Taxes in Canada: A brief guide for newcomers

By Aneesh Chatterjee

Posted on January 31, 2022
It’s definitely not exciting, but paying your taxes is an integral part of life for any working citizen.

Your tax money goes to funding the infrastructure that keeps everything running. From maintaining public spaces, parks, roads and highways to funding emergency services, healthcare, old age security, and many more public services.

Depending on how much you earn in a year, the amount of tax you pay can change. If you’re new to Canada, please read the Newcomers to Canada 2020 pamphlet by the Canada Revenue Agency (CRA). Although you’re going to get a brief overview here, the pamphlet introduces newcomers to Canada’s tax system in greater detail. This includes information on your Social Insurance Number, tax credits, CRA account, and more!

What’s a tax bracket?

Learning how much income tax you’ll be paying starts with tax brackets. Brackets are groups of income ranges, and the amount of tax you pay changes depending on which income range you fall into.

For example, in 2021, people earning $49 020 or less have to pay 15 per cent federal income tax. People who earn anything between $49 020 and $98 040 in a year must pay 20.5 per cent. Those who earn between $98 040 and $151 978 in a year must pay 26 per cent and so on.

In other words, the more money you make, the higher your income tax will be. These groups of income ranges are called tax brackets.

What’s a tax return?

T1 General Form

Your tax return is the document where you report your income to the government. The tax return generally involves a T1 General form, where you put in your personal information, all your sources of income, any scholarships or grants, tax credits you might have, etc. All of this is put together to calculate your income. How much tax you’ll pay is also calculated on the T1.

There are also provincial tax documents, which vary depending on your province. There are a large number of income tax forms available, and not all of them apply to you! Some forms are for corporate income tax, so look for “individual income tax” when you search for information online.

T4 Slip

Your T4 slip is where your employer declares your income, the taxes they cut from your income on your behalf, and any pension plan contributions and employment insurance deductions. The T4 is given to you by your employer and can help you fill out your tax return. You can learn more about the T4 form and what’s deducted from your income on the Government of Canada website.
To make all this easier, it’s recommended that you order a full package of relevant forms, guides, and tax filing schedules from the government order forms and publications page. This income tax package is different for each province, so make sure you check which province you’re selecting in the list at the bottom of the page.

Federal and provincial tax

Federal tax is one thing, but you also have to consider provincial tax. Just like federal tax, most provinces will charge you a percentage of your income, and that percentage changes depending on your tax bracket. Alberta is the only province where provincial income tax is 10 percent no matter how much you earn in a year. You must pay both the federal and provincial tax every year.

The Government of Canada’s webpage on income tax for individuals is the best place to stay up to date on changing tax brackets every year. This page includes federal tax rates, provincial tax rates, and the manual process showing you how your tax amount is calculated.

There are free tax calculators online which can give you an estimate of how much you’ll pay, depending on your income and province. EY Tax Calculator can also show you how much total income tax you’ll pay—federal and provincial, combined—for every Canadian province. As all provincial tax rates are different, the total amount of tax will be different depending on which province you live in.

Credits, refunds and balance owed

Tax credits reduce the amount of tax you have to pay after your income has been declared. You can claim certain amounts of money you’ve spent as tax credits, such as contributions you make to long-term investments, like a Registered Retirement Savings Plan (RRSP).

Sometimes, you might have to pay a balance to the CRA after your taxes are filed. Other times, they might give you a refund! If you owe a balance, it’s calculated based on the numbers you put in on Line 43500 and Line 48200 of your tax return.

Line 43500 is “total payable” (the total tax you owe), and 48200 is the total amount from any tax credits you have. If your total payable is more than your credits, you need to subtract the two amounts—that’s how much you owe the CRA. If your total payable is less than your credits, the subtracted amount is your refund, which the government will send you.

How do I calculate and file my taxes?

First, let’s talk about deadlines. The taxable year runs from January 1 to December 31, and taxes are due on April 30 of the following year. The most recent deadline, April 30 of 2021, was for tax filings and payments for 2020, for individuals. The deadline for filing 2021’s tax returns will be at the end of April of 2022.

