Category Archives for "Personal Income Tax"

How to Use Your Tax Refund

By Randall Orser | Personal Income Tax

The height of tax season is here, and many Canadian taxpayers are preparing to get large refund cheques. The average Canadian tax refund is about $1,400. Have you filed your tax return yet? Here’s eleven best uses in order to maximize that tax refund.

Pay Off Debt

If you’re finding yourself in debt for credit cards or student loans, it can make your life miserable. If you’re debt load has gotten out of hand, that’s especially true. You can wipe out financial stress and anxiety by using your tax refund to pay down this onerous debt.

Save Your Money

Do you have enough set aside for emergencies? Canadians barely have $1,000 set aside for such expenses. Use your tax refund to start your saving for a rainy-day fund, particularly if you have a difficult time saving.

Take a Vacation

Have you been thinking about that dream vacation, such as a cruise or a European trip? Your tax refund can make that a reality. Your tax refund may not be enough to pay for the whole trip, however, you can probably make a sizable down payment on that dream vacation.

Investing

It’s never been easier than today to start investing. The best part is that you don’t have to pay a broker. You can learn about investing online and create a self-managed account that will allow you to buy and sell stocks any time. 

Put Money into Your RRSP

The perfect time to start your RRSP is now. Even if you’re young, you should make decisions today that will benefit your future. Funding your retirement account takes discipline and consistency. When it comes to your retirement, you’ll be very happy you made the effort now.

Spruce Up Your Home

Does your home need a bit of a makeover? There are economical things you can do to your home to improve it. You can paint, plant a garden, or buy new furniture. With small improvements you can enhance the look and feel of your home.

Start a Business

A smart way to use your money is to start a business. You could quite possible make your dreams a reality, but also create an additional stream of revenue for your family.

Fund Home or Auto Repairs

Have you been putting off any home or auto repairs? That tax refund could go to new brakes, a tune up, broken window, or replace missing roof shingles.

Update Your Work Wardrobe

You’re not Steve Jobs so you probably can’t get away with wearing the same thing every day. Nor do you have to look like a fashion model. You should have clothes that are professional, if you want to advance in your company, you should be paying attention to your professional image. You can use your refund to buy new shoes, dresses, suits, and business casual attire.

Start a College Fund for Your Kids

College is expensive, and the average college student ends up with tens of thousands of student loans. For someone who’s just entering the workforce, that’s a lot of debt. You can make your kids’ graduation a happier time, if you save a portion of your tax refund for them.

Treat Yourself

While it’s important to pay off debt or start a savings account, you should maybe enjoy some of the finer things in life your money can buy. Treat yourself to something special you’ve always wanted with your tax refund. Be it a new fragrance or handbag, buy something that’ll put a smile on your face.

Your tax refund could change your financial picture. It’s crucial that you spend it wisely.

Before You File Yourself, Here’s Some Tips

By Randall Orser | Personal Income Tax

It’s tax time, and that dreaded chore of filing your taxes is weighing on your mind. Do you do it again this year yourself? Filing your taxes is more than just about your T4 or RRSP, there are other deductions you should think about, and some depending on the Province you live in. And, do you file online (preferable) or via paper (takes weeks to get processed and to get your refund)?

Online or Paper Filing

In 2017, 22 million or 90% of income tax filers used online filing and will probably grow to closer to 100% within a couple of years. Even returns for deceased people can now be filed online. Online filing is fast and secure, and generally your return is processed within 8 business days, and you’re refund sent within that time. For faster refunds, use direct deposit.

There usually is no requirement to paper file your taxes anymore, except maybe for someone who’s deceased or a non-resident. If you choose to file via paper, then you need to realize it can take up to 6 weeks to process your return and get your refund cheque.

It makes absolutely no sense to file via paper anymore.

Slips and Receipts

You need to gather up all your T-slips (T3, T4, T4A, T5, etc.), RRSPs, donations, medical expenses, etc. 

