Taxes in Canada can be pretty heavy and the tax rates in the country differ from one region to another, e.g. Quebec is known to have the highest tax rates while Alberta has lower tax rates. All the responsible citizens of the country pay their taxes on the income they have earned, while some taxes are easy, others are pretty difficult to understand.
We are here to help you understand how you can calculate your taxes, so continue reading to understand.
Understanding the taxes
The Tax Act and the condenses of the T1 tax filing and related forms layout certain rules for filing your income. There are many ways of income that are not taxable, while some are taxable. Understand which are eligible for tax-deductibility so your business can grow and you can help your family. So, what is taxable and non-taxable income?
Non-taxable income
Several tax credits and tax deductibility are present, which are overlooked by taxpayers. The income which you are getting needs to be recurring to fall under the taxing. The people are unaware of these pieces of information and thus miss out heavily on the personal and business tax deductions and credits. Some underclaimed tax credits are working income tax benefits and the credits from the disability tax, e.g. a person diagnosed with diabetes, can apply for the disability credit. This can lead to getting several grands of tax credit returns.
The T1 General Tax Return is divided into the following steps.
- Add lines from 101 to 150, making 150n as your total income before doing any deduction.
- Calculate net income by adding lines from 206 to 236. Then you can reduce your income by doing deductions from line 150.
- Get total tax payable on line 435 which can be calculated by including the contributions to the taxable income Canada and your repayment.
- Now you can subtract the taxes that you have to pay in a year and the refundable credits from your total tax. This is present in the bottom-most line.
What are the Non-Taxable amounts?
Several amounts exist which cannot be taxed in Canada. However, you must report them for the calculation of benefits. Some non-taxable amounts are,
- Lottery winnings
- Child Assistance payments
- Strike pays
- Disability amounts
- Government compensations
- Inheritances and gifts.
- Compensation benefits to workers, including the benefits of wage-loss repayment.
- Amounts from a tax-free savings account (TFSA)
- Elementary and secondary school scholarships and bursaries
- GST and HST credits
- Child benefit payment
The point that you should note is that these amounts are not taxable independently, but the income they will generate in the following year is taxable. Besides the income, even the interests these amounts will generate are taxable.
Taxable income
The income tax in Canada can be calculated easily by adding all the income so you get all the income you have earned in a year. Now, you can subtract the tax deductions and personal deductions from the total amount to get the net income of the year. Now, you have to apply the deductions you are eligible for from the line 260. If you use tax software, you can witness the payable amount of your tax-reducing as you are entering the deductions specified for you.
What does total income contain?
The total income includes the amounts,
- Employment income
- Commissions
- Business income
- Old age security pension
- Disability benefits
- CPP or QPP benefits
- Wage loss replacement contributions
- UCCB amount for dependent
- Other pensions
- Elected split-pension amount
- Employment insurance
- Superannuation
Now you can calculate the net income present on line 236 and deduct the adjustments from the total income. To get the taxable income, you need to subtract the specific deductions on line 260.
You should know that the provincial and the federal taxes are dependent on the taxable income, except in the region of Quebec. Schedule 1 utilizes the mentioned taxable income to calculate the net federal tax you need to pay on line 62. Now you can enter the solution of the return from schedule 1 to the line 420 of the return you get.
Calculating taxes and returns can be tedious, however, if you follow the mentioned steps, you will sail through the process.