As a result of the COVID-19 pandemic, the federal government extended the tax filing deadline for individuals to June 1, 2020, from April 30, 2020. At the same time, the deadline to pay any taxes owing was also extended. Those are now due on September 1, 2020, instead of April 30, 2020.
This is good news for Canadians who have trouble trying to meet the deadline, anyone who’s been affected by COVID-19 personally, and those who owe the government money but don’t have the funds to pay just yet.
The Benefits of Filing Your Return Now
While the deadline is still weeks away, it’s best to submit your tax return as soon as possible, especially if you expect to get a refund. However, if you don’t file before the deadline, you (or spouse/common-law partner) may not receive any government benefits, such as the GST/HST credit payment or the Canada Child Benefit (CCB).
But if you owe taxes, filing your return late can also result in penalties. The Canada Revenue Agency (CRA) will charge a penalty of 5% of your what you owe, plus another 1% of what you owe, for every month your return is late, up to a maximum of 12 months (or a total of up to 17%). For example, if you owe $1,000 for the 2019 tax year and wait until June 2021 to file your return, you’d also have to pay a $170 penalty. That doesn’t even include the interest you would have to pay on the taxes you owe.
If you’re expecting not to get a refund, you should also file now, so you will know how much you owe the government. This preparation will hopefully give you time to save the amount that is due.
Why You May Owe the Government More Money
Canadians with part- or full-time jobs automatically have taxes deducted regularly from their pay. Those who work for just one organization in a calendar year aren’t likely to owe any additional taxes after they file their return.
However, if you work for more than one employer at the same time, have a side hustle, or own income-producing investments (such as GICs, stocks, or a property), you’ll likely owe the government money on top of what you already paid over the course of the previous tax year.
Determining how much you owe is relatively simple. An easy solution is to gather all your tax slips (such as T3s, T4s, T4As, and T5s) and any other documents that show how much income you earned. Then plug those numbers, any RRSP contributions, and the income tax deducted into a 2019 tax calculator. That will give you a rough idea of whether you owe tax or will receive a refund.
Let’s use an example of an Ontario resident who earned $55,000 at their full-time job and also earned $5,000 on the side last year. They didn’t earn any additional income, nor did they make an RRSP contribution, but they paid $9,261 in tax. The tax calculator estimates this person will owe $1,435 in tax since they didn’t pay tax on the extra income earned.
Again, this is just a rough estimate of what someone would owe. These numbers will vary if you make an RRSP contribution or have additional income.
File Your Taxes as Soon as Possible
Many Canadians have taken advantage of the federal government’s decision to extend the filing deadline. According to the CRA, just 17.2 million Canadians have filed their returns as of May 4 compared to the 28.5 million returns filed last year.
The CRA notes that, on average, the people who were entitled to a refund received $1,809 each. This figure should offer some encouragement to those who have yet to file their taxes.
If you’re old school, you can fill out a paper return. But if you want to file your taxes and possibly get a refund sooner, filling out an online return is your best bet. The CRA has a list of certified tax software providers if you’re unsure where to start. There are free, pay-what-you-want, and paid options. In most cases, the free option is good enough for the average user.
How to Reduce the Amount of Tax You Pay
No one likes to pay taxes, so finding ways to reduce how much you pay can be rewarding. If you are eligible, you may be able to claim several tax deductions to reduce your tax bill. Here are just a few:
- Donations: Giving money to your favourite causes may also allow you to qualify for the charitable donation tax credit if the CRA deems them to be a qualified donee.
- Health and medical costs: Prescription drugs and medications, dental visits, and laser eye surgery are some of the medical expenses you can claim.
- Expenses for child care: Having someone take care of your children can be costly. However, the CRA allows you to claim some child care expenses.
- Investment interest costs: If you borrow money for investments that produce interest income or dividends in a non-registered account, you can claim the interest expenses.
Your Next Steps
Filing your taxes sooner rather than later can get your refund in your hands faster if you qualify for one. But not filing your tax return before the deadline can lead to financial penalties in the event you owe the government money. That’s why you should get to work on your taxes before the June 1 deadline. And if you do owe, you still have until September 1 to pay the CRA.