Are you required to file an income tax return?

To read more chapters, click below:

Chapter 1: Tax breaks for newcomers in Canada

Chapter 3: Taxes for new Canadians: Step-by-step guide for filing your taxes

Chapter 4: 20 popular Canadian tax deductions and credits in 2023

Chapter 5: How to apply for GST/ HST credit in Canada?

Chapter 6: All you should know about Canada Child Benefit (CCB)

When you generate income through employment, your employer is required to withhold tax installments from each paycheck and forward them to the Canada Revenue Agency (CRA). The amount which is deducted and deposited on your behalf can then be set off against your actual income tax liability when you file your income tax return. If your employer hasn't withheld enough over the year, you may need to pay additional tax when you submit your tax return. Conversely, if your employer has withheld excess amounts due to the deductions or credits, you're eligible for, you typically receive a refund after filing your annual return.

The CRA mandates that the annual tax filing for the majority of citizens; however, there are exceptions. Let's examine who needs to file a Canadian T1 General tax return and when.

If any of the following applies to you, then you need to file personal income tax -

• You are required to settle taxes on income earned in the preceding calendar year.
• Tax authorities have asked you to submit a return.
• You have engaged in the sale or disposition of assets, such as real estate or corporate shares.
• You possess a taxable capital gain or are reporting a capital gains reserve that you previously claimed on your return for the last year.
• A portion of your Old Age Security or Employment Insurance benefits needs to be reimbursed.
• You have yet to repay the funds withdrawn from your RRSP under a qualified plan, like the Home Buyers’ Plan.
• You are contributing to the Canada Pension Plan (CPP).
• You and your spouse or common-law partner have opted to split pension income in the previous year.
• You've made Employment Insurance premium payments on self-employment and other eligible earnings.
• You aim to avail the Canada Workers Benefit (CWB) or you received CWB advance payments in the year.
• You or your spouse or common-law partner wish to initiate or continue receiving the following payments (including any linked provincial or territorial payments): Canada child benefit (CCB), GST/HST credit, Guaranteed income supplement (GIS).

Minimum income to file tax returns in Canada

Every individual who earned income within a given calendar year is required to file taxes, regardless of the income amount. In essence, there is no specific income threshold. Even if your earnings were zero, we advise you to submit a tax return on an annual basis.

However, the amount of tax you owe is contingent on your income level. Canada employs a tiered taxation structure, indicating that the greater your earnings, the higher your tax liability becomes. Given below are the tax brackets for federal tax of the year 2022–

• 15% on the initial $50,197 of taxable income
• 20.5% on the subsequent $50,195 of taxable income (pertaining to the range between $50,197 and $100,392)
• 26% on the subsequent $55,233 of taxable income (falling within the range between $100,392 and $155,625)
• 29% on the subsequent $66,083 of taxable income (falling within the range between $155,625 and $221,708)
• 33% of taxable income exceeding $221,708

In addition to this, each province and territory possesses its distinct tax brackets. Beyond federal taxes, you also hold an obligation to pay provincial or territorial taxes.

When to file your income tax return?

According to current regulations, you must submit your tax return and settle any owed taxes by April 30th of the subsequent year. For example, your income tax return for the year 2022 must be filed and the taxes must be paid up to 30^th April 2023. However, if you, your spouse, or a common-law partner are self-employed and operated a business during the return year, the forms could be submitted by June 15^th. In instances like these, while personal tax forms might have a submission deadline of June 15^th, any outstanding taxes should still be settled by April 30th.

No exception for age or occupation

Regardless of your age, whether you're 10 or 85, it doesn't impact your obligation to file a tax return. If you fulfill any of the criteria mentioned above, the CRA anticipates receiving an income tax return from you.

In the same way, even students are not exempted from paying taxes. Whether you are a young 17-year entrepreneur who makes money through a small business, or earn through a part time job, as soon as children begin to earn income, it's advisable for them to initiate the process of filing a tax return.

Residency for tax purposes

Your status as a resident in Canada doesn't determine the necessity of filing a Canadian income tax return. However, it does impact the manner in which you file your taxes, the income you are required to report, and the eligibility for specific credits or deductions. If you satisfy any of the criteria set forth by the CRA, such as those mentioned earlier, filing a tax return is obligatory regardless of your residency status.

In case you reside in another country  yet receive income from a business owned in Canada, investments held in Canada, or possess property within Canada, you will be obliged to submit an income tax return.

Tax residency in Canada differs from immigration residency. Individuals who could be categorized as tax residents include –

• Canadian citizens and permanent residents
• Refugees (protected persons)
• Individuals with approval-in-principle from Immigration, Refugees and Citizenship Canada to remain in Canada
• Temporary residents, including foreign students and foreign workers

For tax purposes, you attain Canadian residency when you establish substantial residential connections in Canada, generally starting from the day of your arrival in the country.

Residential ties include –

• Assets in Canada, like a residence
• A spouse or common-law partner and dependents relocating to Canada to reside with you
• Personal possessions within Canada, such as a vehicle or furniture
• Connections and relationships established in Canada

Other relevant ties include –

• Possession of a driver's license issued in Canada
• Ownership of Canadian bank accounts or credit cards
• Enrollment in health insurance provided by a Canadian province or territory

Why it is advisable to file a tax return?

Even if it's not obligatory, there are instances where it's still beneficial to file your return for the following reasons –

• You intend to claim a refund
• Information provided on your tax return influences your eligibility for specific federal and provincial benefit programs. Even if you had no income, you might still qualify for benefits like the GST/HST Credit or provincial programs such as the Ontario Trillium Benefit.
• Your RRSP contribution room begins to expand as soon as you generate income. Having more room for RRSP contributions can be advantageous, even if you don't anticipate a refund.
• If you aim to avail the Canada Workers Benefit (CWB) or wish to sustain your receipt of the Canada Child Benefit (CCB).
• In case you attended school and incurred eligible tuition fees, it's necessary to report these figures on your tax return, even if you're not utilizing them. While you might not require the credits for this year, it's crucial to report them in your present-year tax return to facilitate carrying them forward or transferring them.
• Additionally, if either you or your spouse aim to persist in receiving the Guaranteed Income Supplement (GIS) alongside your Old Age Security (OAS) payments.