Here are some other things to consider:

  • Do you have kids? 
  • Did they go to post-secondary school?
  • Do you have the T2202A?
  • You can only claim the tuition
  • For BC, did they do arts or sports?
  • Do you have the official receipts from the organization?
  • Did you go to school?
  • If you did, then you need a T2202A from the post-secondary institution
  • Did you sell your home?
  • Gather all your documents for your original purchase and the sale of the home.
  • Do you have foreign income?
  • This could be investments you have outside Canada that aren’t on a T-slip.
  • Do you get a pension from a foreign government? US? UK?
  • Do you have investments outside retirement accounts?
  • Did you get a T5008 show shares you disposed of during the year?
  • You need to find out the cost of those shares; talk to your financial planner.
  • Are you or a child disable?
  • Did you file for the Disability Tax Credit (T2201A)?
  • You must have a T2201A on file with CRA in order to claim the disability tax credit.
  • your Social Insurance Number, as well as your spouse’s and children’s.
  • your birthdate, as well as your spouse’s and children’s. 
  • If you’re carrying forward from last year, ensure your address and email are correct.

You may want to:

  • Sign up for direct deposit to receive your refund faster and any benefit or credit payments owed to you, deposited directly into your bank account. Go to www.cra.gc.ca/directdeposit to learn how to sign up for direct deposit.
  • Make sure the Canada Revenue Agency (CRA) has your updated address and direct deposit information before you file. The fastest way to update both is by using My Account. To register for My Account, go to www.cra.gc.ca/myaccount. You can also use this service later to view your tax slip information, look up your RRSP deduction limit, and check the status of your refund or your Canada child tax benefit or GST/HST credit payments.
  • To file online, you need to complete your return using certified software or a certified web application. This may even help you identify benefits and credits that you may have missed if you filed on paper! The CRA has a list of software options-some that you have to buy and some that you can use for free-at www.netfile.gc.ca/software.

Paying Your 2017 Taxes Owing

By Randall Orser | Personal Income Tax

Tax time is once again upon us, and the chore of preparing and paying your taxes is nigh. Remember that the due date for paying your taxes is April 30th. If you don’t file by then, you will get a penalty of 5% plus 1% per month (up to 12 months) you don’t file. Sadly, many people don’t pay because they think they are going to owe, and that’s a big mistake. You’re much better to file your taxes and then work out a payment plan with Canada Revenue Agency (CRA). When filing your return, you may have a balance owing on line 485. Generally, if this amount is $2 or less for 2017, you do not have to make a payment.

Ways to Pay Your Taxes

You can pay in various ways to CRA: 

  • You can wait for your notice of assessment and then pay at your bank. 
  • You can pay using online banking (your SIN is your account number). Note many banks date the payment for the next day if it’s after 3 pm EST).
    • You can also post-date your payment to April 30th or any other date before that.
  • You can us My Account and pay that way and date the payment for anytime before April 30th.
  • You can pay at a Canada Post outlet, though payment make take a couple of days to be processed.
  • If you’re using a tax preparer, they can setup auto withdrawal and you pick the date (before April 30th) for the payment to come out.

What If I Can’t Pay in Full

If you cannot pay the full amount you owe now, take action by contacting the Canada Revenue Agency (CRA) right away. Ignoring your debt does not make it go away. In fact, waiting may make any financial or legal consequences more serious. The CRA may also charge interest compounded daily at the prescribed rate on any amount owing until your balance is paid in full. The CRA will work with you to resolve your tax debt or other government programs debt, though they could change their minds and demand payment in full at any time. 

A payment arrangement is an agreement you make with the CRA. It allows you to make smaller payments over time until you have paid your entire debt including applicable interest. Before you make a payment arrangement, you may need to show that you have tried to pay your debt in full by borrowing money or reducing your expenses. To figure out your ability to pay, we may ask you to provide proof of your income, expenses, assets, and liabilities. You may have to do this by telephone or by completing a financial questionnaire. The Payment Arrangement Calculator lets you calculate payment options and it includes the prescribed Canada Revenue Agency interest rates. The Income and Expense Worksheet will help you to calculate your available net income to pay your debt.

