Canadians have faced one of the most challenging financial years in perhaps decades. With the rise of interest rates and inflation, finances are tighter than ever. So naturally, losing even more money to taxes is weighing down heavier than in previous years.
However, tax season doesn’t have to be as painful as many anticipate. If you properly file and use all available tools to your advantage, you could have a decent return. Your financial knowledge could make a massive difference when filing taxes. If your finances worry you, it is integral that you educate yourself as much as possible.
This article will cover the ins and outs of income taxes to help you prepare for tax season. With this knowledge, you will be confident heading into tax season.
When Are Taxes Due?
Canadians will be able to file their income tax and benefit return for 2022 starting on February 20th, 2023.
Because April 30th falls on a Sunday, the income tax filing deadline is May 1st, 2023, according to the Canada Revenue Agency (CRA). In either case, a missed deadline means a hefty penalty for the taxpayer. For example, in 2022, the penalty was equal to 5% of an unpaid balance.
Here are additional tax-related deadlines:
RRSP, a PRPP, or an SPP – If you contribute to an RRSP, a PRPP, or an SPP, the deadline is March 1st, 2023.
Self-Employed Taxes – The deadline to file taxes for self-employed people is June 15th, 2023.
Important Tax-Related Changes this Year
Canada will be implementing new changes to taxes in 2023. Here are some that may affect you:
Certain future home buyers partake in some great benefits offered by a First Home Savings Account (FHSA). An FHSA account can be used to save up to $40,000 toward the purchase of a home. Yearly contributions up to $8,000 for 5 years are tax deductible. Withdraws are also tax-free.
The Multigenerational Home Renovation Tax Credit has been implemented to encourage more people to renovate their homes with a secondary suite. However, the new suite must be for a senior or an adult with a disability. Qualified renovations can earn a homeowner a refundable tax credit worth up to $7,500.
A big change came into effect that highly affects those that do house flipping, The profits from any homes not in possession for at least a year are now considered business income instead of capital gains. That can mean a lot more money out of pocket. There are some exceptions such as divorce and death.
A new tax was implemented called the Underused Housing Tax (UHT.) Owners of underused or vacant properties now owe an annual 1% tax. This was implemented to help deal with the housing shortage. There are exceptions to this new tax as well, seasonal properties and those properties unusable because of hazards are exempt.
- The home office expenses tax credit has been extended,
- Simplified northern residents’ travel deduction
- Those with Type 1 diabetes can now apply for Disability Tax Credit
- Labour Mobility Deduction
- Expenses paid to fertility and donor clinics are now eligible for the medical expense tax credit
- Some used cars are now considered Zero-Emission Vehicles
Ways to Do Your Taxes
There are multiple ways to file your taxes. Here are your available options and details surrounding them so you can use what fits you best.
Certified Tax Software – You can use CRA-approved tax software to calculate and file your taxes electronically. This can be done online through a computer or even a mobile device. This software can be free, though there are paid options. Any Canadian resident can use this method, which can take around two weeks to process.
Through a Representative – You can complete your taxes through an expert like an accountant. The cost for this method is based on who you file with. This method is viable for any Canadian paying taxes. Like tax software, this method takes about two weeks to process.
Community Volunteer Tax Clinic – Numerous free tax clinics can complete your taxes. Because it is on a volunteer basis, this method is free. However, this method is only viable for Canadians with a modest income and a simple tax situation. This method also takes about two weeks to process.
When filing your income taxes, you’ll need specific documents. While only some documents are required, the more you claim, the larger your refund will be.
Here are the main categories of documents you’ll need:
- SIN and other basic personal information
- Income T-slips like T4sa and T5 slips
- RL-slips like RL-1, RL-2, and RL-3 slips
- Records of any other income, like self-employment
- Receipts for tax deductions, including medical expenses or charitable donations
- Data from past tax years, like Registered Retirement Savings Plan (RRSP) contribution limit
- The tax package sent by the CRA
For more info on the tax files required, visit the Government of Canada’s website.
As mentioned, tax brackets have changed for 2023. The new income tax brackets for 2023 are:
15% below $53,359
20.5% between $53,359 and $106,717
26% between $106,717 and $165,430
29% between $165,430 and $235,675
33% above $235,675
A list of Provincial and Territorial income tax brackets are available on the Government of Canada’s website.
How Do Tax Brackets Work?
The tax bracket system applies a different tax percentage rate to income based on the amount. For example, Federal taxes have a tax rate of 15% on the first $50,197 of taxable income. The percentage then increases based total taxable income amount.
Check out our income tax calculator to get a rough estimation of your tax return.
Tax credits can reduce the tax you pay on your taxable income. Federal, Provincial, and Territorial governments each provide tax credits to lower taxes. Here are tax credits available in Canada with links providing more info, like eligibility.
- Canada Child Benefit
- GST/HST Credit
- Canada Dental Benefit
- One-time top-up to the Canada Housing Benefit
- Provincial and Territorial benefits
- Disability Tax Credit
- Climate action incentive payment
- Canada workers benefit
- Child disability benefit
- Canada caregiver credit
- Canada training credit
- Home accessibility tax credit
- Children’s special allowances
Tax deductions are eligible expenses that are subtracted from your taxable income. Here is a list of some of the most common tax deductions, with links providing more info, like eligibility.
- Pension Adjustment
- Child Care Expenses
- Disability Tax Credit
- Canada Workers Benefit
- RRSP Deduction
- Home Buyers’ Amount
- Moving Expenses
For a complete list of tax deductions, visit the Government of Canada’s website.
Ways to Increase Your Income Tax Return
There are numerous ways to increase your income tax refund. Here are a few popular options:
Childcare Expenses – Claim a deduction if your child is under the age of 16 years old. You can claim childcare expenses like daycare centres or caregivers.
Charitable Donations – Partial deductions are available for some charitable donations.
Provincial and Territorial Credits – Many Provinces and Territories have additional credits. This applies to specific segments of the population. Check out the Government of Canada’s website for region-specific credits.
Self-employed Business Expenses – Small business owners can deduct various business expenses. For example, advertising costs, bank fees, office supplies, and travel expenses.
There are numerous other ways to increase your refund, so do research and apply for all you are eligible for.
Are you struggling financially because you owed a lot of taxes? Our trained Credit Counsellors can help. Contact us to find out how.