Taxes

What are Taxes?

Taxes are involuntary fees levied on individuals or corporations and enforced by a government entity — whether local, regional or national — in order to finance government activities.

There are three levels of taxation:

  1. Federal
  2. Provincial
  3. Municipal

Why are Taxes Necessary?

Although taxes are collected involuntarily, they do contribute to a large number of vital services for the community as a whole. In particular, taxes fund things like:

  • Education (Public Elementary, Secondary, & Post-Secondary schools)
  • The Canadian Armed Forces
  • Public Libraries
  • Roads and Parks
  • Social Services (i.e. shelters, food banks, etc.)
  • Emergency Services (i.e. Ambulance, Fire, and Police)
  • Courts
  • And more!

Basic Types of Taxes

  • Income Tax: Derived from and individuals employment or a corporations revenue
    • A tax that governments impose on income generated by businesses and individuals.

  • Consumer Tax: Retail and sales tax
    • Often referred to as sales tax, it is a tax imposed by the government on the sale of goods and services (GST, PST, HST)

  • Property Tax: Derived from the sale, purchase, and ownership of property
    • Property tax is the annual amount paid by a land owner to the local government or the municipal corporation of his area.
  • Import/Export Tax: Based on the movement of goods across borders
    • Import duty is a tax collected on imports and some exports by a country's customs authorities. Depending on the context, import duty may also be known as a customs duty, tariff, import tax or import tariff.

Income Tax

Incomes tax is the tax that governments impose on income generate by businesses and individuals.

Taxable Income = Income - Eligible Deductions

Taxable income is taxed at a variable tax rate by the Federal, and then Provincial government based on the amount of your taxable income. In general. The higher your taxable income, the higher your tax rate becomes. 

2019 Federal Tax Rates2019 Provincial Tax Rates

15% on the first $47,630 of taxable income

5.05% on the first $43,906 of taxable income

20.5% on portion of taxable income between $47,631 up to $95,259

9.15% on portion of taxable income between $43,907 up to $87,813

26% on portion of taxable between $95,260 up to $147,667

11.16% on portion of taxable income between $87,814 up to $150,000

29% on portion of taxable income between $147,668 up to $210,371

12.16% on portion of taxable income between $150,001 up to $220,000

33% of taxable income over $210,371

13.16% on portion of taxable income over $220,000

Deductions are amounts you can subtract directly from your income before calculating tax. On the other hand, tax credits work differently from deductions in that they are subtracted from the amount of tax you owe, as opposed to your income before taxes.

What is Considered Income for Income Tax Purposes?

Income can include, but is not limited to:

  • Regular Employment (which includes tips)
  • Business Profits
  • Capital Gains
  • Investment Income
  • Interest and Dividends
  • Certain Scholarships/Bursaries
  • Funds taken from RESP’s
  • Rental Income

Deductions can include, but are not limited to:

  • Charitable Donations
  • Medical Expenses
  • Student Loan Interest
  • Moving Expenses
  • Childcare Expenses
  • Public Transit
  • Tuition, Education and Textbook
  • Disability Support
  • Basic Personal Amount

Things to Know

Deadline to submit income tax: April 30th each year

Failure to file your taxes on time can result in:

  • Financial penalties
  • Interest on any outstanding balance owed
  • Complicate future OSAP applications

Taxes can be files in a number of ways:

  • With the help of an authorized tax professional
  • Yourself, using tax preparation software (e.g. SimpleTax, Turbotax, etc.)
  • Yourself, using a Canada Revenue Agency paper form

Example of documents you may need when filing your income tax:

  • T4: Employment Income
  • T2202: Tuition/Education
  • Receipts: Including, but not limited to interest paid on student loan, exams for professional certifications, medical expenses, charitable donations, childcare, moving expenses, etc.

In many cases, employers automatically pay both federal and provincial taxes on behalf of their employee.  This can be determined by looking at your individualized pay stub.

After taking into account your income, federal and provincial tax rates, your taxable income, and your eligible tax credits or deductions, you may have paid more taxes then required.  This would result in a payment back to you, equivalent to the amount you over paid. 

What to do with your tax refund?

Consider paying outstanding bills, your credit card or line of credit, saving for future expenses, or paying off outstanding student loans.

Income Tax & OSAP

When applying for OSAP, you may be required to report gross income from the previous tax year from yourself, your spouse, and/or your parent(s). You can find this on your Notice of Assessment (Line 150)

It is important to ensure that all parties have submitted their previous years taxes.  Income information reported on OSAP applications will be checked versus completed tax returns.  If OSAP is unable to verify this information, it can eventually result in grants being converted to loans. 

You will also be asked to report the income you expect to make during your study period.  This will then be verified versus your future tax return.  An inaccurate representation of expected income can result in “income variance”, resulting in a restriction from receiving OSAP. 

Questions & Answers

I made little to no money, do I really need to file my taxes?
The answer is not as simple yes or no, since there are many variables.  However, there are some benefits people can receive by filing their taxes.  For example, GST credits, Child Tax Benefit, tax refunds or rebates. In order to receive these benefits you must file a return. 
Can I submit my taxes early?
Yes, the Canada Revenue Agency (CRA) generally starts accepting application in February.
What Happens if I file my taxes late?
You can face late-filing penalties and daily interest charges on any taxes owed.  The CRA charges a late filing penalty of 5 percent of your balance owed plus an additional 1 percent of each month late. 
I haven’t filled my taxes for several year, what now?
Past tax returns can be filed in the same manner as the current year.  Prior year tax return packages can be found on the CRA website.