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If it’s under, you have to pay more tax, and if it’s over, you get a tax refund. This means that how much you receive as a tax refund is also dependent on your tax situation.
When it comes to tax refunds, what you receive is determined when you file your annual tax return. This is where you submit what you’ve earned for the year, along with any deductions and exemptions that you may qualify for. If you don’t receive a refund, then you will find out your total taxes owed.
Is there a Maximum Tax Refund in Canada?
The nice thing about tax refunds in Canada is that there is no maximum amount you can receive. Tax refunds are individual and are based on how much you’ve paid in total in taxes and how much you actually owe.
When you file your annual tax return in 2024, there are tax credits and deductions you can claim. These deductions are based on your financial situation and the expenses that you incur throughout the year. Some examples of deductions that you can qualify for are:
- Medical expenses
- Tuition Tax Credit for expenses
- RRSP contributions (Registered Retirement Savings Plan)
- Charitable donations
- Home Accessibility Tax Credit
- Disability Tax Credit
- Moving expenses
- Employment expenses
- First-Time Home Buyers Tax Credit
These are just a few of the many different tax credits available. Even if your employer deducted your income tax directly from your employment income, you can still receive a tax refund when you file your return based on what deductions and credits you qualify for.
Income Taxes in Canada
When it comes to income taxes, the amount you owe in more taxes after you file your tax return is calculated by how much tax you’ve paid versus how much you owe based on your annual income. If you’re self-employed, the amount you pay is going to be the total amount you owe since you wouldn’t have had any income tax deducted during the tax year. If you’re employed, you’ll only have to pay more taxes if not enough tax comes out of your paycheques; if it does, you won’t owe anymore and may even get a tax refund.
That said, when you file your tax return as a self-employed individual, you’re able to reduce the amount you owe by submitting employment expenses as well as other deductions that you may qualify for. This can be a difficult process, though and is the reason that many who are self-employed have a tax professional that they hire to help them have the most accurate tax return possible.
Tax Overpayments
During tax time, it is possible that overpayments can happen, and you can end up giving the government an excess amount. What do you do if this is the case? Well, if the Canada Revenue Agency does happen to owe you money due to a tax overpayment, then it’s best if you contact them directly. Even if you don’t contact them directly regarding the overpayment, you’ll likely receive the money anyway; it could just take a lot longer.
Finding Out if You Have a Refund or Total Payable
When you file your annual tax return and fill out your T1 general form, you can calculate the estimated amount for your tax refund or balance owed. That said, this form is then sent to the CRA to be verified and filed online or by paper return through the mail. While a majority of the time, your T1 general and NOA match, if the CRA finds any discrepancies, then the amounts on your NOA will be different.
When you receive your Notice of Assessment (NOA), you’re going to see a breakdown of your annual tax return. It’s essentially an annual income statement that shows you how much you earned before and after taxes. If you look down the lines, you’ll notice that there’s a line 48400. This is the line that will show you your annual tax refund amount. If you owe money, this will be shown on line 48500. If you do happen to owe money, then you’ll have to make your payment by April 30 or May 1, depending on the tax year. This date will be mentioned on your NOA.
How Long It Takes to Receive Refunds
When and how long it takes to receive your income tax refund depends on when you submitted it and how the funds are being paid to you. The fastest way to receive your income tax refund is through direct deposit. As long as you've registered for direct deposit with the CRA, this is how you’ll receive your funds. It can take anywhere from 2 to 8 weeks for these funds to show up in your bank account.
When you file your tax return, it’s important to remember that how and when you file your taxes also makes a difference. Suppose you file right at the beginning of February. In that case, there might be a delay because often, the CRA doesn’t start processing income tax returns until the end of February, which can cause a delay in receiving your refund. Also, if you Netfile your tax return, you’re going to get your refund much faster than if you send your taxes in via mail.
