Who is required to file an Income Tax Return?

If you are wondering if you are required to file an income tax return, you will need to understand the meaning of income tax, its benefits and other factors. The perks of living in Canada are numerous and include the available resources and shared services you will get to enjoy.

However, this is only possible because the country is keen on the taxation system and that is a great way of redistributing wealth. Have you been wondering who is required to file your income taxes in 2022, you will get to keep reading as we unfold everything about income tax return in Canada for you.

What is an income tax return?

Precisely, an income tax return is money you will need to pay to the government of Canada on the income you earned. You can pay your income tax to the Canada Revenue Agency (CRA). An individual tax year is always from January 1 to December 31.

The amount of income tax that people owe is not the same for everyone. However, the major factors deciding the income tax you may include your income, employment status and available deductions.

What is the least income to file taxes in Canada?

In simple terms, anyone who earns income in a tax year is required to file an income tax return. To be precise, there is no amount that is too small for income. That means how much you earn will determine the tax payable by you.

So, even if you did not earn anything in a year, which is rare, you must complete a tax return annually. In the same way, the higher your income, the higher amount you pay as income tax. In Canada, the federal tax brackets are outlined below:

• 15% on the first $50,197 of taxable income
• 5% on the additional $50,195 of taxable income(on the portion of taxable income between $50,197 and $100,392)
• 26% on the next $55,233 of taxable income (on the portion of taxable income between $100,392 and $155,625)
• 29% on the next $66,083 of taxable income (on the portion of taxable income between $155,625 and $221,708)
• 33% of taxable income over $221,708

Although this is the case within the country, the provinces and territories have their individual tax bracket for their residents.

Who is required to file an income tax return?

The answer to this question is everyone is required to file an income tax. However, for the sake of clarity, we will outline the class of people eligible to file an income tax return in Canada. Here, they are:

• The income earners. Whether the income is in form of employment or investment or any other form of income, you are to file an income tax
• Canadian residents. This includes international students or those who travelled out of Canada
• Self-employed individuals and those who owe Canada Pension Plan (CPP) and Employment Insurance (EI) premium
• Anyone who sold or otherwise disposed of the property, like real estate or corporate shares
• Those who split income with their spouse or common-law partners
• Those who have used the Home Buyer’s Plan (HBP) or Lifelong Learning Plan (LLP) and owe repayments
• Anyone who withdrew money from their Registered Retirement Savings Plan (RRSP) outside of the HBP or LLP
• Individuals that sold or disposed of capital property, including a home, vehicle, or other assets. Even if the person did not incur capital, they must file an income tax return.
• Those who must repay Old Age Security or Employment Insurance Benefits
• Individuals who received a financial support benefit from the government of Canada which includes social security, Canada Workers Benefit (CWB) or alike
• Anyone who receives a request from the CRA to file or demand a file.

Additional Requirements

If you are an employee, it is the duty of your employer to deduct tax instalments from every of your paycheque and remit them to the CRA.

On the other hand, if your employer did not deduct enough tax for the year, you will have to carry it over to the coming year and pay more when you file your tax return. Again, if your employer deducts more than necessary, you will always get money back after you file your tax return for the year.

Similarly, if you earn an income from any other source aside from your employer, it is mandatory you pay the tax on it when you file your tax return. If you also made certain types of investments, you are under an obligation to pay tax on the income you earn during the year.

Finally, with a tax return, you will be eligible for an income tax refund and to claim credits or deductions in form of Harmonized Sales Tax, Child Tax Benefit payments, Goods and Services Tax, and more.

Do dead people file an income tax return?

If in the case you pass away, your family member or close friend will complete your final tax return while they process a will or estate.

Is there any age limit for individuals to stop filing taxes?

To be precise, there is no age limit to paying tax in Canada. Filing your income tax return has no business with your age. Even the senior citizens receive a pension, government support or other retirement benefits, and so, are required by law to file their taxes. Even if you are exempted from filing your income, it is best practice for you to file it.

What are the perks of filing an income tax return?

There are reasons for you to file an income tax return and one of them is that it will be on your record that you do not owe taxes. Unfortunately, if you stop filing your tax return, the CRA may force you to do it later which may not be financially convenient for you. Therefore, it is to your advantage if you maintain an up-to-date filing status.

Another reason is that if you always file your tax return, you may be eligible to access other benefits. For instance, you may be qualified for money back if you do not owe taxes. You as well be qualified for a federal or provincial benefit package. Examples of such packages are Guaranteed Income Supplement (GIS), Canada Workers Benefit (CWB) and the Ontario Trillium Benefit (OTB).

Additionally, your Registered Retirement Savings Plan (RRSP) contribution limit calculation makes use of your income as a base. So, if you do not pay tax, it will affect your contribution.

When should one file an income tax return?

As required by law, you are required to file your tax return and pay your tax before April 30, 2023, for the year 2022. As the case may be, you pay each year’s tax on April 30, the following year. If you are self-employed, you can file and pay before June 15.

Also, if you make any contribution to an RRSP, it lowers your taxable income by the same amount. However, you may have until March 1 the same tax year, to make your contribution and report the deduction on your current year tax.

Income Tax in Canada

What happens if one files taxes late?

If you file taxes late, that may attract penalties to you. You are charged compound daily interest on May 30, on the tax you were to pay. Moreover, the required interest rates are subject to adjustment every three months.

To make it easier for you, you may start early to pay your tax on instalments before the last day. This is because if you miss any payment, you must incur interest.

Aside from the interest increment, you will also face other penalties. For instance, the penalty for late filing of your income tax is 5% of the balance you owe.

Also, there is an additional 1% for every full month you file your tax after the payable date and this is up to a maximum of 12 months. Therefore, it is better to file your taxes even if you cannot meet up with the deadline.

What are the requirements to file an income tax return?

To file a tax return you will need to fulfil the following obligations for each individual income tax:

1. Corporate income tax filing: All companies that exist and operate in Canada must file T2 income tax returns within 6 months of their year end. This is because corporations do not have a calendar year end. In the same way, companies that carry out businesses in Canada but exist elsewhere must file a Canadian corporate income tax return.
2. Trust and estate tax returns: Since trusts and estates have a calendar year end, they are required to file T3 income tax returns in the space of 90 days of the year end.
3. Individual tax returns: It is mandatory that individuals file T1 tax returns by April 30 of each year. But there are exceptions to this general rule. That is, individuals with self-employment income can extend their payment till June 15 to file their tax returns. Also, if the individual does not have any taxable income within the year, they are not under any obligation to file a tax return, except in cases where the individual had a capital gain during the year of disposed of capital property. But if CRA insists that they must file a tax return, then, it shall be so.

Conclusion

Everyone who receives income in Canada is required to file an income tax return. Besides, it is best you file your tax before the deadline to ensure you do not have to pay a penalty over an issue you can avoid.