3 Main Components of a Basic Tax Return

The basic tax return can be broken down into three main components: income, deductions from income, and non-refundable tax credits.

1. Income

You must report your income from all sources including: employment, Old Age Security (OAS), Canada Pension Plan (CPP) or Quebec Pension Plan (QPP), other pensions, universal child care benefit, Employment Insurance (EI), dividends, interest, capital gains, self-employment, rental and any other income that is deemed “taxable”. Income from sources such as Workers’ Compensation, Social Assistance, and OAS net federal supplement must also be reported, although generally, you can deduct these amounts from your taxable income using the “other payments” deduction in the return. The income from all of these and from any other sources comprises your total income.

You can usually determine the income from each source by reviewing your information slips:
1. T4 – employment
2. T4A(OAS) – OAS
3. T4A(P) – CPP or QPP
4. T4A – other pensions and other income
5. RC62 – universal child care benefit
6. T4E – EI
7. T5 – dividends and interest

If reporting self-employment or rental income you must provide an income and expense statement which details your total income for the year, a breakdown of operating expenses, and your net income or loss. My related article, “Income Tax and Self-Employment”, contains information pertaining to business operating costs which can be included as expenses.

2. Deductions

There are a number of allowable deductions which will reduce your total income. The most common which apply to many tax filers include:

1) Registered Pension Plan (RPP) deduction – the amount contributed to your pension plan at work and found on your T4 information slip.
2) Registered Retirement Savings Plan (RRSP) deduction – the amount contributed to your RRSP and found on your contribution receipt, which is sent from your financial institution or investment broker.
3) deduction for elected split-pension amount – requires completion of form T1032.
4) annual union or professional dues – these amounts are found on your T4 or receipts.
5) child care expenses – requires completion of form T778.
6) disability supports deduction – requires completion of form T929. This deduction can only be used by the person with the impairment and covers such things as personal attendant care and other disability supports expenses which allow the person to attend school or earn income.
7) moving expenses – requires completion of form T1-M. These include expenses incurred when you move for work or education purposes, and the distance involved must be at least 40 km closer to your new work or school.
8) support payments made – for example, payments to a spouse as required by a separation agreement or court order.
9) carrying charges and interest expenses – requires completion of Schedule 4. These are fees and interest paid to earn income from investments.
10) deduction for CPP or QPP contributions on self-employed earnings – requires completion of Schedule 8.
11) other employment expenses – requires completion of form T777. These include certain expenses which are paid by the individual to earn employment income.
12) clergy residence deduction – requires completion of form T1223.
13) social benefits repayment – use the federal worksheet to calculate your repayment of certain benefits including OAS, EI and net federal supplement, if applicable.

These and other specific deductions which may apply to you, as described in the Income Tax and Benefit Guide, are deducted from your total income to determine your taxable income.

3. Non-refundable tax credits:

Your federal and provincial income taxes are calculated as a percentage of your taxable income. There are a number of non-refundable tax credits which you can claim to further reduce your tax payable. The most commonly used include:

1) Basic personal amount
2) Age amount (65 years or over)
3) Spouse or common-law partner amount
4) Amount for an eligible dependent – complete Schedule 5
5) Amount for children (17 years or under)
6) Amount for infirm dependents (18 years or older) – complete Schedule 5
7) CPP or QPP contributions – through employment as per T4 slips and through self-employment (complete Schedule 8)
8) Employment Insurance premiums – through employment as per T4 slips and through self-employment (complete Schedule 13).
9) Volunteer firefighters’ amount
10) Canada employment amount
11) Public transit amount
12) Children’s fitness amount
13) Children’s arts amount
14) Home buyers’ amount
15) Adoption expenses
16) Pension income amount – use the federal worksheet
17) Caregiver amount – use the federal worksheet
18) Disability amount
19) Interest paid on student loans
20) Tuition and education amounts – complete Schedule 11
21) Amounts transferred from spouse or common-law partner – complete Schedule 2
22) Medical expenses
23 Donations and gifts – complete schedule 9

These non-refundable tax credits and other specific tax credits which may apply to you, as described in the Income Tax and Benefit Guide, are deducted from your federal and provincial tax to determine your tax payable.

Related: Please see the articles “Income Tax and Self-Employment“ and “Income Tax – The Agony and the Ecstasy

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