Preparing Your Income Tax Return

March 8, 2023

Filing your tax return is the responsibility of every Canadian and is a mandatory payment to the government. Tax monies collected fund government programs and services like education, health care and the Canadian Armed Forces. Taxes individuals and businesses pay on earned income contribute to these funds.

Each year, Canadians calculate tax owed on an income tax and benefit return, which can seem overwhelming. By building a better understanding of income tax through planning strategies, it becomes more manageable and can result in effective tax savings. This is how Registered Retirement Savings Plan room is calculated. It’s also a qualifier for various benefit programs like the GST/HST credit and Canada Child benefit, and determines the amount each person may be entitled to receive.

The deadline to file personal income tax return and pay any amounts owing is April 30, 2023

Even if you are unable to pay any balance owing, it is important that you file your income tax to avoid the late-filing penalty. The late-filing penalty is 5% of your 2022 balance owing, plus an additional 1% for each full month that you file after the due date, to a maximum of 12 months.

Income taxes can be easier if you plan ahead and consider the following

Stay informed about changes

The Government of Canada and the Province of Ontario regularly release budgets which can include changes to existing programs or creating new programs which can affect taxation.

Keep track of carry-forward totals

This includes RRSP contribution room (found on your current Notice of Assessment), TFSA contribution room and capital losses.

Explore ways to reduce your marginal tax rate (additional tax paid for every additional dollar earned as income)

Some ideas include reducing current taxable income through RRSP contributions, using relevant tax credits to reduce taxes owed, deferring a bonus or income splitting through a spousal RRSP and sharing Canada Pension Plans.

Collect tax slips

This includes all ‘T’ slips for employment, employment insurance and pension income as well as investment income.

Keep records

It’s important to track details like capital gains and cash payments received through tips or gratuities.

Be informed of tax credits

This could include charitable donations and expenses like childcare, moving costs, paid tuition and medical bills.

Understand work from home deductions

If you are an employee who works from home, you may be able to claim a deduction for home office expenses. This could include electricity, heat, internet and a portion of your utilities. According to the Canada Revenue Agency (CRA) you must meet one of these criteria:

• Your home workspace is where you spend most of your time (more than 50%) doing work, or
• The home workspace is only used to earn employment income

There is a temporary flat rate method which doesn’t require tracking specific expenses. To be eligible, you must have worked at home as a result of the pandemic for more than 50% of the time, for at least four consecutive weeks in 2022. To calculate this, count the total number of days worked at home in 2022 x $2 per day - up to a maximum of $500 per individual.

Decide how you will file your tax return

The fastest and easiest way to complete your taxes is electronically – it takes about two weeks for Revenue Canada to process. You must use a NETFILE-certified software to file online and there are two types of software products.

1. Form-based products

2. Interview-based software guides you through the process by asking questions about your tax situation and is helpful so you don’t miss out on benefits and credits you might be eligible for.

You can also use a paper-based method, which can take 10-12 weeks to process. Here you take on the responsibility of keeping up to date on any income tax changes and completing all calculations. You must attach all supporting documentation. This method might increase the chances of missing out on tax efficient opportunities.

Be sure your personal information is up to date with Revenue Canada, including your name, address, marital status, dependents and banking information especially if you are receiving a refund.

If it seems overwhelming or if your situation is complex, seek the expert advice of a licensed taxation professional. Doing this will both ease your mind and ensure you’re taking advantage of benefits you are eligible for.

FirstOntario Credit Union in partnership with Credential Securities and Credential Asset Management Inc. has an experienced team of advisors specializing in various areas of wealth management including retirement planning, investment management, estate and succession planning, individual financial risk management and more. These professionals are here to help you plan for the future and reach your financial goals. Visit FirstOntario.com/Investments or call 1-800-616-8878 ext. 1700 to connect with a FirstOntario advisor and start growing your wealth today – your way.

Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Mutual funds and related financial planning services are offered through Credential Asset Management Inc. Unless otherwise stated, mutual fund securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.