Income Tax Flashcards
What is filing an income tax return?
The process of completing and submitting your tax return to the Canada Revenue Agency your taxes” or “doing your taxes.”
When should you file an income tax return?
If you earn income during the year
By the end of April 30. to avoid paying interest if you DO NOT have a refund.
What are the methods of preparing an
income tax return?
By filling out the forms created by the Canada Revenue Agency. (CRA) either electronically or manually
Ufile an online electronic version is free for students or anyone who has an income lower than $20,000
The results should be the same with either
methods
How are the two methods the same?
Excluding all other additional schedule pages.
Electronically, Ufile will generate eight PDF pages of your tax return based on the information you provided.
Manually, you will need to complete 6 steps in order to generate eight pages of the tax return
These 8 pages consist of personal info. total income, net income, taxable income, non-refundable credits, Net federal tax, Total payable and the refund or balance owing amount.
What does step one include?
Personal Information
Name,
Address,
B.O.D,
SIN,
Marital status
And the province of residency
What does step two include?
Total Income Allocation
You need to calculate your total income, which includes all the earnings for the whole calendar year from Jan. to Dec
1. Employment income
2. Investment income ( interest, dividend and rental income)
3. Capital gain
4. Tips or gratuities
5. RESP ( for students)
6. Unemployment income
7. Social assistance payments ( welfare, Old age security)
8. Self-employed income
9. And many more as specified on page 3 of the T1- General tax form
What does step three include?
Net Income
You need to calculate the net income (Total income – deductible)
Which is your total income from step 2 above minus all the tax-deductible amounts that are applicable. you. Examples are: RRSP, Union due, Child care expense, Moving expense, and CPP for self-employment and many more listed on page 4 of T1 General form
The net income amount is also used to determine if you are eligible to claim certain tax credits, or if you are entitled to certain benefits and credits, such as child benefits or HST credit
What does step four include?
Taxable Income
You need to calculate the taxable income amount. This is net income from step 3 minus additional deductions such as:
1. Security option ( granted by the employer on T4
slip)
2. Net capital losses of other years., and many
more listed on page 5 of T1-General
form
How many parts are there to step five?
Federal Tax
There are 3 parts to this step
Part A, B and C
What does step five include?
Tax Owe
Use the taxable income from step 4 to calculate the amount of tax you owe to the federal government at the tax bracket listed below.
The tax rate ranges from 15%, 20.5%, 26%, 29% and 33%
The lowest tax bracket of 15% –will be applied to any taxable amount that is less than $50,197.
20% tax bracket – will be applied to any amount greater than $53,359 but less than $106,717
26% tax bracket - will be applied to any amount greater than $106,717 but less than $165,430
29% - up to $235,675. 33% after $235,675
What does step five parts b-c include?
You need to calculate your non-refundable tax credit amount.
The Non-refundable tax credits are amounts you claim to lower the amount of taxes you might owe. But if the total of these credits is more than the amount of taxes you owe, you will NOT get a refund for the difference. Many more are listed on pages 5 & 6 of the T1-General form
The tax credits from part B are more common types to taxpayers
The Personal basic amount, which is different each year, caregiver, disability, interest paid on a student loan, tuition medical expenses and many more are listed on page 6 of the T1-General form
Part c additional non-refundable tax credits such as Federal dividend tax credit. Most of the items are less applicable to taxpayers. There are many more listed on page 7 of the T1-General form Refundable Tax Deduction
You need to calculate your Net federal tax amount by taking your Total taxable amount from part A above minus the Total non-refundable tax amount from part B&C
(Total taxable amount - Total non-refundable amount) / Net federal tax amount
What does step six include?
Refund or Owning Balance
Refund: When the government has to pay you back for owning you
Owning: When you have to pay the government back because you have not paid them enough taxes
You need to calculate your total payable amount. Which is adding the Provincial or territorial tax ( or other items listed for step 6, on page 7 of the T1 general form)
Net federal tax amount ( from step 5 above)
add: Provincial or territorial tax
total payable amount
Calculate the total refundable credits. This includes:
1. Total income tax paid for the year,
2. School supply tax credit,
3. Provincial or territorial and many more as
listed on page 8 of the T1 the general form for step 6.
If the Total refundable credits amount > Total payable amount, then you have a refund.
What are some slips or forms?
T4 – employment income, bonus, and commission
T4A – RESP, Scholarship, Bursaries, and Artist grants
T4E – E.I
T5007 – Social assistance
T5 – investment income
T3 – interest income
T2202 – Tuition paid
What is some other information you should include?
For RESP, only Educational assistance payments and accumulated income payments are taxable not the contributions made by your parents
Lottery, gifts, inheritance and HST payments
are not taxed
Canada Child Benefits are not taxed
All tuition paid amounts must be reported in the year they were paid so that the Canada Revenue Agency (CRA) has a record of it and can update your account.
However, you may not need to claim or use all your tuition credits to reduce the taxes you owe that year. Any unused amount can be used in the future and you would have more taxable income to offset it.
Or you can choose to transfer the unused credits from the current tax year, up to the allowable maximum, to an eligible individual. This will help reduce the taxes the other individual owes. Max amount is $5,000
