Completing a basic tax return

The 6 steps explained

Step 1: Identification and other information

Enter personal information about yourself so the Canada Revenue Agency (CRA) can identify you and accurately calculate the benefits and credits you may be entitled to.

Step 2: Total income

Report your income from all sources that you earned or received during the year. The taxes you might owe are calculated based on your income.

Step 3: Net income

Claim various deductions to reduce your total income to your net income.

• Total income
• −minus Deductions
• =equals Net income

Step 4: Taxable income

Claim other deductions to further reduce your net income to your taxable income.

• Net income
• −minus Deductions
• =equals Taxable income

Step 5: Federal tax

Calculate the federal tax you owe on your taxable income by using your taxable income, the applicable tax rate and the non‑refundable tax credits you're entitled to.

• Taxable income
• ×multiplied by Federal tax rate
• −minus Federal non-refundable tax credits
• =equals Federal tax

Note: Federal tax will show up as Net federal tax on the paper return.

Step 6: Refund or balance owing

Determine the final result of your tax return by subtracting your total credits from your total payable. You will either be entitled to a refund or have a balance owing.

• Total payable
• −minus Total credits
• =equals Refund or balance owing

Filing your tax return electronically

There are many certified tax software you can choose from to do your taxes, some of which are free, and each is a bit different. When using a software, you will answer some questions at the start of the process about your personal situation. Some software make suggestions based on the questions you answered, while others do not provide suggestions and require you to enter certain amounts yourself.

Most software guide you through the process so you do not miss out on any deductions, credits or benefits that you may be entitled to. However, it is always a good idea to know what is available to make sure you are not missing out.

If you are using certified tax software, it will do the calculations for you automatically and may not show the individual steps.

Most software advise you of any issues or errors with your tax return so you can correct them before submitting the return to the CRA. Although the software does the calculations for you, you are ultimately responsible for the tax return that you submit, so it is important to understand how the calculations are completed.

Doing your taxes every year

It is very important to do your taxes every year, even if you had no income in the year.

The CRA uses the information from your taxes to determine if you are entitled to a tax refund or any benefit and credit payments, like the goods and services tax / harmonized sales tax (GST/HST) credit or the Canada child benefit.

Why provide information about yourself

When you fill out your income tax and benefit return , you must provide personal information so the Canada Revenue Agency (CRA) can identify you and accurately calculate the benefits and credits you may be entitled to.

This is Step 1 in filling out your tax return.

The CRA uses the information you provide in Step 1 of your tax return to send you important mail and to calculate certain benefits. Incorrect or incomplete information can cause delays or inaccurate calculations, so it is important to provide the information to the best of your knowledge.

The CRA ensures your information is kept confidential.

Providing your name, address and social insurance number

Full name

You must provide your first and last name.

If you are using certified tax software, the name you put on your tax return must match what is on file with the CRA. To change your name, please contact the CRA by phone or by mail.

Mailing address

You must provide your complete mailing address. You can update your mailing address on My Account or by contacting the CRA.

Social insurance number (SIN)

You must provide your SIN, which is a 9-digit number (for example, 111 111 111) that identifies you for income tax purposes. It also allows you to work in Canada and receive benefits and services from the government.

Your SIN is unique, personal and confidential. However, you must provide your SIN to your employer, your financial institution and certain government departments.

Providing your date of birth, language of correspondence and email address

Date of birth

You must provide your complete date of birth. The CRA uses your date of birth to check your identity.

The CRA must have your complete date of birth on record for you to submit your return electronically. You can contact the CRA to confirm what information is on file before doing your taxes electronically.

Language of correspondence

You must choose either English or French. The CRA communicates with you in the official language of your choice.

Email address

Enter your email address if you would like to receive some of your CRA mail electronically through My Account instead of by regular mail. If you choose this option, the CRA will email you to tell you when correspondence is waiting for you in your My Account.

Providing your province or territory of residence

You must indicate what your province or territory of residence was on December 31 of the tax year. This is usually the province or territory where you were living, but it may be different if you were living away from your usual home.

