Category Archives for "Personal Income Tax"

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.

When to Hire an Accountant to do your Taxes

By Randall Orser | Personal Income Tax

Do you fill out your own tax forms, use a software program to file your taxes, or have a tax service do it for you? Each of these methods is a good option, but sometimes it is better to work with a tax preparer. A tax preparer has specialized expertise and knowledge of tax rules making them the perfect candidate to accurately complete tax forms.  The more complicated your taxes are, the more likely you will need the help of an experienced preparer. 

If expense is not a concern for you, having a tax preparer file your taxes for you may be the best decision. You shouldn’t have to worry about your taxes being filed correctly if you are working with an experienced tax preparer. You also don’t have to spend any time calculating details and filing tax forms yourself. Whether you fill out a one-page form or you have a stack of forms to fill out, a preparer will be able and willing to do it for you. However, if you don’t want to throw away your money, simple forms can be done with software programs, through a tax service, or on your own much less expensively.

If you have several sources of income, such as a side business, stock investments, income properties, and other income sources, it is a good idea to have a preparer do your taxes for you. These types of income sources can be very complicated and require several extra forms to be filled out. A good preparer will have experience with it and can ensure that it will be done correctly and efficiently. Filling out a mountain of different forms can be tedious and confusing. One mistake can carry problems throughout the forms. Have someone who knows what they are doing complete it for you. On the other hand, if you only have one W2 form, you should be able to do it yourself.

Whether or not you should have a preparer do your taxes depends on what forms you need to file and how confident you feel doing them yourself. If you like to speed through things and don’t like looking over your work, you could miss important deductions and make costly mistakes. A preparer will ensure things are done right. Precision and detail are important when filing taxes to avoid mistakes and penalties. The more complicated the forms are, the more precise you need to be. If you feel uneasy about it, hire a preparer to do it for you. With a preparer, you are paying for expertise, precision, and accuracy.

Why are my support payments taxable?

By Randall Orser | Personal Income Tax

There are two kinds of support payments: child and spousal. Child support payments are those payments that you and your spouse have agreed on, or are court ordered, to help cover the cost of raising the children by the one spouse. Spousal support payments are those payments that you and your spouse agreed on, or are court ordered, that cover that spouse’s own maintenance (living expenses). Generally, the agreement or order must stipulate whether the payment is a child or spousal support payment.

Your payment is considered a support payment if the following five conditions are met.

  • The payment must be made under the terms of a court order or written agreement.
  • If the recipient is the payer's current or former spouse or common-law partner, the payer must be living separate and apart from the recipient at the time the payment was made because of a breakdown in the relationship. Otherwise, the payer must be the legal parent of a child of the recipient.
  • The payment is made for the maintenance of the recipient, child of the recipient, or both, and the recipient has discretion as to the use of the amount.
  • The allowance must be payable on a periodic basis. The timing of the payments must be set out in the court order or written agreement.
  • The payments must be made directly to the recipient.

For tax purposes, child support payments are not taxable income to the recipient. However, they must be laid out in the court order or agreement as child support payments. If your order or agreement predates May 1 1997, then the recipient would have to include the payments as income, and the payer gets a deduction.

Spousal support payments are taxable income to the recipient, and a deduction for the payer. As with anything tax wise, there are exceptions. Child support has priority. If your court order or written agreement specifies child support payments and support payments for the recipient, priority is given to the child support.

This means that all payments made are first considered to have been made toward child support. Any amount paid over and above the child support amount is considered to be support payments for the recipient. All child support payable to a recipient must be fully paid before any amounts paid as support for the recipient can be claimed as a deduction. Any arrears in the amount of child support is carried forward and added to the next year's support payable. The priority of child support does not apply when the child support and spouse or common-law partner support are payable under different court orders or written agreements and the recipients are different people.

Payments made after the death of the recipient are not deductible by the payer. Whether the payments are made to the estate or the children, these payments would not meet the conditions of a support payment. Payments made by the estate of a payer to the recipient are neither deductible nor taxable. The amounts do not meet the conditions of a support payment because an estate cannot have a spouse or common-law partner.

If you have to claim support payments you received, then it’s because they are for spousal support. Check your agreement or court order to ensure you are doing this correctly, and keep track of your child support payments as you may not have to claim the support payments if the child support is not paid in full.

Where Does Our Tax Revenue Go?

By Randall Orser | Personal Income Tax

People just hate paying taxes. I think a lot of that has to do with we really don’t know where it goes. It all goes into that sinkhole we know as General Revenue. From there what happens to it is a mystery. Of course, there are many things the government spends money that really tick off people, and that has much to do with this hatred for taxes. So where does this money we grudgingly pay to the government go exactly?

