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Income Tax

Dealing with income tax issues can be very stressful. This can be anything from filing your return, to tax assessments, to tax audits. Information about some of the basics can help you understand your rights and responsibilities. The Canada Revenue Agency (CRA) administers both the provincial and federal income tax systems.

Annual Tax Returns

Your annual tax return is how you report your income and calculate the taxes you owe. You do not always need to file a tax return, but there are some situations where it is necessary to do so.

When Tax Returns are Required

Individuals must file a tax return if they owe income tax. If you are an employee, taxes are deducted from your pay. However, you could still owe taxes if your employer did not deduct enough. The amount taken off is only an estimate of what you will owe based on your earnings. Things like earning income outside of your regular job or changes to your number of dependants can affect the actual amount owing.

Filing a return is also required if you sell capital property. This includes selling your principal residence or other assets such as a vacation home or stocks and bonds.

Corporations, except for registered charities, must file a tax return every tax year, regardless of whether they owe any tax.

You must also file a tax return if the CRA makes a demand for filing even if there is no tax owing.

Late Filing

The due date for filing individual income tax returns is April 30. If this date is a weekend, the deadline is the following Monday instead. If you fail to file your return on time you will be charged a late-filing penalty based on the amount owing.

You may be tempted to delay filing or even not file if you know you do not have the money to pay the taxes you owe. However, even if you cannot afford to pay, you can avoid penalties by filing on time. You will still be charged interest on the amount owing but you can avoid late filing fines. Repeatedly failing to file or failing to file on time can result in even harsher penalties.

Reasons for Filing

Even if you are not required to file a tax return, you may still want to in certain situations such as...

  • If you do not file a return, the CRA can estimate the taxes you owe without having your actual information.
  • If you have a refund owing you must file a tax return to receive the refund.
  • You need to file a tax return to be eligible for some benefits and rebates, such as the GST rebate.
  • Filing a return can increase your registered retirement savings place (RRSP) deduction limit in the future.
  • Filing a return can establish your contribution room for a tax-free savings account (TFSA).
  • The CRA normally has three years to reassess your return from the time it is filed. If you do not file for any given year the CRA can reassess that year at any time. A reassessment allows the CRA to scrutinize your return and make any required adjustments which are usually not in your favour. The three-year period does not apply in cases of fraud or intentional misrepresentation.

Recording Income

When you do file you must ensure that you record all sources of income, worldwide, accurately and completely. Our tax system is based on self-reporting. Not paying your taxes is against the law, whether it is a result of never filing a return or filing an incomplete or inaccurate return.

The consequences for deliberately avoiding taxes can be harsh. This could be because you did not fully report your income, falsely claimed expenses or simply did not file a return as required. Purposely misrepresenting tax information or avoiding taxes can result in criminal charges.

Second Chances

Under our tax system, the CRA has a policy of promoting voluntary compliance with our tax laws. Under the Voluntary Disclosures Program, taxpayers can come forward and correct inaccurate or incomplete tax information or disclose unreported information.

Under this program, taxpayers do not face prosecution and can have penalties reduced or eliminated. You still need to pay any taxes owing, plus related interest. One requirement for the program is that a taxpayer must apply before the CRA has contacted them regarding the tax years in question.

Keeping Records

You need to keep records of anything that is needed to establish or back up the information on your return (e.g., bank and credit card statements). The CRA requires that you keep financial records and any supporting documentation for a period of six years from the date of filing in most cases.


Once the CRA has processed your income tax return you will receive a Notice of Assessment summarizing the outcome.

Tax Enforcement

The CRA has many tools to address potential cases of tax evasion, fraud or non-compliance.


Canada's income tax system relies on people self-reporting their income completely and honestly. Audits encourage compliance and help detect issues with reporting.

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