Financial hardship provisions

If your debt repayment makes it difficult for you to pay for housing, food, utilities and other necessities of life, you may qualify for help under the financial hardship provisions.

It is your responsibility to contact the CRA if repaying your debt is causing you financial hardship. The CRA will take your situation into account when reviewing your request.

For more information and to see if you qualify, call 1-866-864-5823

Insolvency or bankruptcy

If you feel you are insolvent or are considering bankruptcy, visit the Office of the Superintendent of Bankruptcy for more information.

Taxpayer relief provisions for individuals

In some circumstances, you may be able to ask for relief from penalties and interest charges and reduce the overall amount you or your business owes. For more information, and to see if your situation qualifies, see Taxpayer relief provisions.


In the end, you need to file your taxes and ensure you pay in full by April 30th. If you find yourself unable to make a full payment, file your taxes and then contact CRA to make a payment arrangement. 

Your First Tax Return

By Randall Orser | Personal Income Tax

Filing a tax return for many people can be overwhelming, however it can feel especially difficult when you’re young filing your first return. You must file a tax return if you’ve earned income during the year, or are entitled to any credits, such as the GST/HST credit, or may be getting a refund. The following tips will help make your transition into adulthood much less stressful.

Collect Your Tax Documents

Any company you worked for during the year should send you a T4 stating the income you earned, and the income tax, CPP and EI deducted. Whether you worked one day or the entire year, if you didn’t get a T4 by mid-March then you need to go back to your employers and find out why. Did you move during the year? If so, you should’ve let all employers know. If you were self-employed, you may or may not get a T4A, so keep track of any self-employed income you made during the year.

Ensure that you have all your financial documents for the year in one folder and keep those safe until you’re ready to prepare your tax return.

Dependent College Students

You tax situation could get a bit harder if you’re a college student, and your parents support you as well. Your parents can claim you as an independent and claim part of your tuition on their taxes, they’re paying for it anyway. You can claim what you need to on your taxes, however, you can transfer (up to $5,000) to them as a deduction on their taxes. Your parents more than likely have the higher income, so it makes sense for them to get the deduction. You need to talk to your parents about your intentions before anyone files their taxes.

File Electronically and use Direct Deposit

Canada Revenue Agency prefers you to file electronically (Efile®) and use direct deposit. Returns that use Efile® get processed much faster than via paper, and direct deposit is way faster than getting a cheque. If you Efile® and use direct deposit you can have your refund within 10 business days as opposed to paper and cheque which can take up to 8 weeks. Depending on the complexity of your tax return, you may have to buy tax software to do this or hire someone to do it; the investment is usually worth the time savings. The advantage to using software or a tax preparer is that they may uncover deductions you didn’t realize were possible.

There really is no reason to file a paper return anymore, unless you’re required by CRA.

File by April 30th.

You need to file and pay by April 30th for the preceding tax year. If you Efile® ensure you file by midnight on April 30th to avoid a penalty. For paper filing, the postmark must be for April 30th, otherwise, it’s considered late. If April 30th falls on the weekend then the due date becomes the following business date, usually Monday. CRA does not give extensions for filing, other than for self-employed individuals of June 15th; if you owe then it must be paid by April 30th. You should file your return on time even if you can’t pay the balance owing right away. CRA charges a penalty of 5% plus 1% per month up to 12 months that a return is past due.

Filing your taxes is not the most enjoyable process, but don’t rush it as you could make careless mistakes. This could cost you in missed refund opportunities, penalties, or other attention from CRA you don’t want. As this is your first time filing, you may want to have a parent or other older adult look over your return, especially if you’re not using software or a tax preparer.

How Do I File My Tax Return?