The following figures are from the Department of Finance for the fiscal period 2013 to 2014, and we accept no responsibility for their accuracy, nor for how much they may tick you off. We did search for more current figures, however, the government doesn’t seem to put this information out as much as it used to in the past.

For the fiscal year ending March 31, 2014, Canada’s federal government spent $276.8 billion. That represents roughly 15 per cent of our country’s $1.9-trillion economy.

Transfer payments

Payments that go directly to persons, to provincial and territorial governments, and to other organizations are called “transfers.” Transfers are the largest category of government spending. They made up about 61 cents of each tax dollar spent ($169.4 billion).

Transfers to persons

Major transfers to persons cost 26 cents of each tax dollar spent ($72.2 billion). The biggest category within transfers to persons was elderly benefits. These transfers include:

Old Age Security

Guaranteed Income Supplement

Allowance for Spouses

Total elderly benefits cost about $41.8 billion, or roughly 15 cents of each tax dollar spent.

Another major transfer to persons is Employment Insurance (EI) benefits. Altogether, EI benefits cost over 6 cents of every tax dollar spent ($17.3 billion). The final category of transfers to persons is children’s benefits. The federal government provided $13.1 billion to help families raise their children through the Canada Child Tax Benefit and the Universal Child Care Benefit. These payments cost almost 5 cents of every tax dollar spent.

Federal support for health care

Federal support for health care goes beyond cash payments under the Canada Health Transfer and the Equalization and Territorial Formula Financing programs. The federal government also provided over $6 billion last year for:

First Nations health services

Health care for veterans

Programs for public health

  • Health research

Other transfer payments

Last year, spending on federal grants, contributions and subsidies added up to $36.7 billion, just over 13 cents of each tax dollar spent. This included:

$6.3 billion in assistance provided by Employment and Social Development Canada in support of learning, skills and employment, and social housing

$6.2 billion in transfers by Indian Affairs and Northern Development for First Nations and Aboriginal peoples

$3.4 billion in transfers by the Canada Revenue Agency, which includes transfers made to individuals and corporations through the tax system

Other funding was provided in support of farmers and other food producers, research and development, infrastructure, regional development, health research and promotion, the arts, amateur sports, international assistance, and multiculturalism and bilingualism.

Other program expenses

After transfers, the bulk of federal tax dollars went to cover the operating costs of the more than 130 government departments, agencies, Crown corporations and other federal bodies that provide programs and services for Canadians.

Government operating expenses such as salaries and benefits, facilities and equipment, and supplies and travel made up 29 cents of each tax dollar spent ($79.2 billion). Close to half of this spending—14 cents of each tax dollar—went to just three organizations.

National Defence

First, spending last year by National Defence, including the Canadian Armed Forces, made up 8 cents of each tax dollar spent ($21.5 billion)

Public Safety

Next, operating costs of Public Safety and Emergency Preparedness represented over 3 cents of each tax dollar spent ($9.8 billion). This includes funding for the Royal Canadian Mounted Police, the federal prison system, and border traffic and security operations.

Canada Revenue Agency

And third, expenses of the Canada Revenue Agency, which administers the federal tax system (and also collects taxes for all provinces except Quebec) totalled $7.8 billion, or 3 cents of each tax dollar spent.

Other operations

A further $32.6 billion—12 cents of each tax dollar—was spent on the operations of the other federal departments and agencies. These included major departments such as:

Employment and Social Development Canada

Environment Canada

Fisheries and Oceans Canada

Health Canada

Industry Canada

Department of Justice

Natural Resources Canada

Public Works and Government Services Canada

Transport Canada

Veterans Affairs Canada

Funding also went to federal agencies such as the Canadian Food Inspection Agency and Parks Canada.

Paying for Parliament

One of the smallest spending slices goes to Parliament itself—the House of Commons, the Senate and the Library of Parliament. Last year, the combination of salaries and benefits for Members of Parliament, Senators and parliamentary staff, and spending on facilities and services, totalled about $534 million. That’s less than one-quarter of a cent of every tax dollar spent.

Crown corporations

Crown corporations (organizations owned directly or indirectly by the Government) cost $7.5 billion, or 3 cents of each tax dollar spent. Most of these expenses were recorded by three organizations:

Canadian Commercial Corporation—$1.7 billion

Canadian Broadcasting Corporation—$1.7 billion

Atomic Energy of Canada Limited—$1.3 billion.

