Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
For many first-time business owners, everything about taxes can be quite confusing from the start. Before you can finally launch your business, you need to prepare several documents and required permits. Preparing the legal documents can take a longer process than actually preparing for your opening launch.
The process of filing income tax returns can be tedious and complicated. If you find it confusing, you can hire a tax professional to do the paperwork for you. But before you get lost in the messy world of taxes, let’s break down frequently asked questions on income tax returns and help you file them.
FAQs on Income Tax Returns
What is an income tax return?
Income tax returns refer to the mandatory forms filed by an income-earning individual or corporation at the end of each financial year. The return forms summarize the taxable income, taxable credit, or other matters related to the latter from January to December of the previous year.
Income tax filing aids the government in determining the correct amount of tax an individual or a business should pay. The Canada Revenue Agency (CRA) also uses your return form to determine if you are eligible for a tax refund for the tax you have paid for the year or when an amount is due to be paid.
Who should file an income tax return?
Whether you live in Canada permanently, temporarily, or as a newcomer, knowing if you need to file your tax returns and when is essential to avoid legal problems. First, in the list, all income-earning residents of Canada, including immigrants, should file their income tax returns and pay their taxes to continue enjoying benefits and receive credits.
The list also includes income-earning residents of Canada that are temporarily away in another country, whether for work, school, vacation, or medical purposes. As long as you have ties in the country, you are to file a tax return. Federal employees stationed abroad and indigenous people are also required to file their tax returns to the CRA.
Which types of income should I report on my tax returns?
As previously said, all residents who earn must file their tax returns. Your tax returns are essentially a summary of all the money you have accumulated in the previous year. For individuals and income tax return-filing businesses with different income sources, which of those sources are you allowed or have to declare?
- Self-employment and employment income are the money from self-employment, the payment you get as an employee from a particular company. It also includes commission and any foreign income, if applicable.
- Pensions and saving incomes are those from pensions like retirement and saving plans, and these should also be reported in your income tax returns, including those existing in other countries.
- Investment incomes are also included in the income tax returns. Income from investments includes your interest, capital gains, and dividends.
- Benefit incomes are income coming from social assistance payments and worker’s compensation benefits.
Ensure to disclose all your income sources in the tax return to know if you are eligible for a refund (to be determined by the government) or have existing dues to be paid. There are also non-taxable incomes that are not necessary for the tax returns. Check them out to file your taxes smoothly and easier.
Can I file my income tax returns anytime?
Income tax returns should be filed and paid on or before April 30 of every year. In case the 30th falls on a weekend, the deadline is moved to the next business day. But, if you are self-employed, Canada Revenue Agency gives more time for such individuals. They can file their returns until June 15.
Furthermore, the CRA applies penalties for late filing to encourage people to file their tax returns on time. When you get past the due date, you are charged with a 5% penalty and an additional 1% for every month that passes. So, if in case you filed five months late, you will be paying the whole amount of your taxes plus a 10% penalty fee.
Some instances can be too big to pay in one go. The CRA allows installment payments of easy completion of the amount due. You can pay the installment on the 15th of March, June, September, and December of the tax year.
How can I file my income tax returns?
There are different ways where you can file your income tax returns:
- Via Mail – You can download all the needed forms from the CRA website. Identify your local tax service office to mail your tax returns. If your papers are approved, you can expect to get your returns in 4 to 6 weeks.
- Via the internet– Income tax filing online is much faster than mail. Via the online method, you can expect your refund in 2 weeks. You have to go to the NETFILE-certified software; It is free, and you can file your returns here. Please note, however, that this isn’t available to first-time tax filers in Canada.
- Services near me – You can check the CRA website for other options on filing your income tax returns. You can also check with your community agency if there is a settlement service near your area.
Do I need income tax returns consultants?
The initial role of a tax professional is to help individuals and organizations manage their taxes. These people have expertise in taxation laws, tax planning, and compliance. Big organizations usually hire consultants for their businesses for long-term tax optimization.
If all of these are still confusing to you, you can hire accounting professionals to avoid incurring penalties and tax liabilities every year.
What are the consequences of not filing my income tax returns?
As previously mentioned, late filing will give you penalties for your dues — 5% for the late file and an additional 1% for every month you fail to report your income tax returns. You can go up to 10 years without filing a tax return. But if the CRA finds out that you are deliberately avoiding paying taxes, you can be charged with tax evasion cases and imprisoned for up to 5 years.
The longer you put aside your tax return filing, the higher amount you will pay. To avoid these types of inconvenience and possible criminal charges, be responsible for filing your tax returns.
Tax Returns Made Easy!
You don’t have to be an expert for income tax return filing to do yours. Paying your taxes and declaring them is your obligation to your government as well as your fellow countrymen. All people who earn give back and contribute to the betterment of their country by paying their taxes. So do your part and be a responsible adult and citizen.
There are always law and tax experts to help manage your tax returns. Please don't wait for your bills to balloon before finally deciding it's time to file your tax returns.