Frequently Asked Questions
HOW DO TUITION CREDITS WORK?
The purpose of the tuition tax credit is to allow students to reduce their income taxes by taking into account tuition fees paid for certain types of education. The amount of the tuition tax credit is determined by multiplying the lowest personal tax rate percentage (for example, 15% for years after 2006) by the amount of eligible tuition fees paid in respect of the year. The unused amount of a student’s tuition tax credit may be carried forward to future years or be transferred to a spouse or common-law partner, or to a parent or grandparent of either the student or the student’s spouse or common-law partner, subject to certain requirements and limitations.
RRSP CONTRIBUTIONS
Deducting your RRSP (Registered Retirement Savings Plan) contribution from your net income means you don't have to pay income taxes on it until you take it out of the registered plan. You will pay lower taxes on the money in the plan when you take the money out if you are in a lower tax bracket at that time. The maximum amount you can put into an RRSP depends on your income. It's listed on the Notice of Assessment that the CRA sends you when you file your annual tax return. You have 60 days after the end of the year, usually March 1, to put money in your RRSP to get a tax deduction for the previous year. But don't wait until the deadline. Begin regular contributions (monthly or every payday) as soon as possible and your investment savings will start to grow sooner.
WHAT IS THE HOME BUYERS PLAN?
The Home Buyers' Plan (HBP) is a program that allows you to withdraw from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability.
WHAT IS THE WELCOME TO CANADA CREDIT?
There is no “Welcome to Canada” credit. It is often confused with the goods and services tax/harmonized sales tax (GST/HST) credit which 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. It may also include payments from provincial and territorial programs. You are automatically considered for the GST/HST credit when you file your taxes. All Canadians are considered for this credit, not just new Canadians.
WHAT IS A TFSA?
TFSA (Tax Free Savings Account) is the mirror image of an RRSP. You contribute after-tax dollars. In other words, you don’t get a deduction for your contribution in the current year. But once the money is in the plan, it not only grows free of tax, but also comes out free of tax.
DO I STILL NEED TO FILE MY TAXES IF I DIDN’T EARN ANY INCOME?
If you do not have any income you still need to file your taxes. This lets CRA know your income situation and that you are up to date. Failure to file a tax return will result in termination of various benefits such as Child Tax Benefit, HST benefit, Universal Child Care Benefits and the Working Income Tax benefit.
WHAT IF I CAN’T AFFORD TO PAY MY TAXES?
If you don't have the funds to pay your tax liability at the moment, CRA still encourages everyone to file their return. Once the return has been assessed a payment arrangement can be made with CRA. While you will still be charged interest, you will have successfully avoided late-filing penalties.
HOW LONG SHOULD I KEEP COPIES OF MY INCOME TAX RETURNS?
Keep copies of your tax returns for at least 6 years. Most people don't need to worry about tax fraud investigations and unreported income but you should keep a copy of your return, particularly if you enlist the help of a tax professional. Your previous tax returns will help you to see trends in your income taxes to better prepare for your future tax returns. If you switch tax preparers it is beneficial for them to review previous years to determine whether any credits or deductions were missed or if anything needs to be carried forward from previous years.
WHAT ARE THE LATE FILING PENALTIES?
Late in current year: 5% of the tax-years balance owing + 1%/month of balance owing to a maximum of 12 months.
Late for the second time: 10% of the tax-years balance owing + 2%/month of the tax-years balance owing to a maximum of 20 months. .