Tax Script, Activity and FAQ
Slides for the script can be accessed here.
- Introduce yourself (Your name, your background, your school/profession)
- Introduce the agenda for today’s workshop:
- Tax in Canada
- The importance of filing tax
- How to get started
- Calculating your own tax
- Resources available
Tax professionals follow Income Tax Act. The CRA website provides interpretations of the Income Tax Act. The Canadian income tax system is a self-assessment regime which means taxpayers assess their tax liability by filing a return with the CRA by the required filing deadline. CRA will then assess the return based on the return filed and on information it has obtained from employers and financial companies, correcting it for obvious errors.
What is taxable income? Simply put, it’s the amount of income you have to pay tax on. Taxable income is generally described as gross income or adjusted gross income minus any deductions or exemptions
Employment income can consist of amounts you receive as salary, wages, commissions (see line 102), bonuses, tips, gratuities, and honoraria. Employment income is usually shown in box 14 of your T4 slips. Here is a example of what a T4 looks like. (You should obtain it from your employer)
Activity 1 - Let’s talk about taxable benefit.
Here are some examples: Board and lodging provided to employees free or at a reduced price, Gifts from employer (over $500 value is taxable), Personal use of the employer’s motor vehicle, Public transit passes provided to employees.
The next category is business income. A business is an activity that you intend to carry on for profit and there is evidence to support that intention. Include all your income. For example, if you earned income by tutoring and you are not employed by a tutoring company, then the income you earned is considered business income. If you do not report all your income, you may have to pay a penalty of 10% of the amount you did not report after your first omission.
Capital gain. Example of capital items: Houses, cars, equipements, stocks, boats. Usually, you have a capital gain or loss when you sell or are considered to have sold capital property. The following are examples of cases where you are considered to have sold capital property: You exchange one property for another, you give property (other than cash) as a gift, you settle or cancel a debt owed to you. (Please consult tax professionals if you are not sure if you have a capital transaction)
The importance of filing your tax: If you fail to submit and pay your taxes before the deadline (April 30th), then the government can take action against you to recover what is owed to them. (ie. charging interest).
If you earn an income, and are a Canadian citizen, you can earn contribution room for your RRSP (Registered Retirement Savings Plan) for up to 18% per year. This allows you to save for your future and claim the tax deduction when it benefits you the most. (Delay the payment of tax) GST rebate is available to be paid to lower-to-middle income Canadian citizens each quarter… It is a nice little income boost!
How do you start filing taxes? It requires Social Insurance Number. If you do not have a SIN number yet, you may visit a Service Canada branch to obtain one. You can file online via Canada Revenue Agency web application (CRA website). You can file electronically using tax software and send to CRA. You can also prepare a paper copy of the return and mail it to CRA. Professional preparers and tax clinics can electronically file on your behalf. It can take weeks for the filing to be processed and any refunds to be issued. We recommend that your first tax return should be filed by a tax professional to avoid CRA issues.
Calculating your tax: Tax deduction vs. tax credits. Tax deductions are often viewed as more valuable since they can generate bigger savings.
Deductions are subtracted directly from your taxable income, so you do not have to multiply this deduction by a percentage. For example, if you earned $20,000 and made a $1,000 RRSP deduction, your taxable income would then be reduced to $19,000. Here is the CRA website that lists all tax deduction and credits.
Tax credit: a deduction to your tax payable. Most tax credits are non-refundable, therefore, they can’t generate a tax refund on their own. You need to owe income tax during the year in order to gain the tax return benefit. Unfortunately, you also have to multiply them by 15% before you apply them to the tax owing. For example, if you claim $5,000 in tax credits, you will receive a return of $750 from the tax that you have already paid. These tax credits are contained on Schedule 1 of the T1 return. Some tax credits can be carry forward if not used in the year.
Common tax credits - Basic credit : $1,721 (equivalent to $11,474), Caregiver, Pension, Employment credit, Dividend tax credit.
Filing Deadlines: April 30 for most individuals, June 15 if the taxpayer or spouse carries on a business in the year
Pose this Question: Can anyone think of an example of benefit you received from work that it’s not in the form of salary, bonus, commission or wages?
Resources: There are many tax clinics organized by CRA.
Here us a list of available tax clinics in Toronto: http://www.cra-arc.gc.ca/tx/ndvdls/vlntr/clncs/toronto-on-eng.html
If I don’t have enough income to pay tax this year, do I still have to file my tax return? If you are under age 65 and single, you must file a tax return if you earn $10,400 or more, which is the sum of the 2017 standard deduction for a single taxpayer plus one exemption. If you income is low, it is still recommended that you file your tax to make sure you get available tax benefits and keep information for future reference.
2. What is the consequence of a late payment to CRA?
- Any payment that is late or not made will result in interest owing to CRA
- The interest charged by CRA is at the “prescribed” rate + 4% compounded daily
- The prescribed rate is set each quarter by CRA and is based on the government of Canada T-Bill rate for the previous period
- Prescribed rates are published on the CRA website
- This interest is not deductible as an expense for tax purposes
3. Is there any free resources for me? CRA website provides interpretations of the tax act. There are many community tax clinics that provide free tax consulting service near you.