My friend got dinged the other day by the Canada Revenue Agency (CRA) because she didn’t file a tax return.
She figured that because she had an income of $20,000 a year (from a rental property), and her expenses (the fees/taxes) also equalled $20,000 a year, it cancelled each other out to $0 and she didn’t need to pay or file any taxes.
*facepalm*
She was mixing up the two ideas that her income equalled her expenses for the income property, so therefore she didn’t need to pay a thing.
It is like saying that because I live in an apartment and go to work to pay for said apartment, which all nets out to zero at the end, I don’t need to pay a thing.
LOL.
Income = Taxation
I do not need to tell you (I hope) how silly it is to assume that.
Now she has 2 years of back taxes which will cost her at least $6000 (federally) and $2000 (provincially), PLUS THE INTEREST CHARGED ON THE OUTSTANDING LOAN.
Yes. The government of Canada charges you interest for back taxes, at a rate of about 2% I believe (dang!), which means an additional $800 or more (I think they compound monthly, but..I am not sure)
Total back tax bill for her? $8800 at a minimum.
Here’s the rule in Canada:
If you earned income (any income, even $1), you must pay at least 15% taxes on it (federally) and a percentage provincially (varies by province from 4% – 11%).
You must report it. I don’t care if your income coming in is X amount, and your expenses were Y amount and in the end it WOULD net out to $0.
FILE A TAX RETURN TO SAY SO.
Did you earn $1?
So to recap: if you earned even $1 this year, you need to pay $0.15 in taxes to the government, and up to $0.11 to the province you’re in.
Otherwise, yes, if you earned $0 (nothing at all, which is NOT your case), you don’t need to technically file a return but you should anyway.
Filing a tax return can get you a lot of credits and things you never knew existed including income splitting with a spouse.
