Q. Do you end up having to pay income tax when you file your tax return every year?
You may be able to reduce your net tax owing or reduce the amount of your instalment payments by increasing the amount
of income tax withheld from certain types of income such as employer sponsored pension income or employment income.
To have income tax withheld from Old Age Security (OAS) or Canada Pension Plan (CPP) benefits, send a completed Form ISP3520, Request for Income Tax Deductions, to your Service Canada Office. You can also make this request by calling 1-800-277-9914.
To have tax withheld from employment income or from pension benefits from an employer-sponsored pension plan, give a completed Form TD1, Personal Tax Credits Return, to your employer or pension plan administrator. Individuals in Québec should use the federal TD1 and provincial Form TP1015.3-V, Source Deductions Return.
Income tax cannot be withheld from certain types of income, such as self-employment, investment, and rental income, and capital gains.
Q. What should you do if you owe taxes that you cannot pay right now?
If you cannot pay the full amount you owe now, take action by contacting the Canada Revenue Agency (CRA) right away. Ignoring your debt does not make it go away. In fact, waiting may make any financial or legal consequences more serious. The CRA may also charge interest compounded daily at the prescribed rate on any amount owing until your balance is paid in full. The CRA will work with you to resolve your tax debt or other government programs debt. You may qualify for one of the options below that help individuals and businesses meet their payment responsibilities.
You cannot pay your individual tax debt in full now
If you cannot pay your individual tax debt in full now, you may qualify for a payment arrangement or ask for taxpayer relief.
A payment arrangement is an agreement you make with the CRA. It allows you to make smaller payments over time until you have paid your entire debt including applicable interest. Before you make a payment arrangement, you may need to show that you have tried to pay your debt in full by borrowing money or reducing your expenses. To figure out your ability to pay, we may ask you to provide proof of your income, expenses, assets, and liabilities. You may have to do this by telephone or by completing a financial questionnaire.
Q. If I have a business, do I have to file both a personal and a business tax return?
The type of income tax returns you have to file will depend on whether your business is incorporated.
If you have an incorporated business, you must complete a corporate (T2) tax return for the business, and you
must also complete a separate personal (T1) tax return.
If your business is incorporated, the business losses (non-capital losses) cannot be used to reduce income on your personal tax return. However, the non-capital losses of the corporation can be carried back, or carried forward to apply against corporate income in other years. See non-capital losses for information on carry-back and carry-forward periods.
If your business is not incorporated, then you only have to file a personal (T1) tax return. The income or loss from the business (proprietorship or partnership) will be included on your personal tax return. With your personal tax return, you will have to file a "statement of business activities" which includes an income statement for your business. If you have a loss from your business, and you have other income such as employment or investment income, then the business losses will reduce the other income on your tax return. If you have business losses which exceed your other income in the current year, this non-capital loss can be carried back, or carried forward to apply against income in other years.
Q. Does splitting income with spouse can lower the tax return?
By splitting income with a spouse, the higher income taxpayer can reduce net income and taxable income. The benefits of this include
• Reducing the taxpayer's marginal tax rate (and possibly increasing the spouse's marginal rate)
• Reducing or eliminating OAS clawback
• Creating a pension tax credit for the spouse (with pension splitting)
If both spouses are in the same tax bracket, income splitting will not provide the benefit of a reduction in the marginal tax rate. However, pension splitting may still be useful if it creates or increases a pension tax credit for the spouse
Q. What are the tax Implications of Owning a Cottage or Second Home
A cottage, or second home, is considered personal-use property, if it is used primarily for the personal use or enjoyment of
• The taxpayer,
• Individuals related to the taxpayer, or
• Where the taxpayer is a trust, a beneficiary under the trust or any person related to the beneficiary
There is no deemed disposition if a person moves into their cottage, so no tax will be payable as a result of this move. However, if the use of the property changes from personal use to being used for the purpose of gaining or producing income, such as a rental property, there is a deemed disposition. See our article on change in use of real estate.
