Personal Taxes – A Guide to Personal Taxation in Canada

January 31, 2018 | Written by: Sohail Afzal

Tax Accounting Services Toronto

Personal Tax

The Income Tax Act, Part I, subparagraph 2(1), states: “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.”

In Canada, personal income tax is levied on the worldwide income of individuals residents and on certain types of Canadian-source income earned by non-resident individuals.

Canadian residents file a T1 Tax and Benefit Return[ for individuals each after tax year and before due dates which are April 30, or June 15 for self-employed individuals and their spouses, or common-law partners. After the due date, outstanding balances remitted 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.

Means of collecting tax

Personal income tax may be collected through various means:

  • 1.Deduction at source – where income tax is deducted directly from an individual’s pay and sent to the CRA.
  • 2.Installment 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.
  • 3.Payment on filing – payments made with the income tax return
  • 4.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.

Generally, personal income tax returns for a particular year must be filed with CRA on or before April 30 of the following year.

However…

Don’t wait for the due date which is fast approaching. Find out more to save more. Get to know Do’s and Don’ts and save hundreds and even thousands of $$s in your tax return.

“TAXATION WITHOUT REPRESENTATION IS TYRANNY.”
— JAMES OTIS

Quick Checklist

The more you check, the more you save…

See what you save if you:

1. Have more/less income than your spouse.

The spouse with higher income undertakes to pay all household expenses, leading lower-income spouse to invest his/her savings. There is low tax rate on lower income partner.

2. If you sold shares this year on profit.

Just call that “Capital gain” instead of “Business Profit”. Why?.. because capital gains are taxed on half of the value while business profit is taxed in full.

3. If you keep a portion of money in savings.

Invest in an activity that generates capital gains or dividends and not that yields interest income. Simply because the latter category results in a higher tax rate.

4. If you invest in a registered retirement plan, go for RRSP for following reasons:

  • • By contributing to an RRSP throughout your working career, you’ll realize immediate tax benefits at a time when your income is generally highest. The total amount of your annual contribution can be deducted from your gross income at tax time, reducing the amount you pay in income tax that year.
  • • The income earned in your RRSP is not taxed until it is withdrawn. While your investments sit in your RRSP, their growth is tax sheltered and so the total value may grow more quickly.
  • • By the time you begin to withdraw the funds at retirement, you will probably be in a lower tax bracket than during your earning years. Funds withdrawn at that time will benefit from this lower tax rate.
  • • Special features of RRSPs allow you to do further tax planning or use your RRSP to fund specific life events.

5. If you want to receive tax-free employment benefit.

Simply ask your employee to split your salary into wages+tax free employment benefits. It will reduce your salary and a major portion of your salary will be shifted to tax-free employment benefits. These include:

  • i) Subsidized meals
  • ii) Recreational activities
  • iii) Sports and fitness facilities
  • iv) Uniform and clothing
  • v) Transportation to work

6. If you work from home.

You can deduct expenses you paid in 2016 for the employment use of a workspace in your home, as long as you meet one of the following conditions:

  • • The work space is where you mainly (more than 50% of the time) do your work.
  • • You use the workspace only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties.

Allocated expenses are eligible for deduction only for an employee if any of above criteria met.

7. If you have received an unfavorable assessment from CRA.

Put that in dispute. Contact GTA Accounting Professionals to help with that.

8. If you have in saving a portion of the mortgage payment

Invest that in RRSP. For it will yield greater wealth benefit than paying the mortgage quicker. Secondly, more tax can be saved on capital gains than interest.

9. If you plan to buy a home in future

It is a good idea to invest in RRSP for it will benefit you more than other interest-generating activities and if you opt to withdraw funds earlier for home buyer plan(HBP), there will be no penalty which is normally charged on early with drawings.

10. If you have a spousal RRSP.

If you earn more money than your spouse, you can help build their tax-free savings by contributing to a spousal RRSP. Retirement income will then be split more equally between the 2 of you — which may reduce the total amount of tax you pay.

11. If you are a member of union/professional organization

If you have paid any subscription to maintain such membership, it is deductible

12. If you drive for work.

You can deduct your motor vehicle expenses if you meet all of the following conditions:

  • • You were normally required to work away from your employer’s place of business or in different places.
  • • Under your contract of employment, you had to pay your own motor vehicle expenses. You are not considered to have paid your own motor vehicle expenses if your employer reimburses you or you refuse a reimbursement or reasonable allowance from your employer.
  • • You did not receive a non-taxable allowance for motor vehicle expenses. Generally, an allowance is non-taxable when it is based solely on a reasonable per-kilometer rate.
  • • You keep with your records a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer

There are lot more factors reducing your taxes and they vary from individual to individual. Call us or visit us for a free consultation. We value the each $ you save.

Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

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