If you have no income to report to the Canada Revenue Agency, or you have a small amount of income and no income tax owing, you have no requirement to file an income tax return.
However, I still strongly urge you to file a return anyway. Here’s why.
There are a number of tax credits and government benefits that are based on tax returns. Refundable tax credits could put cash in your pocket.
These include the GST tax credit, paid quarterly to low-income Canadians, and related provincial programs.
The Canada Child Tax Benefit (CCTB) may also be payable monthly, if you have minor children and low income, but if you have a spouse or common-law partner, they must also file a tax return in order to collect.
While we’re talking about children, there is also a National Child Benefit (NCB) supplement, which is a monthly benefit paid to low income families with children. This is a joint initiative of the federal, provincial and territorial governments and First Nations. This benefit requires a separate application, and is not automatic with your tax return.
Pamphlets are available for all of these programs at CRA or Service Canada, with access to all of this on the CRA website.
Back to tax returns, young people with any earned income will want to file even if they have no tax to pay, as filing is the only way they can start to build up RRSP room that they may wish to use later. Earned income includes employment, net self-employment and net rental income. If a student works summers, for example, and earns $10,000, no tax is required to be paid. However, that student would have $1,800 of RRSP room to use in the future if they filed a tax return. (They would also probably be eligible for the GST tax credit.)
In the case of post-secondary students, they will have tuition and education credits that they might not need in order to eliminate their taxes completely. If this is the case, they have a choice of transferring those credits to the tax return of the supporting parent or grandparent, or carrying them forward to future years.
If no tax return is filed, then those credits are wasted.
CRA encourages you to file online, using Net File. Info is at www.netfile.gc.ca . At this website, there is also information on eligible tax preparation software programs, many of which are available free of charge.
GenuTax, StudioTax, easyCTAX, SimpleTax and AdvTax are all available free, and some other vendors offer free versions of their software under certain circumstances.
Note that you cannot use Net File for a first time tax return, an amended return, a return for earlier than 2013, or a return for another person. Other restrictions include bankrupt or non-resident taxpayers, or if taxpayers with business income from a business outside the taxpayer’s province of residence.
EFILE is the other method of online filing, used by most professional tax preparers. To the end of March, CRA reports that 83.5% of all returns had been filed electronically using one of the two methods, versus 16.5% on paper. Clearly, they are making headway, and cutting overhead in the same way all other businesses have done by using technology.
This week, there was an interruption in the ability to file, as CRA had to shut down their website due to security concerns. In that way, they are subject to the same risks and challenges as other businesses.
Since paper returns are ultimately entered into the computer system, I’m not sure there’s any difference in the security risk, but I’ll leave that up to the computer experts. One thing for sure - CRA will never ask you for personal information by sending you an email. Be aware that any such requests are a scam.
Stay safe, and enjoy spring!
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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.
Please consult legal, tax and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIMis a financial planner and advisor with Christianson Wealth Advisors, a Vice President with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.