growth. Additionally, capital gains are charged at half the usual rate, but the highest tax rates are applied to wages and salaries. 

What Do We Pay Taxes On?

In Canada, we must pay a duty on:

  • Self-employment income, minus expenses
  • Employment income
  • Corporate income, minus expenses
  • Interest 
  • Dividends
  • Pension income
  • Withdrawals from RRSPs
  • Income from selling bonds, stocks, or investment property
  • Foreign income 

What Don’t We Pay Taxes On? 

These categories are exempt from taxes:

  • Most inheritances and gifts 
  • Child benefit payments
  • Most lottery winnings
  • GST/HST credit
  • School scholarships
  • Payouts from a life insurance policy
  • Strike pay from unions
  • Withdrawals from your TFSA

Avoiding Penalties

It is important to make your payments on time and get your income taxes filed by the due date, so you don’t stress over mounting penalties. If you have a balance owing and file your tax return after the due date, you will be charged a late-filing penalty. 

How much is the late-filing penalty? This is 5% of your 2020 balance owing. It adds an extra 1% for each month you file after the due date up to 12 months. 

However, if you have outstanding late-filing penalties for 2017, 2018, or 2019, and the CRA is requesting a formal demand for a return, your penalty for 2020 will be a whopping 10% of your balance owing. Also, it charges an extra 2% for every month you file after the due date up to 20 months.  

What if you don’t report your money? Well, there is a failure to report income penalty. If you fail to report an amount of $500+ in your 2020 tax return, or your 2017, 2018, 2019 tax return, then you have to pay a federal and provincial/territorial penalty. This penalty is based on whichever option is less: 

  • 50% of the difference between tax withheld from the amount you fail to report or the understated tax/overstated credits of the amount you fail to report
  • 10% of the amount you fail to report 

Therefore, even if you are not able to pay your balance owing immediately, make sure to file your taxes on time and that you include everything.

Final Thoughts

Everyone has to pay taxes, but there are a number of tax credits and deductions available. Here are a few examples to get started: family benefits, childcare expenses, vehicle expenses, employment expenses, union dues, RRSP contributions, home office deduction, medical expenses, and student loan interest that’s been paid. Therefore, learn how to benefit from filing your taxes by maximizing your tax refund with these deductions and tax credits. 

*Opinions expressed are those of the author, and not necessarily those of Student Life Network or their partners.