By Randall Orser | Personal Income Tax

There are a couple of ways you can file a tax return today. You can still paper file, though that is going to disappear within the next 5 years, I believe. You can electronically file using Netfile® for individuals. And, you can hire a tax preparer, such as Number Crunchers®, to prepare and Efile® your return. Note that tax preparers are now required by Canada Revenue Agency (CRA) to electronically file all returns, unless stated otherwise by CRA.

Note that personal tax returns are due by April 30th of each year for the prior year’s filing. Self-employed, or proprietorship/partnership, returns are due by June 15th; however, any taxes owing are due by April 30th. I believe making installments is the smarter way to handle you taxes each year. Yes, the government gets your money early, however, you won’t have a whopping balance on April 30th that you may not be able to pay.

Be Prepared!

That’s not just a Scout slogan, but what you have to be before you file your taxes.

Gather up all your slips T4s, T5s, etc., a copy of last years return, donations, medical receipts, etc. You can register for My Account which gives you online access to your notices of assessment, allows you to make any adjustments to an already filed return, and more. If you need to change your address or direct deposit information (or want to set it up) makes sure you have all that information handy including: old address, new address, bank information, etc. Also, look at the various tax credits and find out if you qualify, and if you do then have all necessary information for those available. For a comprehensive list of what you’ll need to prepare your taxes ask for a copy of our Tax Info Needed sheet.

Paper Filing

You can still paper file (2013) and I believe it will be phased out over the next five years. You can get a copy currently at any Canada Post outlet or go online to CRA’s website and make sure you pick the return for your province. You must fill out the return as required and attached an original copy of all slips (T4s, T5s, etc.), donation receipts, medical receipts, arts credit and fitness credit, public transit receipts (monthly fare card as well as proof of payment), and any other slips/receipts for which you are claiming a deduction or income.

You must either mail or drop off your tax return to your local tax services office. CRA does not accept returns by email

Netfile®

The Netfile® transmission service allows an individual to file your personal tax return directly to CRA, usually via a tax preparation software. You must use a CRA accredited software, and there are some free ones, check CRA’s website. With Netfile® you do not have to send your slips and receipts with the return. CRA will look at your return initially and send you a notice of assessment with your balance owing or refund. Since CRA does not get your slips/receipts with the return, they do ‘reviews’ either during the tax season or after the season (usually September onwards). Generally, CRA just wants proof of any deduction you’re claiming or may want to validate your income.

Netfile® is only for filing the current year tax return (2012 at the time of writing this). You cannot change your address, name or direct deposit information through Netfile®, do that before you file (see Be Prepared!).

The advantages to filing electronically are: faster refunds, it’s generally fast and easy (if you have a simply return), you can file for free (again, if you have a simply return), your information is secure and safe as CRA uses security levels equal to your bank, and filing electronically does not increase your chance of an audit.

Hire a Tax Preparer

The third option is to hire a tax preparer, and one that we recommend for those with a more complicated return, or you just don’t have the time to figure out the software or the paper return and file yourself.

Your tax preparer will have the software to be able to Efile® your return, and has the knowledge to get the job done right. Your tax preparer won’t need your Netfile® access code either as they would have their own account access for filing.

I have found many times deductions for clients they had no idea they were entitled, sometimes saving them thousands of dollars on their taxes. For what it costs to have someone prepare and Efile® your return, can be saved just in the hassle of filing and possible deductions you may have missed by filing it yourself.

Be prepared (see paragraph above) applies even more so with a tax preparer. Please ensure you have all your slips and receipts ready as anything you forget delays your return getting processed. Ask us for a copy of our Tax Info Needed sheet, which covers everything we’ll need to do your taxes.

For proprietorships/partnerships, I believe, it’s more imperative to get a professional tax preparer to prepare your tax return. A professional tax preparer will know what you can and cannot write off for tax purposes, or what deductions are only partially a write off. The three main things CRA looks at with proprietorships are automobile expenses, meals, and home-office expenses. So, you want your tax return to be as accurate as possible.