Your province or territory of residence determines what benefits and credits are available to you and what provincial or territorial tax rate applies to you, as these are decided by the provinces and territories. If you are using certified tax software, the software will fill out the appropriate forms and schedules for your province or territory of residence based on information you enter as you complete your return.

Providing your marital status

You must indicate what your marital status was on December 31 of the tax year. This information is used to determine your eligibility for certain benefits and tax credits and to calculate the amounts you may be entitled to.

Married

You have a spouse. This term only applies to a person you are legally married to.

Living common-law

You live in a conjugal relationship with another person who is not your spouse, and at least one of the following applies:

• you and the other person have lived together for at least 12 continuous months
  • Note: in this definition, 12 continuous months includes any period where you were separated for less than 90 days because of a breakdown in the relationship
• you have a child with the other person, by birth or through adoption, no matter how long you have been living together
• the other person has custody and control of your child (or had custody and control immediately before the child turned 19 years of age), and the child completely depends on the other person for support

Widowed

Your spouse or common-law partner is now deceased.

Divorced

You are legally divorced from your former spouse and are not in a new relationship that would result in one of the other noted marital status on December 31.

Separated

You have been living separate and apart from your spouse or common-law partner for at least 90 consecutive days due to a breakdown in your relationship.

Single

None of the above marital statuses apply to you

Registering with Elections Canada

You must indicate if you have Canadian citizenship and, if so, whether you want the CRA to share your information with Elections Canada.

The CRA will only share your:

• name
• address
• date of birth
• unique identifier

If you check “Yes” to both questions, your voter registration will be up-to-date, or you will add your name to the Register of Future Electors.

This ensures that once you turn 18, Elections Canada can add you to the National Register of Electors. You will be on the list of electors at your current address and ready to vote in any federal election.

Other questions you may need to answer

Entering or leaving Canada

If you became a resident of Canada in the tax year, you must provide your date of entry. If you left Canada in the tax year and became a resident of another country, enter the date of departure.

Residing on the settlement lands of Indigenous governments

In some provinces and territories, you are required to answer one or more questions to identify whether or not you resided on the settlement lands of an Indigenous government on December 31 of the tax year.

These Indigenous governments are:

• Nisga'a Lisims Government (in British Columbia)
• Nunatsiavut Government (in Newfoundland and Labrador)
• Tłı̨chǫ (Tlicho) Government and Délı̨nę Got’ı̨nę Government (in the Northwest Territories)
• 11 self-governing Yukon First Nations

Only the tax return for the provinces or territories that are listed above will include questions about residence on settlement lands.

Exempt income

You must indicate whether or not you have any income that is exempt from tax under section 87 of the Indian Act.

Entering personal information on your tax return

If you are using certified tax software, you enter your personal information at the start of the process. Based on the responses you provide, the software determines if more information is required before moving to the next step. The software may also use the information you provide in this section to determine if you are eligible for certain tax credits or if other forms need to be completed.

Below is an example of what the identification and other information page looks like on the tax return:

Example

Is this form hard to read? Don't worry, we will provide you with a link to the PDF (hi-res) version after this lesson.

Income explained

Income is amounts you earn or receive during the tax year through salary, social benefits, property, investments or professional activities. You could also receive amounts other than your salary from your employer, such as tips or occasional earnings from a second job.

In Step 2 of your income tax and benefit return, you must report your income from all sources for the tax year. This includes income from all sources inside and outside Canada. The total of these amounts is known as your total income.

The taxes that you might owe are calculated based on your income. The Canada Revenue Agency (CRA) operates several review programs to make sure that your income is reported correctly. If you do not report all of your income, you may have to pay penalties and interest as well as the tax you should have paid on the missing income.

Information slips explained

Most income you receive will be reported on an information slip, sometimes also called a tax slip. This is a tax document given to you by whoever paid you the income, such as your employer or financial institution. Your income information is reported on the slip in numbered boxes that each refer to a specific line on the tax return. Each information slip also has instructions about where to report the amounts on your tax return.

