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Tax overview

For most people, tax filings are akin to having unwanted surgery or perhaps being pushed in front of a bus. I’m here to tell you that it’s not quite that bad. With a little effort, you’ll find your financial literacy quite improved.

Income taxes were introduced almost by accident. They were introduced as a way of raising funds to support the Canadian army and were meant as a temporary measure. Clearly, someone realized that getting free money was a good thing and it was thus adjusted to a more permanent measure.

All taxpayers contribute their share of taxes on a progressive scale (meaning that higher earners pay higher rates of taxes than lower earners) in hopes that the government will invest the money back into services that will help them. This is generally how public services such as health care, transit and other services are funded.

There are many kinds of taxes – income taxes, goods and services taxes, excise taxes and many others.

There are even different types of income taxes – personal, corporate and estate to list the most common ones.

Every Canadian resident is required to file a personal tax return for the calendar year by no later than April 30th (ie, four months after year end). The return will include reporting of all of your income for the year and will result in an amount payable or refundable from both the federal government and the province in which you reside.

Although not all income is taxable in Canada (such as lottery winnings which are completely tax free), most sources of income are taxable. For example, employment income, business income and investment income are all taxable.

The tax authorities in Canada are quite nice and they allow taxpayers to reduce their taxes owing by legitimate employment, business and investment expenses actually incurred to earn the income. They also allow reductions for good policy reasons such as getting married, having kids, contributions to retirement savings plans, purchases of first homes, tuition paid for university and college and many others.

If you are employed, your employer is required to withhold payroll taxes from your earnings. This can be thought of taxes that are paid in advance of the April 30 deadline. All payroll taxes are credited on your personal tax return. For example, if your taxes owing are $500, but your employer has withheld $750 from your pay throughout the year, you will receive a refund of $250!

Generally, if you are work as an employee (as opposed to being self employed) and have little other kinds of income, you should not owe much at tax time and may even receive a refund due to the taxes that are withheld during the year.

If you are a student with a part time job or a recent grad with a full time job, chances are that you will not owe any tax since your tuition paid for university will reduce or eliminate your taxes altogether.

Please let me know if you have any questions or comments.

Welcome

Welcome to my new blog. I plan to use this blog to post information that you can use in your every day financial life.

I welcome questions, comments or other feedback related to my blog or to financial issues in general.

As always, I can be reached by email (danielydiamond@gmail.com), by phone (416 222 5555) by Facebook or by LinkedIn.

Thanks,

Danny