Intro To Tax
Tax dollars are used to fund important provincial costs (health care, post-education costs, social assistance, and social services programs) and services (subsidy for the elderly, employment insurance benefits, children’s benefits, and the GST subsidy for low-income families). Paying taxes is a part of responsible citizenship and contributes to the overall good of the community. If you’re interested in finding out where your tax dollars go, you can read more about it here.
Here are some fundamental points you need to know regarding your taxes:
- In Canada, the Canada Revenue Agency (CRA) administrates income tax.
- The tax year is from January 1 to December 31.
- Taxes must be filed by April 30 for the preceding calendar year.
- A tax return for an individual is called a T1.
- You are required to pay both federal and provincial taxes.
- You must have a Social Insurance Number (SIN) to file a tax return.
- There are penalties for not filing a return.
So now that you know the basics and fundamentals, when do you have to do your taxes? You must file a tax return when:
- income tax is owing to the government
- a tax refund is expected from the government
- applying for the GST tax refund (offsets the cost of paying GST for purchases available to low income individuals) and/or Ontario Trillium Benefit
- eligible to receive the child tax credit
Calculating taxes can be rather daunting at first so be sure to check out the infographic to get a better understanding on how taxes are calculated. It’s rather straightforward but you may be curious on what the difference may be between a deduction and a tax credit.
Tax deductions are viewed as more valuable because they can generate bigger savings. Deductions are subtracted directly from your taxable income. You do not have to multiply this deduction by a percentage. For example, if you earned $20,000 and made a $1,000 RRSP deduction, your taxable income would be reduced to $19,000. Students typically miss out on claiming eligible moving expenses which are considered deductions.
Most tax credits are non-refundable, which means that they can’t generate a tax refund on their own. You need to owe income tax during the year in order to gain the tax return benefit. Unfortunately, you also have to multiply them by 15% before you apply them to the tax owing. For instance, if you claim $5,000 in tax credits, you will receive a return of $750 from the tax that you have already paid. These tax credits are contained on Schedule 1 of the T1 return.
Some credits can be carried forward until you are eligible to use them! To claim these credits and carry them forward, you must file a tax return even if you are not generating an income. When you are earning an income and paying taxes you can then recoup those tax credits.
Examples of expenses that can be carried forward include:
- Public Transit amounts include your bus pass supplementary fee and any other public transit cost for the entire academic year. A receipt can be printed from your McMaster student account at tax time.
- Disability Amount deduction is available for persons suffering prolonged mental and physical impairments. To qualify, there must be adequate documentation from a doctor (T). For more information see http://www.cra-arc.gc.ca/disability/
- Student loan interest includes loans received under the Canada Student Loans Act, or the Canada Student Financial Assistance Act. This does not include interest from a student line of credit. Only you can claim this deduction. If you do not have enough taxable income to utilize the credit, do not claim it that year; instead, carry it forward and use it to reduce your taxes in the future. The time limit is 5 years.
- Tuition, Education, Textbook amounts can be transferred to spouse/partner, parents, and grandparents if you do not need them and do not want to carry them forward. There is a $5,000 limit on the amount that you can transfer. The difference should always be carried over. Note: Eligible tuition fees do not include student association fees, transportation and parking, meals and lodging and the cost of books. These costs are covered by the textbook amount that you claim on your return.
*Tip – Commencing in the 2017 taxation year students will no longer be able to claim education and textbook credit’s. Only The Tuition Credit will remain. Make sure you file all previous returns from previous years to maximize these credits.
International students may be required to file an income tax return in Canada since the Canadian tax system is based on residency and not citizenship. You are a resident of Canada for tax purposes if you establish significant residential ties within Canada. These include a home in Canada, bank account, health insurance and driver’s license There are valuable tax benefits for international students that file a return.
One of the requirements to file your taxes is to have a Social Insurance Number (SIN) which can only be received if you are employed. However, If you don’t have a SIN, you must request an Individual Tax Number (ITN). In order to apply for your ITN, you must submit either an original or notarized copy of your documents. It is recommended that you make copies of your passport and study permit and have a professor sign these copies. It will take several weeks to process so be sure to request an ITN well before the tax deadline which is April 30. Students on exchange for less then 183 days in Canada are not required to file a tax return.
* Tip – Commencing in the 2017 taxation year students will no longer be able to claim education and textbook credit. Only The Tuition Credit will remain. Make sure you file all returns from previous years to maximize these credits.
If you are unsure as to whether you will remain in Canada to work after you graduate be sure to claim your Tuition, Education, and Textbook amounts and carry forward the unused credits. If you gain employment in Canada after graduation, you will be able to use these credits and receive a tax refund.
Remember to claim your moving expenses to Canada if you have taxable income from scholarships, research grants, and other similar awards.
Tips for Students:
- Understand the tax laws; the more you know, the more you can possibly save
- Use resources from an official source, like Canada Revenue Agency (CRA)
- Consult with a tax professional when needed
- Hold on to your tax documents and records for 6 years
- Be pro-active in tax planning; keep all your slips and back up documents in one central place
- file on time to avoid penalties and interest
- Keep track of your carry-forwards so you don’t lose these benefits
- Maximize your tax deductions and tax credits to minimize your taxes
** Don’t fall for tax scams received either through telephone, mail, text message or email. CRA will never request personal information such as a SIN, credit card number, bank account number or passport numbers.
Tax Filing Tips:
- Moving expenses can be deducted against taxable scholarships, research grants, and other such awards, if you moved at least 40km in order to attend a post-secondary educational institution. You can also deduct moving expenses that result from moving back and forth from university after summer break. You can carry these moving expenses forward until you have enough eligible income to claim them.
- Full time students can claim the full time education deduction. Post-secondary scholarships, bursaries, and awards are not taxable up to the amount required to support you in that program.
- Don’t forget to claim your GST/HST tax credit. This is a tax- free quarterly payment that helps individuals and families with low or modest income to offset all or part of the GST or HST that they pay. You must be 19 years of age to receive this credit. The maximum credit is $268 for 2014-2015.
- The Ontario Trillium Grant combines, the Ontario Sales Tax Credit, Ontario Energy and Property Tax Credit, and the Northern Ontario Energy Credit into one payment. You must also be 19 years of age to receive this credit and payments are made monthly. Residence fees are not eligible for this credit because this is not considered your principal residence. The maximum credit is $281 for the 2014-2015.
- Students and Income Tax Guide
- Income Tax Calculator
- Your personalized CRA account – allows you to view or modify your return, track your refund, setup direct deposit, check your payments and much more!
- If you are registered with My Acccount, you can also use Auto-fill my return when you file using online certified software.
- On your mobile device try the MyCRA Mobile App – You can access Key parts of your tax information and manage personal details wherever you are.
- Check out the CRA’s Video Series:
- Tax Ombudsman
- CRA’s Fairness and Taxpayer’s Bill of Rights
- Community Volunteer Tax Program – CRA runs a number of free service clinics when your income is low with trained volunteers. Check it out if you need help or want to volunteer
- Mac’s Money Centre Volunteer Tax Clinics – be on the lookout for our tax clinics every March and April