Different types of income are reported on different slips, so you might receive multiple slips if you had more than one source of income.

Even though not all your income will be reported on an information slip, such as tips or occasional earnings, you are still responsible for reporting it on your tax return. You should keep track of all the money you earn throughout the year, especially tips that are not recorded on your paystubs, so you are ready at tax time.

When and how you get your information slips

Most issuers must send you your slip by the end of February following the tax year. They can send you a physical or digital copy, but both formats contain the same information. If you have an online account with the issuer, you may be able to view your slips online.

The issuer must send a copy of your slip to the CRA. This means you can also access your slips through My Account, if you are registered for this service. You can register for My Account after you have filed your taxes for the first time.

Common types of income

Employment income

If you earned or received income from your employer, such as salary, wages, commissions, bonuses, gratuities, tips or honoraria, you’ll receive a T4 slip. You will see the amount to report on your tax return in box 14.

Other employment income (including tips)

This amount most commonly includes tips. You won’t receive an information slip for tips if your employer does not track them. This amount also includes occasional earnings, such as from babysitting or other odd jobs.

You are responsible for reporting all income earned or received, including in cash, even if you did not receive an information slip.

Employment insurance and other benefits

If you received benefits from Service Canada, such as EI or tuition assistance, you’ll receive a T4E slip. You will see the amount to report on your tax return in box 14.

Interest and other investment income

If you received this type of income from your bank or financial institution, you’ll usually receive a T5 slip, Statement of Investment Income. It uses various box numbers to report income.

You may not receive a T5 slip if the amount is less than $50, but you must still report the income. You should check your financial statements to confirm if you received this type of income during the year.

Scholarships, fellowships, bursaries, and artists' project grants

If you received any of these amounts during the year, you will receive a T4A slip. The full payments you received are shown in box 105. However, you may not need to report the entire amount on your tax return, depending on the type of scholarship received, what kind of education program you are enrolled in and whether you are in school full-time or part-time.

More common types of income

Payments from a Registered Education Savings Plan (RESP)

If you received taxable payments from an RESP during the year, you will receive a T4A slip. Educational assistance payments (EAP) are shown in box 042 and accumulated income payments (AIP) are shown in box 040. A refund of contributions is not shown on a slip, as these payments are not taxable and do not need to be reported on your tax return.

Social assistance payments

If you received social assistance, often from your provincial or territorial government, you’ll receive a T5007 slip. You will see the amount to report on your tax return in box 11.

While these payments are not taxable, you must report them to make sure any benefits you may be entitled to are calculated correctly. You will claim an offsetting deduction for the same amount in the next step of the process so you don’t pay any tax on this income. If you are using certified tax software, it will automatically calculate the amount of this offsetting deduction.

Income from the platform economy

The platform economy includes income earned through online activities such as sharing accommodation, buying and selling or providing freelance services. Income can also be earned through revenue from advertisements or product promotion through videos or pictures. If you participate in the platform economy, then you are likely considered to be self-employed and running a business. There is a self-employment income section on the tax return where you should report this amount.

Other income situations

Tax-exempt income

If you are registered or entitled to be registered as an Indian under the Indian Act and your income is exempt from tax under section 87 of the Indian Act, it is important to do your taxes every year, even if your exempt income is not reported on the tax return. This lets the CRA determine if you are entitled to a tax refund or to any benefit and credit payments.

You may also need to complete Form T90, Income Exempt From Tax Under the Indian Act, so the CRA can calculate your Canada training credit limit and your Canada workers benefit, if applicable. This form may also be used to calculate your family's provincial or territorial benefits.

Note: The CRA uses the term "Indian" because it has a legal meaning in the Indian Act.

Amounts that are not taxed

Certain amounts earned or received are non-taxable. You do not need to report these as income on your tax return. Non‑taxable amounts include most lottery winnings, most gifts and inheritances, and payments from programs like the GST/HST credit and the Canada child benefit.

