The 2021 Guide to Taxation in Canada

In this handy guide, find out everything you need to know about taxation in Canada in 2021!

How does the Canadian tax system work?

In Canada, there are two levels of taxes: federal and provincial. That means that Canadian residents are required to file two tax returns every year.

While federal tax rates are the same for everyone, provincial tax rates vary depending on the province. At both levels, income tax is deducted at the source, generally by the employer.

Taxation in Canada is done by self-assessment, meaning that residents are responsible for filing their own tax returns. The returns enable them to determine whether they owe additional taxes or are entitled to a refund.

Who pays taxes in Canada?

Canadian residents and taxpayers are required to pay taxes and file their federal and provincial income tax returns every year.

What information do you need to file a tax return?

The most important information to have on hand when filing your income tax return is your 9-digit social insurance number (SIN). The SIN makes it easier for the government to identify you.

You will also need a T4, a form provided by your employer. This document declares the total amount of income you earned working for that employer during the year, as well as the amount of tax deducted at source. If you have had more than one job over the course of the year, you’ll need a T4 for each one. Employers generally issue them before the end of February.

Depending on your situation, you may also need to submit certain additional documents. For more information, visit the Canada Revenue Agency (CRA) website.

How to file an income tax return in Canada

There are several ways to file your income tax return in Canada. One option is to fill out your tax return yourself using paper documents provided by the CRA. However, this method takes time, because you have to calculate everything by hand.

There are also a number of CRA-approved software programs you can use to complete your tax return yourself. Using a software program saves time because the calculations are automatic.

In order to make absolutely sure that your return is filled out correctly and take advantage of all the deductions and credits you are eligible for, it’s best to hire an accountant. This easy solution means you won’t need to worry about making a mistake.

Changes to Canadian taxation in 2021

It goes without saying that 2020 was an extremely unusual year that profoundly affected the economy, along with everything else. As a result, the CRA has had to adapt and make some changes to the tax system. What does this mean for individuals?

Canadians who received benefits from the federal government such as the Canadian Economic Recovery Benefit (CERB) must include that information on their tax return.

People who worked from home during the pandemic can claim a special deduction for expenses directly related to their work (electricity, internet, etc.).

What is the deadline for filing your tax return with the CRA?

April 30 is usually the deadline for filing tax returns for the previous year. Of course, it’s always a good idea to file well before the deadline if you can.

Are there consequences for filing late?

If you file your tax return after the April 30 deadline, a late filing penalty may apply.

If you have an outstanding balance to pay and you file late, the CRA may penalize you 5% of the balance owing and 1% of the balance owing for each additional month your return is late.

To avoid these fees, remember to file your tax return on time, particularly if you have a balance to pay.

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