Filing your tax return is important and you want it to be accurate. Electronic filing is the best way to file your return. I find many people don’t file because they are going to owe taxes. That is a big mistake and can hurt you worse than filing and owing. As long as you file on time, you won’t be penalized, and you will only be charged interest on the balance owing. That is why it is better to make installment payments so you won’t have to worry about a balance owing at tax time.

Capital Gains and Your Taxes

By Randall Orser | Personal Income Tax

When you buy a stock or a mutual fund, you do so in hopes of making a profit. That is why it is so important to keep careful track of not only how much you paid for that security but any income it generates while you hold it. All of those factors go into your cost basis, which in turn helps you determine your true profit.

Computing your capital gain is important, since an inaccurate figure could cause you to either overpay or underpay your taxes. If you overstate your cost basis, you will pay too little in capital gains taxes, and that could invite some unwanted attention from Canada Revenue Agency. If you understate your cost basis, you will pay too much in capital gains taxes, cutting into your profit and leaving you with less money in your pocket.

Understanding Your Cost Basis

Many investors assume that the cost basis of a stock or mutual fund simply consists of the amount they paid, but in fact it is a bit more complicated than that. Many stocks and mutual funds pay dividends along the way, and those dividends are considered taxable income. When you hold a dividend-paying stock or mutual fund, you should receive a T3 or a T5 form each year showing exactly how much you received. You must then include that amount on your tax return, and pay the applicable taxes on that money.

If you fail to factor in those dividend payments, you risk understating your cost basis and paying taxes twice on the same money. When you receive a T3 or a T5 form, you should immediately add the amount shown to the amount you paid for the stock or mutual fund. Continue to add those dividend payments to your cost basis each year, since you have already paid taxes on those amounts. This is assuming you are not receiving cash for the dividends and they are just added back into the investment

Computing Your Capital Gain

The cost basis of your stock or mutual fund consists of the amount you paid, plus any brokerage commission, along with those quarterly or annual dividend payments. Once you have added up all those amounts and determined your true cost basis, it is time to compute your capital gain.

When you sell a stock or mutual fund, you should receive a T5018 form, which shows the amount of proceeds you received (some forms do show the cost and/or adjusted cost base too). Once you know your cost basis, computing your capital gain is as simple as subtracting that cost basis from the gross proceeds.

Once you know the amount of the capital gain, you can simply include it when you file your taxes. If you use tax preparation software to prepare your return, all you need to do is answer the questions about capital gains and use them to see the impact of that gain on your total tax bill.

What Types of Income Do You Have to Report?

By Randall Orser | Personal Income Tax

You probably already know that you must report the wages you make to Canada Revenue Agency (CRA). But the tax agency also considers your other sources of income, and it is important to report those as well. Under-reporting your total income can subject you not only to back taxes, but to interest and penalties as well.

Whether this is the first year you have filed your taxes or not, it pays to brush up on the sources of income you must report. Paying careful attention to all those sources of income is the best way to avoid problems with the CRA.

Total Wages

You should receive a T4 form from your employer each year, showing the amount, you received in wages during the previous year. If you held more than one job during the previous year, you should receive a T4 from each employer. The T4 form also shows the amount already withheld from your paycheck for income tax, Canada Pension Plan, Employment Insurance, and any benefits received. Your wages include: wages, overtime, commissions, and benefits.

Wage Loss Replacement

If you received payments from a wage-loss replacement plan shown in box 14 of your T4 slips, you may not have to report the full amount on your return. Report the amount you received minus the contributions you made to the plan if you did not use them on a previous year’s return. Do not include this amount when you calculate your total income on line 150.

Pensions or Superannuation

You must report your Canada Pension Plan (CPP), and Old Age Security (OAS) benefits received during the year. You do have to report the Guaranteed Income Supplement (GIS), however, that is only used to calculate certain credits not for taxes. Also, report any income from a company pension or government pension, RRSP withdrawals or RRIF withdrawals. You will receive slips for the above that include the amount received and the taxes withheld.

