MoneySmart: How to Tackle your Taxes

Let me tell you how I really feel about taxes: I hate them. They don’t excite me. I can give you a long list of things I would rather do other than file them. When I meet accountants, I have the urge to hug them because I don’t know how they do what they do without throwing their calculator across the room.

But, like going to the dentist or paying your water bill, filing a tax return is something we all have to do. So let’s suck it up, put on our big boy and girl pants and get to it. Taxes might be boring and tedious, but they aren’t as scary as we make them out to be. I am going to tell you everything you need to know to file them. Ok? Now, deep breath. Here we go.

Let’s start at the beginning. A tax return is your report to the government that shows how much money or income you made the previous year. Income tax is collected by the Canadian Revenue Agency (CRA) on behalf of the federal government, provinces, and territories.

Your taxes need to be filed every year before a certain date. This year, the deadline is April 30. Make sure you meet the deadline. You’ll face financial penalties if you don’t.

After your return is processed, you will either find you need to pay the government more tax or that you paid too much tax last year and therefore the government owes you money. If it’s the latter, the government will issue you a tax rebate — a beautiful thing.

Your taxable income can be reduced by something called a tax deduction. Some deductions you can claim are medical expenses and charitable contributions. For this reason, you will want to gather any tax receipts from charities you donated to, as well as any invoices from trips to the dentist or doctor.  

If you made less than $11,474 last year, you won’t owe any tax. But this doesn’t mean that you shouldn’t file a tax return, says Susan Stefura, certified financial planner with Bespoke Financial Consulting.

Stefura says that reporting your income to the government will do two important things. It will allow you start accumulating RRSP contribution room, which is something Stefura says you may not care about now but will be valuable to you in the future. If you are 19 or older and you file a return, it will also earn you a HST/GST tax credit. “It is worth filing for that alone,” Stefura says.

Tax credits are wonderful. They are incentives created by the government which cut away at the income tax that you have to pay. “They are there for the taking, and lots of people don’t take,” Stefura says. Tax credits can’t reduce your taxable income below zero, though.

Stefura says there are other tax credits that students need to know about. There is a credit to help you out with tuition and the cost of textbooks. It is called the tuition, education, and textbook tax credit. To get it, you need to download a slip from RAMSS called a T2202A. It should be available at the end of February.

There is also a credit for the interest you pay on your student loan. The institution that issued you your loan will send you a statement of interest paid which you will need to claim this credit.

Another tax credit that many of you will be able to take advantage of is the public transit tax credit. You can claim it if you bought monthly transit passes last year. You just need to have held on to all of your passes as proof of payment.

In order to fill out your tax return, you need a record of where you got your income from. Most of us likely worked over the summer and some of us might currently hold a part-time job. Your employer is obligated to send you a T4, which is a statement that lists your income and any deductions that have been made for employment insurance, Canada Pension Plan, or income taxes. You might have already received yours in the mail or through an email. The deadline for employers to send out T4s is Feb. 28.

If you made any investments last year, such as in a mutual fund through your TFSA, you will receive a T5 in the mail. A T5 is a statement that shows the amount of income you earned on an investment the previous year. In addition to T4s and T5s,  you will also want to get together any  tax receipts, transit passes, and health claims so that you get all of the tax credits and deductions that you are eligible for. All of these things are easy to lose. I suggest that at the beginning of every year you grab an envelope, write “TAXES” on it, and put your receipts in there as you receive them throughout the year.

Once you are organized and have gathered all of this information, it’s time to file your return. You can do this by contacting an accountant or you can file yourself using a certified tax software. You can also kick it old school and file a paper return. You will just need to stop by a Canada Post office or Service Canada to grab a tax package.

The cheapest and easiest way to file is online through CRA’s NETFILE service. To do this, you need to buy a tax software. Stefura recommends using TurboTax. “It takes your hand and walks you through it step by step,” she says. SimpleTax and the software offered by H&R Block are also great options.

After you file your return, CRA will send you a Notice of Assessment in the mail, a document that shows any corrections or changes made to your return. From there you will either be issued a refund or receive an invoice for the additional tax you owe.

If you want access to your tax and benefit information right away, you’ll want to download CRA’s mobile app called MyCRA. The app lets you see you notice of assessment, the status of your return, your TFSA and RRSP contribution limits and other important information. It’s pretty wonderful. You should get it.

Doing your taxes can be a real pain — the term “tax pain” exists for a reason — but it’s something you can’t avoid. “Just do it,” Stefura says. “File on time and don’t get in trouble with CRA.”

I have come to think of taxes as one of the cons of being an adult that come along with the pros of staying up late, drinking alcohol, and eating whatever you want. So if your parents have been doing your taxes for you for the past few years, it’s time you do them on your own. I believe in you.

Featured image by Evelyn Thompson