Funding was also provided to cultural organizations (including the National Gallery of Canada, the Canadian Museum of History and the Canada Council for the Arts), to enterprises like VIA Rail, and to the Canadian Tourism Commission.

These costs were partially offset by revenues earned by the Crown corporations, which totaled $3.5 billion in 2013–14. These revenues are included as part of the Government’s other revenues discussed in the section entitled “Where the money comes from.”

Public debt charges

Interest charges on Canada’s public debt—money borrowed by the federal government over the years and not yet repaid and liabilities for pensions and other future benefits—cost $28.2 billion. That’s 10 cents of every tax dollar spent. Currently, 74 per cent of the Government’s un-matured debt is owed to Canadians, including citizens and domestic institutions holding federal bonds, treasury bills and other forms of the debt.

Here’s a summary of where all your tax dollars go:

Canada Health Transfer (11 cents)

Canada Revenue Agency (3 cents)

Canada Social Transfer (5 cents)

Children’s benefits (5 cents)

Crown corporations (3 cents)

National Defence (8 cents)

Employment Insurance benefits (6 cents)

Other major transfers to other levels of government (6 cents)

Other operations (12 cents)

Other transfer payments (13 cents)

Public debt charges (10 cents)

Public Safety (3 cents)

  • Support to elderly (15 cents)

Let’s Get Ready for Taxes!

By Randall Orser | Personal Income Tax

It’s hard to believe that another tax season will soon be upon us. Wouldn’t it be great if you were ready to do your taxes before the deadline of April 30th? I’m sure your tax preparer would be delighted to get everything ready and organized before then. Now is the time to be thinking about your income, deductions, and whether or not you’ll be owing come April 30th.

Income

What is your income this year? Just from T4s then you probably won’t be owing. However, add in other income from things such as interest, investments, rental or small business and you will probably end up owing. The amount and types of income will determine your tax owing. Most ones mentioned before are taxed at 100%; however, capital gains and dividends are taxed differently (capital gains are 50% of the gain and dividends you get a tax credit).

The amount of income you earn will determine which tax bracket you fit, and then how much tax you pay. It’s best to figure out what your income is early enough so you can estimate your tax bill and be ready to pay it by the deadline of April 30th. For small businesses, even though your return is due June 15th, the tax is due April 30th.

You can find a complete list here of all income that should be included on tax return along with the line number on the tax return.

You do not have to report certain amounts in your income, including the following:

  • any GST/HST credit, Canada child benefit, or Canada child tax benefit payments, including those from related provincial and territorial programs;
  • child assistance payments and the supplement for handicapped children paid by the province of Quebec;
  • compensation received from a province or territory if you were a victim of a criminal act or a motor vehicle accident;
  • most lottery winnings (Income earned on any of the above amounts, such as interest you earn when you invest lottery winnings is taxable);
  • most gifts and inheritances;
  • amounts paid by Canada or an ally (if the amount is not taxable in that country) for disability or death due to war service;
  • most amounts received from a life insurance policy following someone's death;
  • most payments of the type commonly referred to as strike pay you received from your union, even if you perform picketing duties as a requirement of membership;
  • Elementary and secondary school scholarships and bursaries;
  • Post-secondary school scholarships, fellowships, and bursaries are not taxable if you received them in 2016 for
    your enrollment in a program that entitles you to claim the full-time education amount in 2015 or 2016, or if you
    will be considered a full-time qualifying student for 2017; and

Deductions

The amount and type of deductions will also determine your balance owing. The more deductions you can come up with, legitimate ones of course, the lower your amount owing will be. The first one most people think about is RRSPs as that’s a straight deduction off your income as is support payments, union dues, company pension contributions, employment expenses, childcare expenses, moving expenses, and more. The more of these kinds of deductions the lower your taxable income. The other kind of deductions are actually tax credits and include, working income tax benefit, medical expenses, donations, political contributions, CPP and EI premiums, disability tax credit, and others.

The more deductions the better off you are tax wise, however, make sure you have all your receipts for anything you’re claiming. Canada Revenue Agency (CRA) is checking a lot of these deductions now, especially if they are large amounts. Keep your receipts by deduction and year, and you should have no issue when it comes to a review of said deduction.

There are also various provincial deductions you can claim. British Columbia has the home renovation tax credit, sales tax credit (PST), training tax credit. Ontario has the children’s activity credit, co-operative education tax credit, healthy homes renovation tax credit, to name just a few. Check with the CRA website here for a complete list of provincial credits.

What your tax bill will be come April 30th, can be somewhat estimated earlier based on your income and deductions, and isn’t it better to be prepared for that than find out on the 29th what you actually owe.