The topics in the Dial-A-Law series provide general information on legal issues within the Province of Alberta. The purpose of this topic is to inform you of your legal rights and responsibilities. This is not legal advice. If you require legal advice, you should contact a lawyer.
This topic will discuss income tax, who it applies to, some basic tax terms, and the laws on personal income, and filing a tax return. The information contained in this topic is not intended to be nor should it be used as a complete explanation of income tax procedures.
If you need help with your income tax, more information is available from Revenue Canada at 1-800-959-8281 or online at www.canada.ca/en/revenue-agency. Several booklets and interpretation bulletins are available without charge from any district taxation office.
Income tax returns must be filed on an annual basis before the mandated due date. Most income earned in Canada must be reported to Revenue Canada on your income tax return. For example, if you earned employment income, rental income, income from a sale of capital or real estate, or made any RRSP withdrawals, you must file an income tax return and report the income. If you had to pay back any of your Old Age Security or Employment Insurance benefits, you must file a return. Also, if you paid towards the Canada Pension Plan, you must file an income tax return. You do not have to pay on lottery winnings, some inheritances, or life insurance policies. You would have to pay on the interest earned on those investments.
File the income tax package of the province or territory where you usually live. If you are a student attending school in a different province, you can file your income tax package in the province where you usually live.
The income tax system in Canada is based on residency, not citizenship. Generally, you are a considered a resident for tax purposes if you have resided in Canada for 183 days or more. You are also considered a resident of Canada for income tax purposes when you establish enough “residential ties” in Canada. What this means is, if you own a home or other personal property in Canada, have a Canadian driver’s licence, health insurance, or have applied for or received landed immigrant status, then you must file a tax return. Also, if you had a spouse or common-law partner who stayed in Canada while you were living outside Canada, you are considered to have residential ties for income tax purposes. Even if you have lived in Canada for only part of the year, you may have to file a tax return. If you are unsure about your residential ties, you should contact Revenue Canada for more information about whether you should file an income tax return.
Even if you do not have to file a return, it might benefit you, if you qualify for certain supplements. For example, you might be entitled to a tax refund, GST/HST credits, or child tax benefit payments. You may also want to carry forward any unused part of tuition and education amounts or carry over a non-capital loss from previous years to apply against other years. Additionally, you may want to keep up your RRSP deduction limit by filing annually.
The following is a list of terms you should know when filing a tax return in Alberta:
- Total Income and Taxable Income: You must report your total income from all sources in your tax return. However, you are taxed only on your taxable income. Taxable income is calculated by subtracting deductions and non-refundable tax credits from total income. Many taxpayers fail to claim all the deductions and tax credits for which they are eligible. You will be able to avoid this problem if you take note of the expenses allowed as tax deductions and credits and keep the receipts for all your purchases.
- Tax Deductions: Tax deductions are expenses that you may subtract from your total income to arrive at your taxable income. Some examples of tax deductions include private pension plans, RRSP contributions, maintenance payments, moving expenses, childcare expenses, and annual union or other dues.
- Tax Credits: Non-refundable tax credits are expenses that you may subtract directly from the amount of tax you owe. Expenses that qualify as tax credits include pension income deductions, CPP and EI contributions, charitable donations, medical expenses, and tuition fees.
- Federal and Provincial Income Tax Payable: Federal income is calculated on an “index rate.” Your taxable income is divided into sections or “brackets” and as your income increases, the rate of federal tax payable also increases. Alberta tax is calculated by applying a tax rate of between 10-15% to taxable income. This is not a set rate and can change each year. The provincial non-refundable tax credits are then deducted from this amount. You must pay both the federal and provincial income tax payable on your tax return.
- Filing a Tax Return: To pay tax, you must file a tax return stating your income and the amount of tax you owe. Tax returns are available at local tax offices and must be filed by April 30th each year. The returns are reviewed by Revenue Canada and a Notice of Assessment is sent to every taxpayer who has filed.
The penalty for missing the deadline to file is 5% of the balance owing plus 1% of the balance for each month your return is late, to a maximum of 12 months. The penalty is higher if you were already charged a late-filing penalty in the past 3 years. Always send in your tax return by the deadline even if you cannot pay the balance owed immediately. Write a letter explaining your circumstances to the Canada Revenue Agency.
If you have income from sources other than a payroll, you may be required to pay tax in installments throughout the year. If the installments are not paid on time, Revenue Canada will charge interest or enforce other penalties on you.
If you do not agree with your tax assessment, you may appeal by filing a Notice of Objection. If this is unsuccessful, there are other avenues of appeal available. If the full amount of tax has not been paid, the collection may be delayed until the matter is resolved.
In summary, the amount of money involved in personal income tax makes it important to take advantage of and properly document all deductions and tax credits. If you are unsure of the tax procedures for your situation, contact Revenue Canada for more information. If you do not agree with your tax assessment you may appeal. It is illegal to knowingly file an incorrect tax return, and the tax department may reassess your returns from past years if it suspects fraud.
Dial-A-Law is a Calgary Legal Guidance public service project funded in part by the Alberta Law Foundation.