Table of Contents:
Introduction
For most Canadians, taxes are the single biggest expense in their lives. Yet, surprisingly, few people truly understand how taxes work or take the time to uncover ways to reduce their tax burden. Many simply file their return, pay what’s owed to the government, and move on, often without questioning whether they’ve maximized their deductions or claimed all the credits they’re entitled to.
With tax season just around the corner, this is the perfect time to take a closer look at how the Canadian personal tax system works. Whether you’re a seasoned filer or a first-timer, understanding your taxes is the key to keeping more of your hard-earned money. In this blog, we’ll walk you through the basics of Canadian personal taxes, highlight common deductions and credits, and share tips to help you prepare for the upcoming tax season.
Due Dates for Personal Taxes
Key Filing Dates for 2024 Taxes
March 3, 2025: Deadline to contribute to an RRSP, a PRPP, or an SPP.
April 30, 2025: Deadline to file your taxes.
June 15, 2025: Deadline to file your taxes if you or your spouse/common-law partner are self-employed.
Payment Date for 2024 Taxes
April 30, 2025: Deadline to pay your taxes.
The CRA’s NETFILE service opens on February 17, 2025, allowing you to file online. Missing these deadlines could result in interest, penalties, or fees, so mark your calendar!
Current Tax Rates for 2024
Tax rates vary based on your income and province. Here’s a quick reference for federal and Ontario tax rates in 2024.
2024 Federal Tax Rates
Tax Rate | Taxable Income Threshold |
15% | On income up to $55,867 |
20.5% | On income over $55,867 to $111,733 |
26% | On income over $111,733 to $173,205 |
29% | On income over $173,205 to $246,752 |
33% | On income over $246,752 |
2024 Ontario Tax Rates (Does not include surtax)
Tax Rate | Taxable Income Threshold |
5.05% | On income up to $51,446 |
9.15% | On income over $51,446 to $102,894 |
11.16% | On income over $102,894 to $150,000 |
12.16% | On income over $150,000 to $220,000 |
13.16% | On income over $220,000 |
How Taxes Are Calculated in Canada
Taxes in Canada are calculated using the T1 General form, which consolidates income, deductions, and credits to determine your tax liability.
1. Division B: Net Income for Tax Purposes
Net income includes all sources, minus eligible deductions.
Main Forms of Income
Income Type | Description |
Employment Income | Salaries, wages, bonuses, and taxable benefits. |
Business Income | Earnings from self-employment or small business activities. |
Investment Income | Dividends, interest, and rental income. |
Taxable Capital Gains | Profits from selling investments or property multiplied by the inclusion rate. |
Pension Income | CPP, OAS, RRSP withdrawals, and private pension plans. |
Other Income | Income from support payments, scholarships, and grants. |
Main Deductions from Income
Deduction Type | Description |
Moving Expenses | Eligible costs if you move 40 km closer to a new work, school, or business location. |
Support Payments | Deductible spousal support payments if specified in a formal agreement (child support is not deductible). |
Childcare Expenses | Daycare, babysitter, or after-school program expenses for children under 16 or with disabilities. |
Deductions from Registered Plans | RRSP Contributions: Deductible amounts contributed to a Registered Retirement Savings Plan. FHSA Contributions: First Home Savings Account contributions. |
Union Dues and Professional Fees | Amounts paid for professional membership or union dues. |
Carrying Charges and Interest | Expenses incurred to earn investment income, like interest on loans for investments. |
Employment Expenses | Costs related to employment, like tools or home office expenses, if required by your employer. |
2. Division C: Taxable Income
From net income, apply Division C deductions to calculate taxable income.
Key deductions include:
Deduction Name | Description |
Employee Stock Option Deduction | A deduction available when stock options are exercised under certain conditions. Typically, 50% or 66.7% of the benefit is deductible. |
Social Assistance Receipts | Payments like social assistance or worker’s compensation, included in income under Division B but deductible under Division C. |
Non-Capital and Net Capital Loss Carryovers | Non-capital losses can offset any income; net capital losses can offset taxable capital gains. Non-capital losses can be carried forward 20 years and back 3 years; net capital losses can be carried forward indefinitely. |
Capital Gains Deduction | Deduction for up to $1,250,000 (indexed annually) of capital gains on qualified small business corporation shares, farm, or fishing property. |
3. Apply Tax Brackets and Credits
Taxable income is taxed based on federal and provincial brackets.
How Marginal Tax Rates Work in Canada
In Canada, marginal tax rates refer to the rate of tax applied to the next dollar of taxable income and operate within a progressive tax system. Income is divided into brackets, with each bracket taxed at increasingly higher rates. This system ensures that individuals pay more tax as their income rises, but only the income within each bracket is taxed at that bracket’s rate. Both the federal government and each province/territory set their own tax brackets, which combine to determine an individual’s total marginal tax rate.
Unlike the marginal rate, which applies to the next dollar of income, the average tax rate represents the percentage of total income paid in tax. Deductions, such as RRSP contributions, reduce taxable income and can lower your marginal rate, while credits directly reduce the amount of tax owed.