Note:  You do not claim income earned in or withdraws from a TFSA.

Interest Income

You must report the interest you receive from your bank as income when you file your taxes. The bank should send you a T3 or T5 form showing exactly how much interest you received for the previous year. If you earned interest from more than one bank, you should receive a T3 or T5 form from each one.

Dividend Income

Dividend income is taxable as well. If you earned dividends on stocks or mutual funds you own, the brokerage firm or mutual fund company should send you a T3 or T5 form. Contact the brokerage firm or mutual fund company if you do not have this form in hand by the end of February.

Capital Gains

If you sold stock during the year, you must pay capital gains taxes on the profit you made. The brokerage firm sends you a statement showing the net proceeds of the stock sale, but it is up to you to determine how much you paid and compute the profit and the capital gains taxes you owe. You may also have to claim a capital gain if you’ve sold any personal property during the year.

Self-Employment or Business Income

Whether you run a business or do some freelance work on the side, you are required to report the money you make to the CRA. If you are a freelancer, your major clients may send you a T4A form detailing exactly how much they paid you, but you are required to report all the income you made, whether you get a T4A form or not. If you did get a T4A form, you still claim this as business income on the T2125 Statement of Business Activities.

Tips for Tax Success Before You Use a Professional Tax Preparer

By Randall Orser | Personal Income Tax

We'll get you a bigger refund.”

“Get your refund before you leave our office!*”

And the guarantees get more outlandish with each new firm of “tax professionals.” For anywhere between $99 to a couple hundred dollars, you too can drag all of your personal information to a complete stranger, so they can type your information into their special tax software. 

Before you use a tax professional to prepare your income taxes, there are steps you should take to protect yourself from mishaps. The biggest problems with using a tax professional are:

  • Paying high fees for a fairly simple preparation.
  • Miscommunication between client and tax preparer leads to penalties for the tax payer.
  • Signing up for unnecessary refund now programs or protection on an incorrectly prepared return.
  • Exposure of personal information to unscrupulous individuals.

Paying High Fees for A Simple Return Preparation

If addition, subtraction, multiplication, and division are not tough for you, and you only have a job and very few deductions, you could do your own taxes. The chain tax preparation services charge flat fees for tax preparation, so you may end up paying high dollar for something that could take you less than an hour to complete. Taxes only begin to get complicated when there are varied income sources, such as investment and self-employment or business income, and multiple schedules of deductions.

Protection: Give your own tax preparation the old college try before you see a tax professional. Even if you only prepare you own taxes once it can be valuable. Feeling nervous about your results? Pay for professional tax preparation after you finish and if you receive similar results to your own attempt, you now have confidence to do-it-yourself next tax season.

Miscommunication Between Client and the Tax Preparer Results in Penalties for Taxpayer

Ignorance of the law is never an excuse to break it. Even tax professionals with great reputations and flawless credentials make mistakes. One of the biggest sources of mistakes derives from misinformation from the client, you! The tax professional may ask questions about activities and purchases with the hope of securing additional deductions. Incorrect statements result in a tax return with ineligible deductions, a higher refund, but serious problems for the taxpayer when the return is reviewed by government officials.

Protection: Educate yourself in a general way about the types of deductions you have taken in the past, and the “What's New for [this tax year]” page in the federal tax return instruction guide. If you are ever confused about why a tax professional is asking a question, speak up. Clarification about what qualifies for a particular line item could save you headaches and hefty penalties later on.

Signing Up for Unnecessary Refund Now Programs or Tax Return Mistake Protection

Both of these products are useless. The first is actually a loan product and if your return is less than you anticipated, you will face payday loan type interest rates on the difference. It is not worth the hassle to get your refund check that day from the tax preparation firm. You've lived without that extra money the entire year; a few more weeks won't hurt you. Additionally, many chain tax preparation firms now scare clients with “audit protection.” What is the point of hiring a tax professional to complete your tax return if you still aren't sure you can trust their results?

