Filing Your First Tax Return in Canada

Understanding how taxes work can be initially daunting but it turned out to be much easier than we expected!  We’ve put together this guide below to help summarise the process of filing your CRA tax return in Canada.

Filing Your First Taxes Summary

Just to clarify, both my partner and I have spent our first year in Canada on a working holiday (IEC) visa. Contrary to what many advise, you can file your first tax return in Canada online.

You don’t have to mail it as long as you use an online service such as TurboTax or SimpleTax.

Both of these platforms have a free option that includes an easy-to-follow step-by-step process. Once you’ve entered all the required information, Turbo Tax or Simple Tax (depending on which you choose) will submit your return to the Canada Revenue Agency (CRA) on your behalf.

We found the process to be very straightforward. However, if you’re self-employed, have investments, or want to claim some deductions, then it may be beneficial for you to use some of the upgrade options with TurboTax or hire a tax consultant for maximum benefit. 

Once you submit your tax return online with either Simple Tax or TurboTax then the next step is to call Canada Revenue Agency to activate your CRA account.  They’ll give you an access code over the phone and will run you through the process of activating your CRA account.

Once you have submitted your return and have activated your CRA account you’ll be able to see your notice of assessment date. This date indicates when your return will be processed.  You can view this on your CRA account homepage. 

If you are eligible for a tax return, you will receive your money either by cheque or via direct bank deposit after your return has been processed.

Some TAX basics to keep in mind:

• In Canada, you’re paying a federal and provincial tax, depending on where you stay and work.

• All taxpayers are entitled to a federal tax-free allowance. It’s $14,398 (2022). Every province has a different tax-free allowance threshold. For example, in Alberta, it is $19 369 (2022).

• Canadian tax rates increase progressively with the amount of your yearly income. In other words, the more you earn, the higher tax you will pay. 

• The deadline to file your tax return is April 30th. This deadline relates to the previous year’s income.  Try to avoid late tax-filing penalties. The late penalty fee 5% of what you owe, plus 1% of your balance owing for each month after the deadline (to a maximum of 12 months).

• In order to file your tax return, you need to gather T4 slips from each employer you worked during the tax year. They are directly linked to your SIN number. 

• On your T4’s you will find information about your income tax (box 22), employee insurance (EI – box 18) and Canada pension plan (CPP – box 16). 

If your income is greater than the tax-free allowance you can reduce your tax by claiming some of the expenses listed below:

• Family and child care – The amount you can claim per child varies depending on your net income. For more info check this article. 

• Moving expenses – If you moved due to a new job or studies, you may qualify for a moving expenses deduction.  In order to be eligible for this deduction, your move has to be at least 40 kilometers closer to your new job or school in comparison to your previous location.  Deductions for moving expenses may include transportation, storage costs, travel expenses, temporary living expenses and costs related to selling your old home and buying a new one. In order to claim this benefit, you will need to keep all the relevant receipts. 

• TFSA (tax-free savings account) and RRSP contributions (registered retirement savings plan) – The contributions that you make to RRSP can be deducted from your tax claim. With RRSP you pay taxes once you withdraw the money. Your contributions to TFSA can’t be deducted from your taxes but can be withdrawn at a later stage tax-free. Any capital gains or interest accumulated in both TFSA and RRSP are tax-free.

• Medical expenses – The Canada Revenue Agency provides a list of medical expenses that may be tax-deductible.

• Student loan interest tax deductions – You can deduct from your taxes interest that you paid on your student loan. 

• Donations

• Disability support 

• Business expenses – Business expenses may include legal and accounting fees telephone and utility bills, travel expenses, meals and entertainment, insurance, property taxes, motor vehicle expenses …