Even if you made no money at all in 2018, filing your income tax return with the CRA is a good idea. In fact, if you don't file a tax return, you could miss out on tax benefits, deductions and credits . . . not just this year, but in future years too!
If you're self-employed or run your own business and made more than $3,500 last year, filing your income tax return is not optional. Everyone must declare all income they make in a given tax year and pay taxes. Failing to do so can result in penalties for not filing, and interest on late payments or overdue amounts from previous years.
The good news is, small business owners will benefit from a lower tax rate this year. There are also many expenses and deductions you can claim to reduce any taxes you owe. As unpleasant as paying taxes can be, a large portion of the amounts we pay go towards the Canadian Pension Plan and funding universal health care.
Most Canadians are required to file a tax return. However, there are a few exceptions to this rule. More specifically, you must file a tax return if any of the following apply to you:
If you're the legal executor, administrator, or liquidator for a person who passed away in 2018, you may have to file a tax return for them. For more information, see Form T4011, Preparing Returns for Deceased persons (2018). The CRA has also prepared a handy article on what to do following a death.
If you made less than $3,500 in 2018, you don't technically have to file an income tax return. This is because the first $3,500 you earn is not subject to CPP or QPP contributions. In addition, the basic personal amount for 2018 is set at $11,809. The first $11,809 of income that Canadians make in a year aren't subject to federal income taxes.
Why should you file your taxes if you have a low income? If you don't you'll miss out on GST/HST credits, Working Income Tax Credits, and Canada Child Benefits if you are eligible to receive them.
If you worked last year, any employment income you earned will be used to calculate your maximum RRSP contribution limits in future years. Contributing to your RRSP is a great way to lower your income taxes, but you'll need to accumulate contribution room first.
If you incurred a business loss last year, you can apply it to a later year to reduce any future tax bills. To do this, you will need to file a tax return for the year in which the loss occurred.
If you're in a low-income situation, filing your tax return isn't complicated. The CRA has a number of programs in place to make the process as painless as possible. In many cases, you can even file a simple return online for free.
If you travel a lot or work in another country, whether you will have to pay income tax depends on your residency status. As such, you will need to determine whether you are a factual resident, deemed resident, non-resident, or deemed non-resident of Canada.
Factual residents of Canada are Canadians who live or travel extensively abroad while keeping significant residential ties to Canada. You could be a factual resident of Canada if you:
As a factual resident, you'll be taxed as if you never left Canada. Factual residents must claim all income earned in Canada and abroad, and can claim all deductions and tax credits they are eligible for. They must also pay provincial taxes in the province where they maintain residential ties. They are eligible to keep receiving GST/HST credits and the Canada Child Benefit.
In special situations, Canadians may sever their residential ties but maintain their status as a deemed resident of Canada for tax purposes. For example, you could be a deemed resident of Canada if you are a federal, provincial, or territorial government employee who has been posted abroad. The same is true if you're a member of the Canadian Forces.
You may also be a deemed resident of Canada if you live and work in a country that has an agreement, tax treaty, or convention with Canada that exempts you from paying tax in that country.
As a deemed resident of Canada, you:
As a deemed resident of Canada, use the CRA's Special Income Tax Benefit Package for Non-Residents to file your tax return.
Canadians who lived in Quebec before cutting residential ties with Canada can also keep their Quebec residency after leaving the country. To avoid double taxation, add a note to your income tax return to let the CRA know that you must pay Quebec taxes.
If you leave Canada and emigrate to a different country, you become a non-resident of Canada for income tax purposes. This status applies if:
As a non-resident of Canada, you only need to pay tax on income from Canadian sources, such as:
You might also have to pay Canadian income taxes if you live abroad but carry on a business in Canada. The same is true if you transfer or sell property in Canada while living abroad. You can also be taxed on certain scholarships, fellowships, bursaries, and research grants, and any income earned from services performed in Canada outside of regular employment.
This last category applies to Canadians who remain deemed residents or factual residents of Canada while living in a country that has a tax treaty with Canada. For a list of these countries, check out this list by Canada‚Äôs Department of Finance.
As a deemed non-resident of Canada, you are subject to the same rules as non-residents. This means you must declare all income from Canadian sources to the CRA.
If you recently left your home country to live and work in Canada, the CRA considers you a newcomer to Canada for tax purposes.
As soon as you establish significant residential ties with Canada, you become a resident of Canada for tax purposes. The following individuals must file a tax return:
Wondering whether you have significant residential ties with Canada? Ask yourself the following questions:
You might also maintain the following secondary residential ties:
Each case is unique. Ultimately, your residency status will depend on how much time you spend in Canada in a given year. If you live and work in Canada and maintain some of the residency ties outlined above, chances are you will have to file a tax return with the CRA.
The main takeaway is, if you lived in Canada for most of the year, you must file a tax return and pay the requisite taxes. This is especially true if you owe tax, as the failure to file will result in penalties and interest from the CRA.
Even if you made very little money last year, you won't be able to claim a refund or collect tax credits and benefits unless you file! With tax software that allows you to submit your return online for free, there's no reason to avoid filing your taxes.