If you send your tax return via mail, it can take up to 8 weeks to receive funds, even by direct deposit. If you’re receiving the funds from a paper cheque, it can take 10 weeks or even longer. When you Netfile your tax return, you can receive the funds in as little as two weeks as long as you are signed up for direct deposit. It can be 4 weeks or longer if you’re waiting for a cheque.
How Much You Receive With a $20,000 Annual Income
A big portion of what you receive as a refund is influenced by what you’re paid. If your employer deducted your income tax from your total income correctly and you have no deductions or exemptions to claim, then you probably won’t owe taxes or have to receive a refund. That said, this process is going to be different for everyone based on their personal finance situation.
With an income of $20,000, it’s hard to say what you will be taxed and if you’ll receive a refund. Do you qualify for any tax exemptions? Are there certain credits that apply to you? These are all things to consider. Even how much you pay in income tax is subject to where you lived as of December 31 of the tax year. This is because provincial and territorial taxes vary, while provincial taxes are the same for everyone.
Ways To File Your Annual Income Tax Return
In Canada, there are a few different ways to file your income tax return. The first and most common way is through an accountant or tax professional. They can help you find exactly what deductions and exceptions you qualify for to save the most money possible.
Another way that Canadian taxpayers file their taxes is by filing taxes online through tax software. These software come at a low cost and guide you through the tax process, offering helpful suggestions along the way. They also allow for the option of having your return looked over by a professional. This helps to reduce mistakes while helping you save money in the process. Through tax software, you can Netfile online and get your refund faster if you qualify for one.
You can also file your annual tax return via mail. While the process of doing your taxes by hand is complex and time-consuming, it’s still a way that many taxpayers like to file their returns. In order to file your return via mail, you’re going to need a Income Tax and Benefit Form Package that you can request directly from the CRA. This package will contain everything you need, including instructions, in order to file and what supporting documents you’re required to include.
How To Save On Your Taxes
In Canada, there are quite a few different ways you can save money on your taxes. Here are three of the most common ways.
Invest in RRSPs
RRSPs are a great way to reduce your tax bill while saving for retirement. How do they work exactly? Well, the portion that you invest into RRSPs isn’t taxed and isn’t considered part of your annual income. This means that if you make $47,000 and put $5,000 into RRSPs, then your total taxable income is now $42,000.
When investing in RRSPs, it is important to invest at most your annual limit. This amount can also be rolled over if you don’t use the whole amount for one year. While you aren’t taxed on RRSP amounts right away, you will be taxed when you withdraw them, but the idea is that this is when you retire and are in a lower tax bracket, reducing your tax bill.
Open a Tax Free Savings Account
TFSAs are a great tax-saving tool for those who invest. You can invest up your annual limit in TFSAs and avoid paying tax on your earnings. It’s important to remember that no earnings are included in your annual minimum for TFSAs; only amounts invested are.
Income Split With Your Spouse
For certain pension incomes, you can split the income with your spouse, reducing your overall taxable income and increasing theirs. While the total family income will be the same, there are some tax savings involved with income splitting.
Final Thoughts
With tax season around the corner and the cost of living being higher than ever, many Canadians are hoping for a good tax refund this year. That said, in order to receive a refund, you have to pay too much tax. Instead of just overpaying in taxes, a common way that taxpayers receive refunds is with tax deductions and non-refundable tax credits. These deductions and total credits help to reduce your taxable income, allowing you to receive more money back.
Only some receive tax refunds, though. That said, avoiding filing your taxes isn’t the answer to not paying either. Finding the deductions and exemptions you qualify for can greatly reduce your tax bill. If you’re self-employed, have a sole proprietorship, or own your own business, you can submit receipts for qualified expenses and reduce your tax liability that way as well. You can also set up quarterly tax payments to make your tax bill more manageable.
No matter how you look at it, though, everyone has to file their taxes. Even if you do end up having to pay, filing your taxes qualifies you for government benefits and other sources of income you may not qualify for if you don’t file. It also helps you to avoid any tax penalties in the future.