Protection: Use direct-deposit for any tax refunds. You won't bother with any loan products, debit cards that tack on fees for use, and on average a direct-deposit refund arrives within two to three weeks. Currently, CRA is depositing refunds within 10 days from filing. The “audit protection” programs are a waste because you should always be truthful with your tax preparer. Keep your records, and if there is an audit, it is unlikely it will be a major mistake. Even when an adjuster finds an issue during an audit, it doesn't automatically mean a charge of tax fraud. Most minor cases require a payment of any difference, and modest penalties. Still an extremely rare occurrence if both you and the tax preparer are vigilant, so skip the useless insurance policy.

Exposure of Personal Information to Unscrupulous Individuals

For anyone to prepare your taxes, they will need social security numbers, bank account information and statements, and T-slip records showing your employment. In the wrong hands, this sensitive information can be exploited for great gain. Many chain tax preparation firms rely on seasonal labor, making detection of any wrongdoing by disgruntled employees more difficult once tax season ends.

Protection: Only bring the information you know you need, and keep it organized in a folder or some other collection. As your tax professional works with you, only give him or her the forms needed for that particular step. Ensure the forms are returned to you, other than some records which must be sent to CRA, for your records. Other than your physical tax return and records, the tax preparer shouldn't be making copies of bank statements and other supporting documentation, unless it will be submitted with the return.

The bottom line is even when you are using a professional tax preparer, it is ultimately up to your own common sense to make sure your taxes are filed correctly. If a deduction sounds odd to you, or too-good-to-be-true, question it! Unless you have had major life changes between tax seasons, such as a large shift in income, the birth of a child or marriage, there should not be a large difference in your refund or taxes owed. If you encounter a problem, do not hesitate to speak with a branch manager. After all, it's your money and tax obligation to the government, not theirs.

What Determines Tax Withholding Amounts?

By Randall Orser | Personal Income Tax

The Canadian Parliament and Provincial Legislatures establish federal and provincial tax-withholding rates. Procedures for determining your withholding amounts vary by tax. Sometimes withholding amounts depend on the type of wages being deducted.

TD1 Form

Your TD1 form helps your employer to determine the amount of federal income tax to subtract from your wages. For this reason, your employer must give you the form to complete when you're hired. Your withholding amount depends on the number of credits and filing status you claim on the form. Each credit gives you a sum that reduces your wages subject to taxation. The more allowances you claim, the less tax you pay; the fewer allowances you claim, the more tax you pay.

Note there are a Federal and a Provincial TD1, and you, the employee, must fill out both.

Taxable Wages

Federal income tax withholding is also based on your taxable wages. The more you earn, the more tax you pay; the less you earn, the less tax you pay. To arrive at your taxable wages, determine your gross pay, which is your entire pay before deductions. Then subtract nontaxable wages, such as qualified business expense reimbursements, and pretax deductions, such as qualified health insurance, from your gross pay.

CRA Guide T4032 Payroll Deductions Tables

Once taxable wages have been determined, withholding depends on CRA Guide T4032 Payroll Deductions Tables. Apply the withholding table that goes with your filing status, taxable wages, pay period and number of allowances. The table gives the exact amount that should come out of your paychecks. The CRA updates its tax tables periodically, typically semi-annually, so use the tax rate that applies to the tax year in question.

Flat Percentage Rates

Canada Pension Plan (CPP) and Employment Insurance (EI) are federal payroll taxes that are withheld at flat percentages of your wages. These rates are subject to change, usually annually. For 2018, Canada Pension Plan tax is withheld at 4.95 percent of your taxable wages, up to the annual wage maximum of $55,900. Employment Insurance is withheld at 1.66 percent of taxable wages to a maximum of $51,700.

