Personal Taxes

What you need to know. What you need to have. 

Taxes are a pain for just about everyone except Accountants, but they are an inevitable and unfortunately a fact of life.

The rules are constantly changing and it can seem like the honest taxpayer is not able to "catch a break". 

Canadians can do certain things to limit their tax exposure and can do certain things to maximize their taxes besides the regular type of Deductions (which we will get into here).

The best piece of information is keep track of what your write offs are. I know that can be hard, but it is the ONLY way to truly help, help yourself, and save you money if hiring an Accountant to do your taxes, as without being organized, this is the number 1 reasons taxes cost you.

Step 1.

Choose to either do it yourself or Hire an Accountant

For most people, finding the right Accountant is the most important step in reducing your taxes.

Now with this said we think it is very important to understand what an Accountant will be able to do for you and your finances, and is your best bet to find the right accountant that can help you choose a plan and understand what is viable and what is not.

Look for an accountant through friends and colleagues whose tax profiles are similar to your own. Most importantly, keep up to date with your tax situation and keep an eye out for anything your accountant may have overlooked - accountants are still human.

The more you understand about your own tax situation and the ways to reduce your exposure, the better prepared you will be to take full advantage of your accountant's expertise.

Lets get down to the terms to give you some insight on what it all means:

What are Taxes?

Taxes are amounts we remit to our Provincial and Federal Governments to fund public services like roads, schools, and retirement benefits. Though there is often debate about how effectively tax dollars are used, the principle remains: taxes serve the public. The amount of tax you owe depends on your income, and in Canada, we follow a pay as you go system. This means your employer withholds taxes from your paycheck, or if you’re self-employed, you pay through installments. In general, the more you earn, the higher your tax rate, making it a progressive system.

Tax Deductions
Both Canada’s federal and provincial governments offer deductions to reduce taxable income or directly reduce the amount of tax you owe. These deductions can promote certain activities (like saving for retirement) and ensure taxpayers don't overpay.

What is a Deductible Expense?
A deductible expense refers to costs that are subtracted from certain types of income to lower your taxable income. For example:

• Capital gains (declared on Schedule 3) allow you to deduct certain costs or exemptions.

• Investment income (declared on Schedule 4) often permits deductions for carrying charges and interest.

• Self-employed individuals (filling out Form 2125) can deduct business related expenses from their income.

If you incur a loss from these activities, you may be able to deduct it from other income, which reduces your overall tax burden.

Deductions that Reduce Taxable Income:

After calculating your total income, certain deductions can be applied to reduce the amount subject to taxation. For instance, RRSP contributions, childcare costs, and employment related expenses like moving costs can be deducted. Your total income minus these deductions equals your net income. In some cases, you may also qualify for additional deductions, like losses from previous years or deductions for northern residents.

Deductions that Reduce Taxable Income

After calculating your total income, certain deductions can reduce the amount subject to tax.

Common deductions include:

• RRSP contributions

• Childcare costs

• Employment related expenses (e.g., moving costs)

• Your total income minus these deductions equals your net income.

Additional deductions may apply in special cases, such as:

• Losses from previous years

• Deductions for northern residents

Deductions that Reduce Income Tax

Canada offers deductions that reduce the income tax owed, calculated using Schedule 1.

• Examples of these deductions include:

• Basic personal amount for all taxpayers

• Amounts for a spouse, dependents, or specific age brackets

Although individual deductions might seem small, they can add up to significant savings.

• To maximize savings, review your tax form line by line to ensure all deductions are claimed.

Non Refundable vs. Refundable Tax Credits

Non Refundable Tax Credits:

• These reduce your tax payable to zero but cannot result in a refund.

• Common non refundable credits include:

• Student loan interest

• Medical expenses

• Public transit passes

• Refundable Tax Credits:

• These credits can result in a refund if the credit exceeds your tax liability.

Example: Working Income Tax Benefit

• If the total credits exceed the amount of tax owed, you’ll receive a refund.

Where to File Your Taxes File online or by mail:
Online options:

• NETFILE: For taxpayers preparing their own tax return and submitting it electronically to the CRA.

• EFILE: For taxpayers using a registered electronic filing service provider (e.g., Liberty Tax Service) to submit their return electronically on their behalf.

Both options require CRA certified tax preparation software or web applications.

By mail:

• Mail your completed paper tax return to the CRA tax center for your region using the envelope included in your tax package.

Self Employed Tax Return

• If you are self employed, you must determine if your business is:
  Sole proprietorship
  Partnership
  Corporation

• Sole-proprietorship/Partnership: Report income on the T1 general return using form T2125.

• Corporation: File a separate T2 tax return, which is independent of your personal taxes.

• Keep adequate records to determine your tax obligations and document business deductions.

Tax Instalment Payments

• Periodic income tax payments made throughout the year to avoid owing a large amount on April 30th of the following year.

• You may need to pay in installments if not enough income tax was withheld from your earnings.

• The CRA will send an Installment Reminder if you are required to pay in installments, including:
  Suggested payment amounts
  Due dates for payments

• The installment threshold for individuals has increased to $3000.