Filing an Income Tax Return
How to prepare and file an Income Tax return
The annual income tax return is a summary of the income from all sources, deductions and tax credits and calculates the taxes payable.
The tax return consists of a series of prescribed forms and schedules on which the different sources of income, deductions and credits are recorded. The totals from these forms are then transferred to a T1 General form which is submitted to the CRA for approval.
Most provinces now impose their own taxes (TONI), even though the federal government does the collecting. The provincial forms are incorporated into the T1 General form making the process simpler and easier.
The income tax return can be simple enough for the average tax payer to complete himself or may require professional help for more complex cases. Several tax software programs are also available to make the process relatively easy.
Income tax returns may be filed in the paper format or can be submitted electronically eg. by telefiling, netfiling or e-filing. Telefiling or Netfiling can be done by individuals who have an access code. E-filing is done by a CRA approved professional with E-filing privileges.
April 30th The filing deadline for individuals
June 15th The filing deadline for self employed individuals (sole proprietors)
The T1 General is broadly divided into 4 categories.
· Personal information
· Income from all sources
· Deductions from income
· Calculation of taxes owing
It is important that the taxpayer ensure that she collects complete information on income received from all sources. For a list of the most commonly used information sources refer to the
In addition to the T-Slips, tax information is collected from receipts such as:
· RRSP receipts,
· safety deposit box charges
· interest expenses,
· childcare expenses,
· medical receipts,
· property taxes,
· tuition and education receipts
· financial statements ( for self-employed)
This information includes the taxpayer’s name, social insurance number, residency status, Marital status, spousal information, dependent information and self employment status. This is also where the election to receive the GST is made
Income from all sources (Line 101 to Line 147)
Income received can be, generally, divided into 4 main sections
· Employment income
· Pension income
· Investment income and
· Other income
Employment income includes salaries and wages as well as bonuses, vacation pay, commissions, tips and gratuities, honorariums, director’s fees. It also includes taxable benefits and allowances e.g. use of company car
Pension income includes amounts received for Old Age security and Canada Pension.
Investment income includes, interest, capital gains, dividends and any income derived as a result of making funds available to a third party.
Other income includes income from all other sources such as RRSP income, UCCB payments, EI benefits, RDSP income, rental income, support payments etc.
Deductions from income ( Line 206 to line 235)
These include RRSP deductions, Registered pension plan contributions, childcare expenses, support payments, employment expenses, interest charges, annual union dues, clergy residence deductions, moving expenses and others.
These deductions are used to arrive at the net income amount which is used to determine various tax credits. Most tax credits are based on the net income and include Child tax benefits, property tax credits, GST credits, medical expense credits among others.
Some income amounts are not subject to tax but are included in net income. These deductions are subtracted from the net income to arrive at taxable income. They include non capital losses, capital gains deductions, Canadian forces and police deductions, WSIB payments, Social assistance payments, limited partnership losses and others.
Calculation of taxes payable ( See how taxes are calculated)
The federal taxes owing are calculated on the Schedule1 form, where the non refundable tax credits are tabulated.(Line 300 to Line 349) Provincial governments have a similar form to calculate their own tax credits. Once these credits have been determined, they are combined on the T1 General (line 420 to Line 428) to arrive at the final tax bill
Calculation of amounts owing (line 437 to Line 479)
The final section of the T1 General determines the amount of taxes owing by calculating the difference between the refundable tax credits and the amount payable from the previous step.
The refundable tax credits include:
All taxes deducted at source, overpayments of EI and CPP, working income benefits, investment tax credit refunds, provincial tax credits, employee GST rebates, refundable medical expenses supplement.
Where the credits exceed the amount payable a refund is triggered. When the credits do not exceed the amount payable then there is an amount owing. Amounts owing are due by the April 30th deadline whether the tax payer is self employed or not. Due to the June 15th filing deadline a self-employed tax payer may not know if they owe money by April 30th. The CRA has generally allowed this discrepancy and has not imposed any penalties. Interest charges might still apply in some situations. The important thing is to file the income tax return on time.
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