Filing a tax return may seem unnecessary, especially if you have little or no income and no tax to pay. However, taxpayers should understand that filing a tax return is not only about reporting one’s earned income, but also about being able to claim the various tax credits and deductions available.
The following is a list of Canadian tax credits and deductions that require taxpayers to file a tax return in order to continue receiving these benefits. If any of the reasons apply to you, consider filing a tax return by April 30, 2018 (Tax Day Canada), i.e. the tax deadline for filing 2017’s tax return.
Reasons To File Your Canadian Tax Return
To Claim Goods & Service Tax or Harmonized Sales Tax (GST/HST) Credit
In Canada, almost all goods and services are subject to the Goods and Service Tax or the Harmonized Sales Tax (GST/HST). The GST/HST credit is a tax-free quarterly payment that helps individuals and families with low and modest incomes offset all or part of the GST or HST that they pay. Qualifying low-income earning taxpayers above age 19 may be eligible for the credit. The payment is based on the number of children within the family and the family’s net income.
The benefit period is from July of one year to June of the following year, and is paid in four instalments.
The Canada Revenue Agency automatically determines an individual’s eligibility for the GST/HST credit. Therefore, filing your Canadian income tax return is necessary in order to claim this credit, even if the Canadian individual has no income.
To Claim the Working Income Tax Benefit (WITB)
The ‘Working Income Tax Benefit’ was introduced to encourage Canadians to enter the workforce. Qualifying low-income earning individuals above age 19, and families can claim this refundable Canadian tax credit.
The benefit is calculated using the marital status, province/territory or residence, working income, net income, number of qualifying dependents, and eligibility for disability benefits.
From tax year 2018 onward, the Working income tax benefit has been replaced by the ‘Canada Workers Benefit’ (CWB), with an increased benefit amount. For example, beginning in 2019, a low-income worker earning $15,000 would receive up to almost $500 more under the CWB than the WITB amount.
Again, to qualify for the WITB/CWB as well, filing a tax return is mandatory as the benefit amount is calculated based on the income reported on the tax return.
To Claim the Canada Child Benefit (CCB)
The Canada child benefit (CCB) is a tax-free monthly payment made to eligible families to help them with the cost of raising children under 18 years of age.
The Canada Revenue Agency (CRA) uses information from an individual’s income tax and benefit return to calculate how much their CCB payments will be. To claim the CCB, the Canadian individual has to file their tax return every year, even if they do not have income in the year. The spouse or common-law partner must also file a tax return every year.
The Canada Child benefit is paid over a 12-month period from July of one year to June of the next year. These benefit payments are recalculated every July based on information provided on the individual and their spouse’s (if applicable) income tax and benefit returns from the previous year.
The basic benefit amount is $6,400 per year for children under six, and $5,400 per year for children age 6 to 17. Benefits start reducing when family net income exceeds $30,000. Provincial benefits may also be available to eligible families.
To calculate how much Canada Child Benefit (CCB)you may be able to get and to see how much the payments will be, you can use the Canada Revenue Agency’s (CRA) Canada Child Benefit (CCB) Calculator.
To Obtain Tax Refunds
If a taxpayer is entitled to a tax refund, the refund must be claimed by filing a tax return within three years of the original filing deadline. Taxpayers may benefit by reviewing their eligibility for deductions and credits that reduce their tax obligation below the amount of taxes withheld resulting in a tax refund.
If a tax return is not filed within the three year period, the refund is lost.
To Claim Guaranteed Income Supplement (GIS)
The Guaranteed Income Supplement (GIS) is a non-taxable benefit available per month to individuals living in Canada receiving the Old Age Security (OAS) pension who have a low income. Filing a tax return is necessary since the CRA uses the income information from the filed federal Income Tax and Benefit Return to determine eligibility for the GIS every year. The benefit amount is renewed every year based on one’s eligibility. The individual is notified through a letter whether the benefit is renewed, if the benefit will be discontinued or if additional income information is required.
To Carry Forward Relocation Expenses
It may be beneficial to file an income tax return if an individual has expenses that are deductible in the current year but may be carried forward for use as a future year deduction.
The Canada Revenue Agency (CRA) allows taxpayers to claim the cost incurred in moving from one place to another to carry on a business or to be employed at a new work location or to attend post-secondary school. The deduction is allowed, provided the move was to a destination at least 40 kilometres closer to a new job or school. If an employee or self-employed individual’s total moving expenses eligible for deduction exceed income at the new work location, the excess expenses can be deducted in a subsequent year, to the extent of the income at that work location for that subsequent year.
To Carry Forward Capital Losses
If the taxpayer incurred losses from the sale of capital assets such as shares, real property, etc. a return should be filed to establish these losses. Capital losses may be carried forward so that they can be deducted when the individual has taxable capital gains.
To Claim or Transfer Tuition Tax Credit
Any individual or their parent, who spent at least $100 on tuition, part-time or full-time program, from an accredited institution, can claim the tuition tax credit. However, filing a tax return is necessary to transfer the tax credit to the parent, or to carry forward the expense to future tax years when the student has taxable income.
Furthermore, the expense should be an out-of-pocket expense, and not one wherein the expense is paid by some grants or government program, or employer reimbursement.
Filing a tax return is also necessary to carry forward any student loan interest paid to future tax years.
To Establish an RRSP Contribution Limit
Contributing to an RRSP is one way to build investments for retirement. A taxpayer may also borrow money from their RRSP interest free for a down-payment on a first home.
Filing an income tax return and reporting your income is how you build your RRSP contribution room. Without it, you cannot shelter retirement money in an RRSP.
To Avoid Tax Penalties
Harsh penalties can result for failure to file a tax return if you owe taxes. Failing to file a T1 income tax return when required will result in a penalty of 5% of the tax unpaid at the time the tax return was due plus interest charges plus a further penalty of 1% of unpaid tax for each month past the tax filing deadline.
An individual who fails to file a tax return could be convicted and sent to prison for up to 12 months. Although this is extremely rare.
If you are new to taxes, it is highly recommended that you consult a tax practitioner to confirm whether you are required to file a tax return or not. And as mentioned above, you have only until April 30, 2018 to file the tax return for tax year 2015 to claim any refund.
AG TAX LLP CAN HELP
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
Please contact either of our offices in Canada at 604-538-8735 (Greater Vancouver), or 780-702-2732 (Edmonton and Alberta) to arrange for an appointment to discuss your tax related queries.
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