When a cottage is sold, tax is payable on any capital gain, less any principal residence exemption. If there is a capital loss, the loss is not deductible, because losses on personal-use property are not deductible except for listed personal property (LPP) losses, which can be deducted from LPP gains.
It is important to keep a record of the adjusted cost base of both the primary home and the cottage, to be used to calculate the gain on sale, because the principal residence exemption could apply to either property. If the cottage has been owned since before 1972, only the increase in value since December 31, 1971 is taxable, because taxation of capital gains began with the 1972 taxation year. December 31, 1971 is the valuation day (V-day) for properties owned prior to that date.
Even if you don't own a second property, the ACB of your home needs to be tracked, because its status as a principal residence could change in the future, for instance if you decide to buy a cottage and at some point want to designate it as your principal residence.
Q. How do I get the credit after a separation?
You should advise the CRA in writing of your separation. Either use Form RC65, Marital Status Change, or send a letter to your tax centre giving the CRA your new status and the date of the change. After the CRA receive this information, you can start getting the credit for yourself.
Note: You are separated if you have been living apart from your spouse or common-law partner for 90 consecutive days or more because of a breakdown in your relationship, and you have not reconciled. Do not advise the CRA of your separation until you have been separated for more than 90 consecutive days.
Q. How do I get the GST/HST credit for my child?
Your child is already registered for the GST/HST credit if, at the time of the birth, you have provided your consent to use the Automated Benefits Application service on the provincial/territorial birth registration form or if you have applied for the Canada child benefit (CCB) for this child by completing Form RC66 or by applying online.
If you have not applied for the CCB for your child, or if you have another child or a child starts to live with you, you need to register that child for the GST/HST credit by using the Apply for child benefits online service on My Account or by completing Form RC66, Canada Child Benefits Application.
Q. What are the Canadian income tax rates for individuals?
Federal tax rates for 2016
• 15% on the first $45,282 of taxable income, +
• 20.5% on the next $45,281 of taxable income (on the portion of taxable income over $45,282 up to $90,563), +
• 26% on the next $49,825 of taxable income (on the portion of taxable income over $90,563 up to $140,388), +
• 29% on the next $59,612 of taxable income (on the portion of taxable income over $140,388 up to $200,000), +
• 33% of taxable income over $200,000.
Provincial tax rates for 2016
5.05% on the first $41,536 of taxable income, +
9.15% on the next $41,539, +
11.16% on the next $66,925, +
12.16% on the next $70,000, +
13.16 % on the amount over $220,000
Q. Should I report the e-commerce business income?
Reporting Internet business activities
All existing tax laws that apply to businesses also apply to business conducted over the Internet. If you earn income from one or more webpages or websites, you may need to report the web addresses and the income they earn. Depending on your business structure, you have different reporting requirements.
Webpages and websites to report
Indicate your webpages or websites that generate income. If you have more than five webpages or websites, specify the top five income generators. If they do not generate income, such as telephone directory websites and information-only webpages, you do not need to report them. Examples of webpages or websites that you should include are:
• webpages and websites that allow the completing and submitting of an order form, the checking out of a shopping cart or similar transactions
• online market place websites where your goods or services are sold
• webpages and websites hosted outside of Canada
• advertisements, programs, or traffic to your site that generate income
Report the gross income received from all of your Internet business activities as a percentage of your total gross income. If you cannot determine the exact percentage, give a reasonable estimate. See the headings below for how to report it depending on your business structure.
If your corporation earns income from one or more webpages or websites, you are required to file Schedule 88, Internet Business Activities along with your corporation income tax return (T2) for tax years where your filing due date is after December 31, 2014.
If your partnership earns income from one or more webpages or websites, currently you do not have to report Internet income information separately.
If you earn income from one or more webpages or websites, complete the Internet business activities section of the following forms that apply to you, along with your income tax and benefit return (T1):