Supplemental Wages

Supplemental wages are payments you receive from your employer that are not regular wages. They may include overtime pay, bonuses, commissions, severance pay, sick pay, awards, prizes and retroactive pay increases. For federal income tax purposes, if supplemental wages are paid in addition to regular wages, they’re taxed as though the total were a single payment for the regular payroll. If supplemental wages are paid separately from regular wages, federal income tax may be subtracted at a flat 25 percent. If supplemental wages exceed $1 million for the calendar year, the excess amount is taxed at 35 percent.

Provincial Taxes

Every province has an income tax rate and the amounts differ from Province to Province. If you are using CRA’s tax tables then both the federal and provincial amounts will show and are added together. Some Provinces do have additional taxes, such as Ontario’s health tax. Quebec has different rates for CPP and EI.

What Is the Disability Tax Credit (DTC)?

By Randall Orser | Personal Income Tax

The disability amount is a non-refundable tax credit used to reduce income tax payable on your income tax and benefit return. This amount includes a supplement for persons under18 years of age at the end of the year. All or part of this amount may be transferred to your spouse or common-law partner, or another supporting person.

The disability amount is for those individuals who have a severe and prolonged impairment in physical or mental functions. You do have to file a form, of course, it is government and they thrive on paperwork. You file a T2201 Disability Tax Credit Certificate with Canada Revenue Agency (CRA); a qualified practitioner must fill out the medical portion of the form.

You are eligible for the DTC only if CRA approves the T2201 form. A qualified practitioner has to complete and certify that you have a severe and prolonged impairment and its effects. To find out if you may be eligible for the DTC, check out the self-assessment questionnaire which is on the T2201 form.

Do you receive Canada Pension Plan disability benefits, workers’ compensation benefits, or other types of disability or insurance? If so, this does not necessarily mean you will qualify for the DTC. These other programs have other purposes and different criteria for qualifying, such as your inability to work. You may not be able to work; however, your daily living may not be severely affected.

The DTC starts from the day the physical or mental impairment began. You can apply at any time and re-file any tax returns for years that the DTC would apply. For example, you apply for the DTC in 2013 for an impairment that began in 2010; CRA approves the DTC for 2010 and future years. You can now apply for an adjustment for tax years 2010, 2011 & 2012.

Some Definitions

Inordinate amount of time – is a clinical judgment made by a qualified practitioner who observes a recognizable difference in the time required for an activity to be performed by a patient. Usually, this equals three times the normal time required to complete the activity.

Life-sustaining therapy – You must meet both the following conditions: the therapy is required to support a vital function, even if it alleviates the symptoms; and, the therapy is needed at least 3 times per week, for an average of at least 14 hours per week.

Markedly restricted – You are markedly restricted if, all or substantially all of the time (at least 90% of the time), you are unable, or it takes you an inordinate amount of time (defined above) to perform one or more of the basic activities of daily living, even with therapy (other than therapy to support a vital function) and the use of appropriate devices and medication.

Prolonged – An impairment is prolonged if it has lasted, or is expected to last, for a continuous period of at least 12 months.

Qualified practitioner – Qualified practitioners are medical doctors, optometrists, audiologists, occupational therapists, physiotherapists, psychologists, and speech-language pathologists. The table below lists which sections of the form each can certify.

Significantly restricted – means that although you do not quite meet the criteria for markedly restricted, your vision or ability to perform a basic activity of daily living is still substantially restricted all or substantially all of the time (at least 90% of the time).

Type of impairment each qualified practitioner can certify:

Qualified practitioner:

Can certify:

Medical doctor

All impairments

Optometrist

Vision

Audiologist

Hearing

Occupational therapist

Walking, feeding, dressing, and the cumulative effect for these activities

Physiotherapist

Walking

Psychologist

Mental functions necessary for everyday life

Speech-language pathologist

Speaking

If you find yourself with any kind of a severe impairment, you need to look at the DTC. Currently (2017), the disability amount is $ 8113, which can be significant. Also, with the number of children being diagnosed with autism, you can have your child file a T2201 and will more than likely qualify for the DTC, which can then be transferred to one of the parents. Look at other potential disability credits that you may qualify for tax purposes too.

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