Individuals with no income

If you did not make any money during the year, you do not need to enter any information in Step 2 of the tax return.

However, it is very important to do your taxes every year, even if you had no income in the year, so the CRA can determine if you are entitled to a tax refund or any benefit and credit payments.

Entering income on your tax return

Before doing your taxes, you must gather all available information about your income. This includes all of your information slips, as well as details about any income not reported on a slip, such as occasional earnings.

If you did not receive a slip in time to do your taxes, talk to the issuer first. You can also access your slips in My Account or by contacting the CRA. If you cannot get a copy of your slip, you can estimate your income using your paystubs or other financial statements.

It is important to note that certain boxes are for reference purposes only and the amounts they contain do not need to be reported on the tax return, as these amounts are already included in another amount. As in the example of a T4 slip, box 14 already includes amounts shown in certain other boxes, such as box 30, 32, 34 and 40.

Below is an example of the total income calculation page of the tax return:

Example

Is this form hard to read? Don't worry, we will provide you with a link to the PDF (hi-res) version after this lesson.

Using tax software to enter your income

If you are using certified tax software to do your taxes, the software asks you questions about your income. Each software is different. Some may ask if you had certain types of income, what specific slips you have, or if you have any income not reported on a slip. You have to enter the amounts shown in the boxes of your slips, as well as information about any income not shown on a slip. The software adds up the amounts for the same income types and puts the total on the appropriate lines.

It is your responsibility to make sure that you review the information you have entered into the certified tax software before you submit your tax return to the CRA. For example, if you worked for two employers during the year, check that the sum of your employment income is as shown in the software.

Deductions explained

Deductions are certain expenses and other amounts that you subtract from your total income or your net income when you fill out your income tax and benefit return. Because the taxes you owe are calculated using your income, deductions reduce the amount of tax that you may have to pay. Some deductions reduce your net income and others reduce your taxable income.

This is part of Step 3 and Step 4 in filling out your tax return.

The calculation of your net income is step 3 of your tax return, the calculation of your taxable income is step 4. If you are using certified tax software, it does these calculations for you automatically.

The Canada Revenue Agency (CRA) uses your net income to calculate the benefits and credits you may be eligible for, such as the Canada child benefit and the GST/HST credit. Your net income is also used to calculate certain tax credits in a later step on the tax return.

Your taxable income is used to calculate how much federal and provincial or territorial tax you may have to pay.

Common types of deductions

Registered pension plan (RPP) contributions

An RPP is a pension plan that your employer sets up and registers with the CRA. The purpose of an RPP is to provide you with a pension when you retire.

Usually, your employer deducts your RPP contributions from your pay cheque on a regular basis, and the total amount is shown in box 20 of your T4 slip. It may also appear on other receipts, as well as in box 32 of a T4A slip, Statement of Pension, Retirement, Annuity, and Other Income.

If you are using certified tax software, you enter the amount shown on your information slips or receipts, and the software enters the total on the correct line.

Registered retirement savings plan (RRSP) contributions

An RRSP is a retirement savings and investment plan that individuals can open an account for and contribute to. Deductible RRSP contributions can be used to reduce your income tax.

Your financial institution reports the amount of your contributions on a contribution receipt, which it usually issues in March of the following tax year.

You will need to know the amount of your contributions and your RRSP deduction limit for the year. You can find your RRSP deduction limit on your My Account or on your latest notice of assessment. If you are using certified tax software, the software may ask you if you want to claim a deduction for the contributions. It will then calculate (on a Schedule 7, RRSP, PRPP, and SPP Unused Contributions, transfers, and HBP or LLP Activities) your deduction and enter it on the correct line.

Union dues

Union dues are contributions that members make to their union to help fund the union’s activities. Usually, your employer deducts your union dues from your pay cheque on a regular basis, and the total amount is shown in box 44 of a T4 slip. It may also appear on other receipts.

If you are using certified tax software, you will enter the amount shown on your slips or receipts, and the software will enter the sum on the correct line.