How do you file tax returns, pay what you owe, and claim refunds from the government? The government of Canada recommends four main ways to calculate your tax return:

  1. Tax software: The CRA has certified software—some free—which you can use to calculate and file your taxes online. Certified software services use NETFILE, an electronic system that submits your paperwork directly to the CRA. The confirmation comes immediately, and you can even get your tax refunds within two weeks, making NETFILE-certified software a fast way to do your taxes. TurboTax is one of them, being one of the best services in the market. Feel free to file with TurboTax or choose from a list of other free and paid-for certified services.
  2. A representative: If you don’t want to go through the hassle yourself, you can assign a representative to do it for you. This can be anyone: A friend, family member, a lawyer, or an accountant. Your representative should be someone who has a good idea of how the process works and ideally some professional experience in finance or accountancy. To authorize someone as your representative, follow these steps.
  3. Free tax clinics: If you’re new to the country, you are eligible for free tax clinic services. You can bring your documents and hand them over to volunteers, who will calculate your taxes for you, free of charge! You can either book an appointment ahead of time, or walk in without an appointment and wait for someone to be available. The clinic directory (at the bottom of the linked page) will help you find the nearest volunteer tax clinic in your area.
  4. Paper returns: If submitting online isn’t your style, you can send your tax return to the CRA by mail. You’ll need to choose your province on this website, and you’ll get access to both federal and provincial documents and any others you might need. You can click on these forms, download and print them, and fill them out by hand. You can also have them mailed to your address instead. When you’re done, you can mail them to one of these locations:
    • Winnipeg Tax Centre, Post Office Box 14001, Station Main, Winnipeg, MB R3C 3M3
    • Sudbury Tax Centre, 1050 Notre Dame Avenue, Sudbury, ON P3A 5C2
    • (Quebec only) Jonquière Tax Centre, 2251 René-Lévesque Boulevard, Jonquière, QC G7S 5J2

Paying owed balances

If you have a balance owing (where your total payable is higher than your total credits), you can make a full payment or go on a plan to pay it off over time.

There are plenty of options to pay. You can do so online through your bank, which usually takes five days to process. You can also pay the CRA directly with your debit card, which takes one to three days. If you want to use your credit card, PayPal, or Interac e-Transfers, you can use an external app like PaySimply or Plastiq (which usually charge a fee).

If you don’t yet have a bank account, PayPal or credit/debit cards, you can still pay any owed taxes using wire transfers. The wire does have to be in Canadian dollars. The details of what institution you need to send it to, and what personal information you must provide, are all listed here.

If you want to pay in person, you can do so in your bank (with a debit card or cheque), or at certain Canada Post locations (with a debit card or cash). Finally, you can send a cheque or money order by mail to the CRA, at the address of the Canada Revenue Agency, PO Box 3800 STN A, Sudbury, ON P3A 0C3.

Getting a refund

If your tax credits are higher than your amount payable, the CRA will refund you the difference. This amount is never fixed, as it depends on your numbers for the year. If you file online, you can get a refund in two weeks, or in eight weeks if you send your tax return by mail.

The fastest way to get your refund is to set up direct deposit in your bank for the CRA. This way, they can send you your refund straight to your bank as soon as it’s ready.

To check the status of your refund while it’s under review, you can call 1-800-959-1956. Make sure you have your full name, address, social insurance number, and line 150 from your most recent tax return. Alternatively, you can set up a CRA account, where you can check the status of refunds, insurance payments, and better track your financial footprint in Canada.

If you’re in a tight spot and need your tax refund right away, you can go to a discounter. Discounters are authorized to pay you a portion of your estimated refund immediately, when you file your return. When the CRA actually refunds you, the difference between that amount and the amount the discounter gave you will be their fee for this service.

Hopefully, this has given you some idea of how taxes work in Canada. Don’t be scared to reach out to volunteer clinics and other professionals if you need assistance, and good luck!

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