Need help filing your taxes in Canada? Here's everything you need to know

Doing your own taxes can seem like an overwhelming task, especially if you're inexperienced. That's why we've compiled an easy-to-understand guide to help you navigate Canada's personal tax filing system, including how to file, what documents you need, and why doing your taxes is so important. 

Find a method that works for you

The majority of Canadians are required to file their taxes every year. It is, after all, one of two certainties in life (the other being too morbid to mention). But with that consistent certainty has come innovations in tax management systems, specifically tax software, and there are different filing options available. 

Paid and free software

The most common way Canadians file their taxes is through online software programs. These platforms allow you to link up your personal information and simplify the whole process of filing through the usage of cleaner user interfaces, interactive guides, and automatic submission systems. Just make sure that the software you’re using is NETFILE approved, which is the service that allows filed taxes to be sent directly to the Canada Revenue Agency (CRA). This method is one of the fastest, most economical ways to file your taxes—it usually only takes about two weeks to process your tax return.

Directly with the CRA

If you don’t want to use online software to manage your tax forms, that’s OK! The CRA still maintains its paper-based filing system. You can receive tax packages based on your province to submit the appropriate information—visit the files Canada Revenue Service to find the tax return forms you’ll need. If you opt for this route, you should expect a much longer turnaround time for your filings to be processed (usually anywhere between 10 to 12 weeks for processing is common, but COVID’s impact on the workforce could result in a longer waiting period.

An accountant or other authorized third-party

If you aren’t confident in your ability to manage these methods or are simply lacking the time to navigate the tools, you can always opt to authorize an accountant to file your taxes on your behalf. You’ll need to go through the CRA’s authorization process, which you can do either through your CRA online account, by having the third-party send an authorization request through EFILE, or the third-party sending an authorization request through the CRA’s Represent a Client tool.

You could also visit a community volunteer tax clinic in your area to get help from tax experts who volunteer their time to help people understand the Canadian tax system. Find a directory of these clinics to see if one is located near you in this link.

Get your documents in order

Once you decide on a method of filing, you’ll need to have the following documents ready to make the process as smooth as possible.

Income tax forms

One of the most important types of documents to have at the ready is your income form(s). These forms will vary depending on your situation and will generally depend on where you got your sources of income. Filing these properly will help you and the CRA avoid any issues of owed monies and may result in reimbursements for any overpaid tax.

Expense forms

Expense filing is a great aspect of tax filing available to Canadian residents. With the current tax system, you don’t only have to file the money you earn, but you have the opportunity to file any tax-creditable expenses that you have. This way, any taxes that apply to these expenses can be credited back to you in different ways (direct deposit, tax credit, etc.)

Identification documents

You’ll also need to have the proper identification documents on hand. These usually include the standard suite of government-issued items such as:

• Your social insurance number (SIN card) as well as SIN cards for your spouse and dependents (if applicable)

• Dates of birth of relevant family members

• Other income forms from family members

These will be important files for any member for whom you can claim tax benefits. If you’ve had someone complete your tax before, you may also have a Notice of Assessment from the CRA based on previous years’ filings. This can help guide you to any unused tax credits from which you can benefit now.

Understand why it's important to file your taxes

If this is your first time filing your taxes, you may be wondering if it’s all that important to go through this whole process at all. Sorry to be the bearer of bad news, but if you’re a Canadian resident, you are likely required to submit your income tax from the previous year.

Who is required to pay taxes?

Most Canadians will be required to file income tax. This is especially true for those employed or self-employed and earning income.

If you’re employed, you’ve likely had some tax already removed from your paychecks, so filing this income will be more or less to check if the calculated amounts were accurate. 

Self-employed and some contract-based workers are in a tougher spot as they need to backtrack all their paid work and calculate the associated taxes owed. The same goes for investors, as they need to indicate their gains generated from any sale of a security or other type of asset.

Earn tax credits

An important reason to file your taxes (besides avoiding penalties or more) is the potential tax benefits you can receive. Oftentimes, there are different ways that the government compensates you for certain types of expenditures, whether it’s for school, medical, eligible donations, or another applicable source of expenses.

Filing these expenses is a good way to get some money back from the previous year or at least tax credits which you can apply to the next tax filing season. These credits can help lower the ultimate amount of tax you’ll need to pay in the next cycle.

Avoid penalties 

There are penalties for filing your taxes after the deadline. Those explicitly called on by the CRA to file their taxes but fail to are then hit with late penalty fees beginning May 1 (a day after the April 30 cut-off) which compound interest daily, so you can find the amount associated with the penalty can climb significantly. You will also not receive any tax benefits owed to you until your taxes are filed properly.  

Filing taxes may not be everyone’s favourite pastime, but with enough preparation, you’ll be able to tackle the coming tax season with no issue.