Child care expenses

Child care expenses are amounts you pay for someone to look after an eligible child so you can do certain activities, such as:

• working
• running a business
• attending school (including carrying on research)

If you are using certified tax software, it may ask you if you have any dependant children and whether or not you paid any child care expenses for them. As well, the software may ask additional questions to determine if you are eligible for this deduction. If eligible, the software will calculate (on a Form T778, Child Care Expenses Deduction) your deduction and enter it on the correct line.

More common types of deductions

Moving expenses

You may be able to claim certain moving expenses you paid in the year if both of the following apply:

• you moved to work or to run a business, or you moved to study as a full-time student enrolled in a post-secondary program at a university, college or other educational institution
• you moved at least 40 kilometres closer to your new work or school

If you are using certified tax software, it may ask if you have any moving expenses. The software may also ask you about your move or your expenses to confirm you are eligible for the deduction. It will then calculate (on a Form T1-M, Moving Expenses Deduction) your deduction and enter it on the correct line.

Other payments deduction

You should calculate the other payments deduction for the following types of non-taxable income:

• workers' compensation benefits
• social assistance payments
• net federal supplements

If you are using certified tax software, it will automatically calculate the other payments deduction based on the amounts you have reported for the 3 types of income listed above. Generally, the deduction is equal to the sum of these income amounts. However, this may not be the case if net federal supplements are reported.

Northern residents deductions

The northern residents deductions consists of 2 parts:

• a residency deduction (for living costs)
• a travel deduction

You may qualify if you lived in a prescribed northern zone (Zone A) or prescribed intermediate zone (Zone B) on a permanent basis a continuous period of at least 6 consecutive months. This period can begin or end in the tax year.

If you are using certified tax software, it may recognize that you lived in a prescribed zone based on the address that you entered at the start of the process. It may also ask if you want to claim the northern residents deductions. You may need to answer additional questions to determine if you are eligible to claim these expenses and to calculate the amount you can claim. The software will then calculate (on a Form T2222, Northern Residents Deductions) your deduction and enter it on the correct line.

Entering deductions on your tax return

If you are using certified tax software, the software may use information you entered earlier in the process and ask you questions to determine which deductions you may be able to claim. For example, if you indicated that you have a child at the start of the process, the software may ask you questions about your child care expenses.

The software will do all the calculations for you on the tax return and on any necessary forms. If you enter amounts shown on your information slips, such as RPP contributions in box 20 of a T4 slip, the software will take those amounts and enter them on the correct lines.

Once you have entered all information applicable to your tax situation, the certified tax software will calculate all the deductions applicable to you. It will automatically calculate your net income and your taxable income by subtracting your deductions from your total income.

It is your responsibility to make sure that you review the information you have entered into the certified tax software before you submit your tax return to the CRA. For example, if you claimed child care expenses, check that this deduction is displayed on the appropriate line number.

Below is an example the net income and taxable income calculation pages of the tax return:

Example

Is this form hard to read? Don't worry, we will provide you with a link to the PDF (hi-res) version after this lesson.

Is this form hard to read? Don't worry, we will provide you with a link to the PDF (hi-res) version after this lesson.

Non-refundable tax credits explained

Non-refundable tax credits are amounts you claim to lower the amount of taxes you might owe. But if the total of these credits is more than the amount of taxes you owe, you will not get a refund for the difference.

This is part of Step 5 in filling out your tax return.

These are different from refundable tax credits, which reduce the amount you owe first and any remaining credit is refunded to you. Refundable tax credits are calculated at the end of the tax return, which is Step 6.

If you are using certified tax software, it will do the calculations for you automatically and may not show the individual steps.

Provincial or territorial non-refundable tax credits

You claim federal non-refundable tax credits to reduce your federal tax owing. Many of these credits have an equivalent that reduces your provincial or territorial tax owing.

These credits will usually have the same eligibility criteria. Some provinces and territories may also have other non‑refundable tax credits you can claim.