4. Adjust for Payments and Refunds
Subtract amounts already paid (e.g., withheld at source or installments).
Apply refundable and non-refundable tax credits and deductions.
Calculate the balance payable or refundable.
FAQS Common Tax Questions Answered
Do I need to record my side hustle on my taxes?
Yes, any income earned from a side hustle, freelancing, or gig work must be reported to the Canada Revenue Agency (CRA). This includes cash payments, online sales, and income from platforms like Uber, Etsy, or freelance services. Even if it's part-time or irregular, failing to report this income can lead to penalties or audits.
Are tips included in income?
Yes, tips are considered taxable income and must be reported to the CRA. This applies whether you receive tips directly from customers or through a tip-sharing pool. Keep track of all tips received, as it is your responsibility to report them accurately when filing your taxes.
How is it possible to be taxed 53.53% if the two highest tax brackets only equal 49%?
The highest combined federal and provincial tax rates in Canada can exceed the federal-provincial marginal rates due to surtaxes. A surtax is an additional tax applied to your provincial tax liability once it exceeds specific thresholds. For example, in Ontario, surtaxes of 20% and 36% are applied to provincial taxes over certain amounts. When combined with the federal rate and other provincial taxes, the total marginal rate for high earners can reach 53.53%.
What do I need to keep for the CRA?
The CRA requires you to keep all supporting documents for your tax return for at least six years. This includes receipts, invoices, contracts, bank statements, and any other records related to income and deductions.
Key items to retain include:
Proof of income: T4s, T5s, business invoices, rental agreements, etc.
Expense receipts: For deductions like childcare, medical expenses, moving costs, or business-related expenses.
Contribution records: RRSP, TFSA, or FHSA contributions.
Donation receipts: For claiming charitable tax credits.
Keeping organized and detailed records ensures compliance and makes it easier to respond to CRA reviews or audits. Consider using digital tools to store and back up your records
Can I deduct my home office expenses?
Yes, if you work from home and meet CRA criteria, you can deduct a portion of your home office expenses. This applies to salaried employees (if required by their employer), self-employed individuals, or business owners. Expenses may include utilities, internet, rent, and office supplies, calculated based on the workspace's percentage of your home's total square footage. Your employer must fill out a T777s Form in order to deduct home office expenses.
What happens if I miss the tax filing deadline?
If you miss the deadline, you may face late-filing penalties and interest charges on any amounts owed. The CRA charges a penalty of 5% of your balance owing, plus 1% for each month the return is late, up to a maximum of 12 months. Filing as soon as possible can help minimize penalties.
Can I claim tuition if my parents paid for it?
Yes, you can claim tuition fees if they were paid to an eligible institution. If you don’t have enough income to use the credit, you can transfer up to $5,000 of unused tuition credits to a parent, spouse, or grandparent. Any remaining amounts can be carried forward indefinitely.
Do I need to record cash in foreign accounts?
Yes, if you are a Canadian resident for tax purposes, you must report income from all sources worldwide, including cash held in foreign accounts. Additionally, if the total value of your foreign property (including bank accounts, investments, and real estate) exceeds $100,000 CAD at any point during the tax year, you must complete Form T1135 (Foreign Income Verification Statement). Failure to report foreign income or disclose foreign assets can lead to severe penalties from the CRA.
Are lottery, Betting or Gambling winnings taxable in Canada?
No, lottery or gambling winnings in Canada are not taxable.
Useful Resources
Major Tax Credits
These tax credits from Section 118 of the ITA can reduce your overall liability and are usually the lowest taxable rate (15%) * the amounts on items listed below:
Credit Name | Description | Maximum Amount | Federal Credit Rate | Other Notes |
Basic Personal Amount | Provides a non-taxable income threshold for all individuals. | $15,705 (phased out above $246,752) | 15% | Automatically applied; reduces taxable income for all taxpayers. |
Spousal Amount | For supporting a spouse with low or no income. | $15,705 | 15% | Reduced by the spouse’s net income exceeding the threshold. |
Eligible Dependent Credit | For single parents supporting a dependent under 18 or with a disability. | $15,705 | 15% | Dependents cannot be claimed by anyone else or have taxable income exceeding the threshold. |
Canada Caregiver Credit | For providing care to dependents with a disability or infirmity. | $8,373 (base), up to $13,273 | 15% | Reduced for dependents with incomes over $19,666; not available if income exceeds $28,041. |
Age Amount | For taxpayers aged 65 and older. | $8,790 | 15% | Reduced for incomes over $39,826; fully phased out at higher incomes. |
Canada Employment Amount | Offsets work-related expenses for employed individuals. | $1,433 | 15% | Automatically applied based on eligible employment income. |
Adoption Expense Amount | For costs related to adopting a child. | $19,067 | 15% | Includes agency fees, legal expenses, and travel costs. |
Home Accessibility Tax Credit | For making homes accessible to seniors or persons with disabilities. | $10,000 | 15% | This applies to renovations that improve safety or mobility. |
