Who is required to file an income tax return?

To read more chapters, click below:

Chapter 2: Taxes for New Canadians: Step-by-Step Guide to Filing Your Tax Return

Chapter 3: Difference between refundable and non-refundable tax credits

Chapter 4: Non-refundable tax credits

For those who have recently moved to Canada and are wondering whether filing their taxes is essential and what are the eligibility criteria, this chapter has all the information.

The Canada Revenue Agency (CRA) mandates the submission of annual tax returns for the majority of its citizens. However, it's important to note that there exist certain exceptions to this rule. Therefore, it's worth delving into the specifics of which individuals are obligated to file a Canadian T1 General tax return, as well as the corresponding timelines for this requirement.

The CRA, as the governing body responsible for managing taxation in Canada, stipulates that most citizens must engage in the annual ritual of filing their tax returns. This procedure allows the government to assess an individual's financial activities over the course of the year and calculate the appropriate amount of taxes owed or to be refunded.

Minimum income to start filing taxes

In Canada, there exists no obligatory minimum income threshold for the filing of your Canadian income tax return. As soon as you commence earning any form of income, the responsibility of filing your taxes comes into effect. However, it's worth noting that the amount of income you earn annually does play a role in determining the extent of your tax liability.

Your Canadian residency status doesn't determine the necessity of filing a Canadian income tax return. However, it does impact the process of filing, the income you're required to declare, and your eligibility for specific credits or deductions. If you fulfill any of the criteria set by the CRA, irrespective of your residency status, you are obligated to file a tax return.

Even if you reside in another country, you'll be required to file an income tax return if you receive earnings from a business you own in Canada, generate income through Canadian investments, or possess property within Canada.

When do I start paying taxes in Canada?

In Canada, the commencement of tax payments coincides with the onset of income generation. Nevertheless, there exist certain benefits to initiating the process of tax filing as soon as one enters the workforce. For individuals below the age of 18 who earn an income falling short of the annual basic personal amount, the obligation to file taxes remains, but there's an opportunity to receive a partial refund based on a portion of the taxes already paid. Specifically, if an individual under the age of 18 earns less than approximately $13,000 in a given tax year, they become eligible for a partial reimbursement of the taxes previously remitted.

Who all need to file taxes in Canada?

You must file your taxes in Canada if –

1. You have outstanding tax owed to the CRA.
2. You're a self-employed individual and are required to cover your Canada Pension Plan (CPP) premiums.
3. Similarly, you need to fulfill Employment Insurance (EI) premium payments based on your self-employment income.
4. You and your spouse or common-law partner intend to distribute your pension income.
5. If you've engaged in the Home Buyers' Plan (HBP) or the Lifelong Learning Plan (LLP) and have outstanding repayments to make.
6. If you've disposed of capital property – If you've sold your home, it's necessary to file a tax return, even if you aren't subject to capital gains tax due to the principal residence exemption.
7. Repayment of Benefits – If you need to repay any Old Age Security or Employment Insurance Benefits, filing a tax return is required.
8. Receiving Canada Workers Benefit (CWB) advance payments – If you've received advance payments of the Canada Workers Benefit during the tax year, filing a return is a must.
9. Request from the CRA – If the Canada Revenue Agency (CRA) has requested you to file, it's essential to comply.
10. Demand from the CRA – If the CRA has issued a Demand to File, it's a serious matter that requires immediate attention and compliance.

Who is exempted from paying taxes in Canada?

In Canada, exemptions from tax payments can be attributed to two primary scenarios: having a low income and qualifying for the Disability Tax Credit. Let’s understand about each of these in detail.

• Low Income

If your annual taxable income amounts to less than $40,000, there's a strong likelihood that you'll be eligible for tax exemptions. It's important to note that this income pertains to the collective earnings of your entire household. If, when combined, the earnings of you, your spouse, or other members of your household surpass $40,000, you would then become subject to the minimum tax requirement. Nonetheless, there are situations wherein your income is below $40,000 but certain conditions still apply.

These scenarios include –

1. Reporting a capital gain or taxable Canadian property that falls under the taxable category.
2. Declaring a loss stemming from investments or properties related to resources.
3. Making claims for specific tax credits, such as -

1. Federal political contribution tax credit
2. Investment tax credit
3. Labor-sponsored funds tax credit
4. Federal dividend tax credit

• Disability Tax Credit

The Disability Tax Credit (DTC) in Canada is a non-refundable tax credit designed to provide financial relief to individuals who have disabilities or certain impairments that significantly affect their daily lives. This credit is intended to help offset the extra costs associated with living with a disability. To be eligible for the Disability Tax Credit, a qualified medical practitioner must certify that the individual has a severe and prolonged impairment that meets the criteria set by the Canada Revenue Agency (CRA).

The DTC can also provide potential financial benefits beyond the tax credit itself. For instance, it can open up opportunities for individuals to apply for other disability-related benefits and programs, such as the Registered Disability Savings Plan (RDSP) and the Child Disability Benefit (CDB).

To be eligible for the disability tax credit, you need to possess a certified medical document from a doctor confirming a severe and prolonged impairment. These impairments encompass various aspects –

• Mobility and Walking
• Cognitive and Mental Functions
• Hearing Abilities
• Speech and Communication
• Dressing and Self-Care
• Visual Impairment
• Feeding and Nutrition
• Elimination Functions
• Necessity for Life-Sustaining Therapy

Meeting the criteria in any of these areas, as verified by a medical professional, is essential for qualifying for the disability tax credit in Canada.

The Disability Tax Credit aims to provide financial support and recognition to individuals with disabilities and their families, helping to alleviate some of the financial burdens associated with their unique circumstances.

Advantages of filing a return

In certain cases where you are not required to file your tax, it is still recommended you do so. This is because of the following reasons –

• Seeking a Refund: If you're looking to claim a refund, ensuring accurate entries on your tax return is crucial.
• Eligibility for Benefit Programs: The information on your tax return is a determinant for your eligibility for various federal and provincial benefit programs. Even with no income, you could potentially qualify for benefits like the GST/HST Credit or provincial programs such as the Ontario Trillium Benefit. You can find a comprehensive list of provincial benefit programs here.
• Growing RRSP Contribution Limit: Your Registered Retirement Savings Plan (RRSP) contribution limit starts increasing as soon as you start earning income. This remains relevant even if you're not anticipating a refund; having more RRSP contribution room can be advantageous.
• Canada Workers Benefit (CWB) and Canada Child Benefit (CCB): If you intend to claim the Canada Workers Benefit (CWB) or continue receiving the Canada Child Benefit (CCB), actions on your tax return are essential.
• Reporting Tuition Fees: If you attended school and have tuition fees that qualify, it's necessary to declare these amounts on your tax return, even if you're not utilizing them immediately. Reporting them is vital for potential carryforward or transfer of credits to future years.
• Guaranteed Income Supplement (GIS) for Old Age Security (OAS): If you or your spouse wish to keep receiving the Guaranteed Income Supplement (GIS) alongside your Old Age Security (OAS) payments, proper attention to your tax return is required.