Claiming provincial or territorial non-refundable tax credits is part of Step 6 in filling out your tax return.

Note: If you lived in Quebec on December 31 of the tax year, you will calculate your provincial taxes by completing a separate provincial tax return for Revenu Québec.

More about non-refundable tax credits

Some non-refundable tax credits are based on your personal situation, while others are related to your employment income or expenses you may have paid during the year.

The value of each non-refundable tax credit varies between tax years. They are adjusted each year to allow for inflation and other factors.

The total of your non-refundable tax credits is multiplied by the rate that each federal, provincial, or territorial government apply on non-refundable tax credits. This means that you can claim a certain percentage of each credit. This percentage is pre-determined by each government. The resulting amount lowers the taxes you owe on your income.

Common types of non-refundable tax credits

Some non-refundable tax credits may be less if you are not a resident of Canada for the entire tax year. This page covers the non-refundable tax credits as if you were a resident for the entire tax year.

Basic personal amount

All individuals are eligible for this credit, and it is automatically calculated for you if you are using certified tax software. If your taxable income is below the basic personal amount, the taxes you owe on your income are reduced to zero.

Spouse or common-law partner amount

You can claim this credit if you supported your spouse or common-law partner during the tax year. You must reduce the amount of the credit based on their net income.

If you are using certified tax software, it will ask you to confirm your marital status. The software will prompt you to answer questions about your spouse or common-law partner. It will then calculate (on a Schedule 5, Amounts for Spouse or Common-law Partner and Dependants) the credit amount and enter it on the correct line.

Amount for an eligible dependant

You may, under certain conditions, be able to claim this credit if you supported a dependant child or family member on your own. The amount of this credit is calculated using the dependant’s net income.

If you are using certified tax software, you will need to indicate if you have any dependants. If you do, the software will then prompt you to answer questions to determine if you are eligible. It will then calculate (on a Schedule 5, Amounts for Spouse or Common-law Partner and Dependants) the credit amount and enter it on the correct line.

Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions through employment income

You can claim this credit if you made CPP or QPP contributions during the year. Your employer deducts these amounts directly from your pay and reports them in box 16 or 17 of your T4 slip.

If you are using certified tax software, you enter the amount shown on each T4 slip. The software will then complete a calculation using the amount of your contributions and your employment income and report the final amount on the correct line.

The software does this calculation on one of the following forms, depending on your situation:

• Schedule 8, Canada Pension Plan Contributions and Overpayment
• Schedule 8, Quebec Pension Plan Contributions
• Form RC381, Inter-Provincial Calculation for CPP and QPP Contributions and Overpayments

Employment insurance (EI) premiums through employment

You can claim this credit if you contributed to EI during the year. Your employer deducts these amounts directly from your pay and reports them in box 18 of your T4 slip.

If you are using certified tax software, you enter the amount shown on each T4 slip. The software will then report them on the correct line.

Canada employment amount

You can claim this amount if you report employment income. This credit provides recognition for work-related expenses.

Most certified tax software will automatically calculate the amount you are entitled to, based on your employment income. The software will then report the amount on the correct line.

More common types of non-refundable tax credits

Tuition amount

You can claim this credit for eligible tuition fees paid to a recognized educational institution. Generally, this includes post‑secondary institutions, such as universities or colleges, or other educational institutions where you gain skills to develop your career, such as a trade school.

You calculate the amount you can claim by using the information from the official tax receipt your educational institution provides you. This is most commonly Form T2202, Tuition and Enrolment Certificate. The receipt will show the tuition paid, as well as how many months you attended full-time or part-time. This slip should be available by the end of February following the year you paid the tuition fees.

You must report your tuition amounts in the year they were paid so that the Canada Revenue Agency (CRA) can update your account. However, you may not need to use all your tuition credits to reduce the taxes you owe that year. This could happen if you had a low income and no taxes to pay.

If you don’t need to use all your tuition credits, you can choose to transfer unused credits from the current tax year, up to the allowable maximum, to an eligible individual. This will help reduce the taxes the other individual owes.

