Your taxes are due in 3 days
This year, things are going to be different.
No more late-filing penalties. No more mailing a wad of crumpled receipts to your step-dad. And no more last-minute scramble to figure out what a capital loss is — and whether you can use it to claim your busted iphone screen. This year, you’re going to do your taxes yourself, and you’re going to do them properly. Who knows, maybe next year you’ll even go to the dentist.
But starting this journey into baseline adulthood can be tricky. Whether you do your taxes on paper, or opt for web-based or software programs, you’ll quickly be hit with a myriad of weird lingo and complicated acronyms. Sure, why bother calling it an “employee income form” when it could be a “Statement of Remuneration Paid”? That’s way more straightforward.
Let’s break down some key terms:
Basically, how your income stacks up against the national average. The Canada Revenue Agency (CRA) uses a progressive tax system, where the higher your income, the more taxes you pay on incremental dollars earned. Your percentage, which ranges from 15-33 percent federally, is called your marginal tax rate.
Don’t worry, if you get a raise or start a better-paying job you won’t suddenly be paying higher taxes on everything. Let’s say you earned $45,916 at your job — putting you at the very ceiling of the lowest federal tax bracket of taxable income (FYI, each province has their own separate tax brackets, rates and tax credits). If you pick up some new freelance work and earn an extra $8,000, you’ll get bumped to the 20.5 percent federal tax rate, but only on this new freelance money. Your other income from your full-time job would still be taxed at your usual 15 percent federally (in addition to the provincial component).
The government likes to reward good behaviour. Contribute to your RRSP or enroll your future kids into daycare, and if you fit the criteria you’ll be able to claim some of these costs as deductions from your income. This can save you some money, and may even drop you down to a lower income bracket (which will save you more money). And attention university students: you can go crazy with these things. Look into whether you can claim part of your tuition, or even your travel expenses for an out-of-province university.
I rarely get to say this, but credits are basically free money. Like deductions, they’re provided to eligible taxpayers under unique circumstances. In some cases, it’s because you’re financially responsible for someone, like a spouse or an elderly relative. But instead of being deducted from your reported income, credit amounts are actually deducted from the taxes that you owe and ultimately may either increase your refund or reduce the amount of tax you must pay. Here’s an example: let’s say you’re in the 15 percent tax bracket. If you claim a $100 deduction, it will save you $15. But if you qualify for a $100 credit, you’ll get, wait for it, $100 applied to reduce your tax bill. Do your research to make sure you’re claiming every credit you’re entitled to.
Own property? Gotten into investing? Well right this way Mr. Monopoly, capital gains and losses are for you!
When you sell an asset (like an investment such as a mutual fund) you’ll need to disclose to the CRA the money involved with making the sale. Let’s say that you sold your condo after owning it for two years. The housing market heated up right before you closed on the deal, and you earned $30,000 above what you paid for it. You’ve got to claim that $30,000 as a separate kind of income, AKA a “capital gain.” The current rule is 50% of your capital gain or loss, so $15,000 will be your taxable gain amount. Flip the example around so you earned $30,000 below the condo’s original price and got yourself a “capital loss” of $15,000. Yeah, it sucks, but at least it will probably bump you down to a lower tax bracket.
Now that you can talk the talk you’re ready to start declaring your stuff. To figure out your marginal tax rate, and how your deductions and credits will work, the CRA needs you to report all your sources of income. Yep, even if comes from your Etsy shop. To do this, you should receive up to four different slips provided by your employer, bank, etc.
T4 slip – If you’re an employee in a standard working relationship, your workplace will prepare this for you. It lists your income, and any/all deductions they took from it over the year.
T4A – Here’s where you’ll claim any pension income, self-employed commissions, or annuity income.
T3 – Covers any income you’ve received from a trust fund. Unless you’re a freelance artist/DJ with a roman numeral in your name and you regularly go to Burning Man, this probably won’t apply to you.
T5 – This one’s for your investment income. Ready to get started in the market? Here’s a primer.