When you file personal taxes in Canada, you’ll be paid in quarterly installments. These payments are due on the 15th of the month following the quarter in which you file. If you miss the deadline, late remittance penalties will apply. Read on to learn more about the ins and outs of personal tax in Canada.
Income included in personal tax Canada
One way to reduce your tax burden is by applying for tax credits. Some of these are refundable and some are not. The basic personal amount is $14,398 for the 2022 taxation year, but it will vary by province. Other ways to reduce your income are through tax deductions. Some of these include business expenses and self-employment income.
The basic personal amount is the amount of money that a taxpayer can claim without paying taxes. For example, in 2019, it is $12,069 for an individual. Those who have lived in Canada for part of the year can claim an additional $7,936. To find out how much money you can claim, visit the website for Newcomers to Canada.
In addition to the HST, you’ll have to pay provincial taxes as well. For instance, in Ontario, you will pay 13% in HST. Of this, 8% will go to the provincial government and 5% to the federal government. In British Columbia, sales receipts show PST and GST separately. If you live in Alberta, you pay only 5% GST.
In addition to these taxes, Canadian residents also have to pay taxes on their income earned and received in other countries. For example, if you earn money from a part-time job in the United States, you’ll need to file a tax return for that income. This is because income can come in a variety of forms, including employment income, investment income, commission income, and retirement income.
Credits and deductions
The Canadian government offers a number of credits and deductions for personal tax. Some are available to all residents of Canada, while others are available only to certain groups of taxpayers. For example, self-employed taxpayers can claim 50% of the cost of their pension contributions. However, there are some conditions that must be met before a taxpayer can claim a credit.
Tax deductions reduce your taxable income, and their value depends on your marginal tax rate. In a progressive tax system, your marginal rate is the amount of tax you pay on each dollar you earn. Depending on your marginal rate, a $1,000 deduction will save you around $330 in federal tax.
Some people also qualify for a tax credit based on their home improvements. For instance, a taxpayer who has completed general home improvements may be able to claim a credit if he/she installed new windows. However, this credit is not available for plumbing, electrical, roofing, furnace/air conditioning, or replacing an entire roof.
Tax professionals can locate all applicable tax credits for individuals, and online tax software can alert the user of such tax credits. Certain tax credits may automatically be paid out, while others may require an application. The government of Canada’s website provides information and online tools for identifying which tax credits apply to you. However, if you are unsure about what tax credits may apply to you, it is recommended to contact an accountant for professional advice.
Refundable tax credits
If you’re looking to get a refund on your personal taxes, you should look into refundable tax credits. These tax credits are a way to reduce the amount of federal tax you have to pay. In most cases, refundable tax credits cancel out the amount of tax you owe and provide you with a tax refund. The amount of the tax refund will depend on your personal situation.
The federal government has made certain tax credits and allowances available to all taxpayers. The first is the Canada Training Credit, which is a non-taxable tax credit that’s available to eligible workers from 25 to 64 years of age. It has a lifetime limit of $5,000 and is used to reimburse up to half of the cost of training. The amount of the credit is indexed annually to increase with inflation, and it is only available to individuals who’ve earned a salary. In addition to the federal credit, many provinces and territories also provide their own tax benefits and allowances.
Other refundable tax credits include the Home Buyer’s Amount tax credit, which allows first-time home buyers to reduce federal taxes by up to $750. The eligibility rules vary from province to province. If you buy or rent a new rental property, you may also be eligible for the GST/HST tax credit. This credit is given to Canadians with low to moderate incomes to offset the taxes they have paid on products and services. You can claim the GST/HST tax credit four times a year.
Non-taxable income from a motor vehicle accident
The amount of compensation for property damage that you receive from a motor vehicle accident is considered non-taxable income. This amount can be used for repairs to your vehicle, or to cover the costs of a rental car. The amount may be more than the value of the property that was lost. If you receive more than this amount, you must claim it on your tax return.
If your vehicle was completely destroyed or was vandalized during the accident, you will probably receive compensation for this damage. In most cases, the money you receive in this case is not taxable because it does not represent new income, but it will be taxed. However, if you have suffered a significant personal injury, you may receive a settlement from your insurance company to compensate for lost wages.
The compensation from your car insurance company may not be taxable. This money is meant to make you whole, not make you rich. It’s intended to compensate you for your expenses and put you back where you were before the accident. Generally, compensation for car repairs and sickness is not taxable.
Non-taxable income from a motor vehicle crash settlement can come from the following sources: property damage, pain and suffering, and emotional distress. These damages are paid out as compensation for physical injuries and emotional trauma. These are not taxable, but the attorney’s fees are, as they are considered income under personal income tax rules.
‘Income sprinkling’ tax in private corporations
Income sprinkling is the practice of paying dividends to family members from a private corporation, which lowers the overall tax burden of the business owner. However, this tax planning strategy has been impacted by recent changes by the Canada Revenue Agency. The CRA has recently announced the introduction of new rules that will severely limit the scope of income sprinkling. Under the new rules, only families with members aged 18 or older can use income sprinkling.
The proposed changes will go into effect in 2018. The proposed changes will mean that the tax rate for dividends paid by a private corporation will be taxed at the highest marginal rate. The changes will make it difficult to use income sprinkling to maximize tax returns. Instead, TOSI rules will directly link the shareholder’s contribution to the business with the amount of income received in return.
There are a few key exceptions to income sprinkling tax in private corporations. In some cases, an active shareholder can directly own up to a 10% share. In other cases, a spouse cannot be an excluded shareholder, although he or she can indirectly own shares in the corporation. In some cases, the spouse may own up to 10% of a private corporation’s value. In other cases, a spouse can be an “exempt shareholder” if the shares in the corporation are held by a trust.
The government is concerned about the accumulated wealth in private corporations, which is sheltered from higher personal tax rates. Although it has not made specific proposals, one approach is to eliminate the deferral advantage on funds retained for investment in private corporations. Further details are likely to be available in the coming months.
Late remittance penalties
Personal tax Canada requires that individuals file their tax returns by April 30. If you fail to file your return on time, you may face penalties and interest charges. Interest is charged on the balance owed from the day of the due date, and the interest rate is adjusted quarterly. You can find prescribed rates on the Canada Revenue Agency website. The current interest rate is 6% for the period July to September 2022.
In some cases, CRA may waive penalties if you are unable to pay the tax on time. Usually, if you are unable to pay the amount on time, the CRA will impose a late remittance penalty on your account.
However, if you are five months late or more, CRA charges 5% interest on the owing amount. Each month after that, the amount is increased by 1%. This can amount to over $11 000 if the late payment continues for five months. CRA will consider exceptions based on the individual circumstances of the taxpayer and the nature of the hardship.