Whether or not you choose to transfer your unused tuition credits, you can carry forward any unused credits until they are used up. You will need to claim those credits in the first year that you owe taxes. This could be once you start working full-time after you have graduated. Claiming these credits will reduce the taxes you owe on your income.

If you are using certified tax software, you will need to indicate if you are a student with tuition amounts to claim. You will enter the information from your T2202, as well as any amounts carried forward from a previous year. The software will prompt you to answer questions, such as if you want to transfer an unused amount to an eligible individual (such as a parent or a legal guardian). The software will then calculate (on a Schedule 11, Federal Tuition, Education, and Textbook Amounts and Canada Training Credit) the amount to claim on your tax return and enter it on the correct line. This amount will either reduce the taxes you owe to zero or use up your available credits.

Medical expenses

You can claim this credit for eligible medical expenses paid for yourself, your spouse or common-law partner, and eligible dependants. These expenses include prescription drugs, eyeglasses, or hearing aids.

You calculate the actual amount you can claim by deducting 3% of your net income (up to the annual maximum) from the amount of medical expenses paid.

If you are using certified tax software, you will need to indicate that you have medical expenses to claim. The software may ask you to add the expenses one at a time or as a total. The software will then calculate the amount you are able to claim using your net income and report it on the correct line.

Disability amount

You may be able to claim this amount if you have a severe and prolonged impairment in physical or mental functions. To make the claim on your tax return, you must have applied and been approved for the disability tax credit (DTC). You may also be able to claim an amount transferred from a dependant who is eligible for the DTC.

If you are using certified tax software, you will need to indicate that you have a DTC approved by the CRA. Based on the responses you provide, the software will claim an amount on the correct line.

Claiming non-refundable tax credits on your tax return

If you are using certified tax software, the software may use information you entered earlier in the process and ask you questions to determine which non-refundable tax credits you may be able to claim.

The software will do all the calculations for you on the tax return and on any necessary forms.

It is your responsibility to make sure that you review the information you have entered into the certified tax software before you submit your tax return to the CRA.

Below is an example of what the calculation of your federal non‑refundable tax credits looks like on the tax return:

Example

Is this form hard to read? Don't worry, we will provide you with a link to the PDF (hi-res) version after this lesson.

Is this form hard to read? Don't worry, we will provide you with a link to the PDF (hi-res) version after this lesson.

How tax is calculated

Once you have established how much of your income is taxable, you will complete the federal tax calculation in Step 5 of the income tax and benefit return.

This calculation uses your taxable income, the tax rates that apply, and the tax credits you are entitled to claim. These amounts will determine how much federal taxes you might owe.

If you are using certified tax software, it will do the calculations for you automatically and may not show the individual steps.

Note: Federal tax will show as "Net federal tax" on the paper return

Determining the amount of federal tax on your taxable income

Canada has a progressive income tax system, which means you pay more tax as your income increases.

The taxes you pay are determined by which of the 5 tax brackets your income falls into. A different tax rate applies to each tax bracket but only to the income within that bracket. The higher tax rate does not apply to all your taxable income. The same tax brackets are used for all types of income, such as employment income or occasional earnings.

Tax brackets

Tax brackets

Video series

3:15

The one about tax rates

Alternative link for video opens in a new window

 

Transcript

 

Test yourself

 

The income tax system determines how you calculate the tax you may owe on your income.

What type of income tax system do we have in Canada?

• A regressive tax system
• A progressive tax system
• A flat-rate tax system

Check your answer on Canada's tax system.

Sorry, that's incorrect.

In this type of tax system, the larger your income is, the less tax you pay.

Canada has a progressive tax system. In this type of tax system, you pay a higher tax rate as your income increases. Each higher tax rate applies only to the income in its respective tax bracket.

That's correct.

Answer: "A progressive tax system"

In this type of tax system, you pay a higher tax rate as your income increases. Each higher tax rate applies only to the income in its respective tax bracket.

