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.
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.
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.