First-Time Home Buyer’s Tax Credit | For first-time home purchases. | $10,000 | 15% | The home must qualify as a first-time purchase under CRA rules. |
Volunteer Firefighter and Search & Rescue Credit | For volunteers serving in these capacities. | $6,000 | 15% | Must complete at least 200 hours of service annually. |
Multigenerational Home Renovation Credit | For creating a secondary dwelling for eligible individuals. | $50,000 | 15% | Applies to renovations for seniors or individuals with disabilities. |
CPP/QPP Contributions and EI Premiums | Credits are based on mandatory payroll contributions. | Based on contributions | 15% | Automatically applied; includes enhanced contributions. |
Disability Tax Credit | For taxpayers with severe and prolonged disabilities. | $9,873 | 15% | Requires certification with Form T2201. |
Disability Amount Transferred | For transferring unused disability credits from dependents. | $9,873 | 15% | Dependents must qualify for the disability credit and not use the full amount themselves. |
Tuition Amounts | Credit for tuition fees paid to eligible institutions. | No maximum | 15% | Unused amounts can be carried forward indefinitely. |
Tuition Amounts Transferred | For transferring unused tuition credits to a family member. | $5,000 (maximum transferable) | 15% | The student must designate the amount transferred. |
Amounts Transferred from Spouse | For transferring unused credits (tuition, age, or disability). | Varies | 15% | Transferable only if the spouse cannot use the credit fully. |
Medical Expenses | For eligible out-of-pocket medical costs. | Varies (threshold: $2,759 or 3% of net income) | 15% | Applies to expenses exceeding the income threshold and includes a wide range of approved costs. |
Charitable Gifts (Donations) | For donations to registered charities. | No maximum | 15% (29/33% for donations over $200) | Limited to 75% of net income; unused amounts can be carried forward for five years. |
Interest Paid on Student Loans | Credit for interest on eligible student loans. | No maximum | 15% | Must be for loans under the Canada Student Loans Act or equivalent provincial programs. |
Dividend Tax Credit | For eligible and non-eligible dividends from Canadian corporations. | Varies | 15% (eligible); 9% (non-eligible) | Based on grossed-up dividend amounts. |
Federal foreign tax credit | To claim taxes paid on income you received from outside Canada and reported on your Canadian tax return. | Varies | Varies | Tax treaties with other countries may affect whether you are eligible for this credit. |
Main Forms used in the personal tax process
Income Reporting
Form | Purpose |
T3 | For income from trusts, mutual funds, and estates. |
T4 | For employment income, including salaries, wages, and taxable benefits. |
T4A | For pensions, scholarships, commissions, and self-employed commissions. |
T4E | For employment insurance (EI) and other government benefits. |
T5 | For interest, dividends, and other investment income. |
T5008 | For gains or losses from the sale of securities. |
T5013 | For income from partnerships. |
T2125 | For self-employment income and expenses. |
RC62 | For the now-discontinued Universal Child Care Benefit (for prior years). |
RC210 | For Working Income Tax Benefit (now replaced by the Canada Workers Benefit). |
Deductions and Credits
Form | Purpose |
T2200 | For claiming employment expenses, such as home office or travel costs. |
T2202 | For claiming tuition fees. |
T777 | For reporting detailed employment-related expenses. |
T778 | For claiming childcare expenses. |
T2038 | For claiming investment-related tax credits. |
T2201 | For claiming the disability tax credit (requires certification). |
Special Circumstances
Form | Purpose |
T1135 | For reporting foreign property valued over $100,000 CAD. |
T661 | For claiming SR&ED tax credits. |
Refundable and Non-Refundable Tax Credits
Form | Purpose |
T2209 | For claiming a tax credit on foreign taxes paid. |
T2036 | For claiming provincial/territorial credits on foreign taxes. |
T1223 | For clergy members claiming housing deductions. |
T5006 | For income from Registered Disability Savings Plans (RDSP). |
Other Common Forms
Form | Purpose |
Schedule 3 | For reporting capital gains or losses. |
Schedule 6 | For claiming the Canada Workers Benefit (CWB). |
Schedule 11 | For claiming tuition and transferring amounts to family members. |
RC199 | For voluntary disclosures to correct unreported income without penalties. |
Contact us!
Tax season doesn’t have to be stressful when you’re prepared and informed. By understanding the key dates, tax rates, deductions, and credits available, you can optimize your returns and ensure compliance with CRA requirements. For personalized assistance and expert guidance tailored to your unique financial situation, contact Elkhanagry Accounting. Our team is here to help you navigate the complexities of tax season with confidence and ease. Let us take care of the details so you can focus on what matters most. Reach out to us today!
Disclaimer
This article provides general information that is current as of the posting date and is not updated, which means it may become outdated. The content is not intended to provide accounting, tax, or financial advice and should not be relied upon as such. Tax and financial situations are unique to each individual and may differ from the examples discussed in this article. For personalized advice, please consult a qualified tax professional.
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