Sorry, that's incorrect.

In this type of tax system, you pay the same tax rate as everyone, no matter how much income you earn.

Canada has a progressive tax system. In this type of tax system, you pay a higher tax rate as your income increases. Each higher tax rate applies only to the income in its respective tax bracket.

The federal income tax rates apply to all provinces and territories.

Current federal tax rates and income tax brackets

Example of calculating tax in the first tax bracket

This example uses the federal tax rates for 2022.

Giovanni’s taxable income was $10,000. Because he made less than $50,197, his income falls into the first tax bracket. The 2022 tax rate for this bracket is 15%.

Note: The tax brackets are not to scale. The tax rates are updated every year.

When Giovanni does his taxes, the federal taxes he owes on his income are calculated like this:

• Giovanni is taxed at 15% rate on his income of $10,000
  • 15% ltmuiplied by $10,000 =equals $1,500

Calculating taxes on your taxable income is only the first step. Don't worry, you will apply your non-refundable tax credits and refundable tax credits later in the process, which will reduce this amount.

Example of calculating tax in the third tax bracket

This example uses the federal tax rates for 2022.

Maria’s taxable income was $105,000. Because she made between $100,392 to $155,625, her income falls into the third tax bracket. The 2022 tax rate for this bracket is 26%. Maria will not pay taxes at the 26% rate on the whole $105,000 but will pay a different tax rate for each level of her income based on the federal income tax brackets.

Note: The tax brackets are not to scale. The tax rates are updated every year.

When Maria does her taxes, the federal taxes she owes on her income are calculated like this:

1. Maria is taxed at 15% rate on the first $50,197
   • 15% ×multiplied by $50,197 =equals $7,529
2. Maria is taxed at 20.5% rate for the income between $50,197 and $100,392
   • 20.5% ×multiplied by ($100,392 −minus $50,197) =equals $10,289
3. Maria is taxed at 26% rate for the income between $100,392 and $105,000
   • 26% ×multiplied by ($105,000 −minus $100,392) =equals $1,198
4. Maria calculates the total federal taxes on her $105,000 taxable income by adding the results from calculations 1 to 3
   • $7,529 +plus $10,289 +plus $1,198 =equals $19,016

Both Giovanni and Maria have calculated only the first part of the net federal tax calculation. The amounts calculated here will be reduced as the process continues.

Calculating your net federal tax

The next step is to calculate your non-refundable tax credits. You will then subtract your federal non-refundable tax credits from the total taxes you calculated on your income. The result of this calculation is your net federal tax.

Basic personal amount

The first federal non-refundable tax credit is the basic personal amount. The basic federal personal amount is $14,398 for the 2022 tax year. In general, anyone with a taxable income below this amount does not have to pay federal income tax.

The non-refundable tax credit rate

Your non-refundable tax credits are also multiplied by a non‑refundable tax credit rate. This means that you do not apply the full value of your non-refundable tax credits against the taxes you owe on your income. A percentage, pre-determined by the government, lowers the taxes you owe on your income.

Calculating your provincial or territorial tax

You’ll do a similar calculation to figure out the provincial or territorial taxes you might owe. The tax rates and income tax brackets are different from one province or territory to another.

Note: If you lived in Quebec on December 31 of the tax year, you will calculate your provincial taxes by completing a separate provincial tax return for Revenu Québec.

Current provincial and territorial tax rates and income tax brackets

Provincial and territorial tax rates (combined chart)

Entering tax calculations on your tax return

If you are using certified tax software, the software may use information you previously entered and ask you additional questions to calculate your net federal and your net provincial or territorial tax. The software will fill out the correct federal and provincial or territorial forms (the tax return itself and any schedules).

Below is an example of what the federal tax calculation looks like on the tax return:

Example

Is this form hard to read? Don't worry, we will provide you with a link to the PDF (hi-res) version after this lesson.

Is this form hard to read? Don't worry, we will provide you with a link to the PDF (hi-res) version after this lesson.