Canadian Income Tax -- FAQ

You need to file a return if your tax paid previously is not enough for covering this year's tax owing; you want a tax rebate; you want to apply for the GST credit, and you want to apply for CCTB.C281

2. If I don't have any income during the year, do I still need to file a tax return?

We suggest you to file a return if you are 18 years of age or older even if you don't have any income. By filing a tax return, you can:

apply for the GST credit. (Although you must be 19 years old to receive the credit, you should still apply for it if you will turn 19 before Apr. 1 of the following year. You will receive your first GST rebate as soon as you turn 19 by doing this.)
start to accumulate your "earned income" for RRSP contributions (even if your net income is not enough to pay tax). Your earned income can be carried forward indefinitely.
continue to receive Canada Child Tax Benefit (CCTB) payment for your children (but you and your spouse must both file tax returns in this case).
automatically renew your GIS (Guaranteed Income Supplement) if you are a senior and receiving the GIS.

3. Do I need to file both tax returns if I have a small business?

It depends on whether your business is incorporated or not. A corporation is a separate legal entity which can own property and enter into contracts in its own name. Therefore, you need to file both T1 and T2 returns if your business is incorporated. If your business is not incorporated, then you only need to file T1 tax return because you and your business are considered a single entity.

4. Should I pay myself a salary as the owner of the small business?

If your business is not incorporated, you and your business are considered a single entity by the CRA. Therefore, whether or not you pay yourself a salary is irrelevant for tax purposes. In contrast, if your business is incorporated, whether or not you pay yourself a salary is a tax planning issue. We recommend you to seek professional advice to minimize your tax pay.

5. What kind of income do I need to declare when I file the tax return?

If you are a Canadian resident, you need to declare your worldwide income when filing your tax return.

If you are a part-time resident of Canada, you need to file tax returns for the worldwide income that you earned while you were resident in Canada.

If you are a non-resident, you need to pay tax for the following kinds of income: income that you generated from Canadian sources (including your employment income and business income); capital gain that you earned from disposing a taxable Canadian property; and scholarship, bursary, and other financial support that you receive from Canada.

6. If I have some income that is exempt from tax under the Income Tax Act, do I still need to declare this income?

Yes. Declaring the income does not mean that you need to pay the tax for this income.

7. Why do I need to tell the government whether I own/hold a foreign property with a total cost of more than CAN$100,000?

You need to file the value of a foreign property accorded to its market value so that the government will know whether you have a capital gain or loss when you dispose your foreign property.

8. Is the sale of real estate taxable?

The gain you generated from selling a real estate is a capital gain, unless the real estate is your principal residence, or the property has been developed and sold as a business endeavour. The government will levy tax on 50% of the capital gain. If it is considered a property development business transaction, the entire profit on the sale is taxable.

9. If I change the use of my property, what kind of tax consequences will happen?

A deemed disposition is occurred whenever there is a change in use of real estate, either from principal residence to income- producing, or from income-producing to principal residence. The deemed disposition can result in a capital gain if the fair market value of the real estate at the time of change use is greater than the adjusted cost base of the property. However, any gain resulting from this deemed disposition can be eliminated by the principal residence exemption if the property has always been the taxpayer's principal residence.

10. What happened if I only change use for part of the property?

When you only change use for part of the property, a deemed disposition only apply to that portion of the property.

11. I made donations this year, but do I have to claim it in this year's return?

It is not necessary to claim donations in the year when they are paid. They can be carried forward for up to 5 years.

12. If I owe more taxes than what I can pay by the tax-filing due date, can I file my tax return later?

Filing late tax return will result in penalty and interest on the balance owing; therefore, it is wise to file tax return on time to avoid extra cash outflow.

13. What should I do if I can't afford the whole tax payment at a time?

You need to contact CRA's Tax Services Offices. They will help you to set up a mutually acceptable payment schedule.

14. How long do I need to keep my business records?

CRA states that "if you file your tax return on time, keep your records for a minimum of six years after the end of the taxation year to which they relate". In the case of you filed a tax objection or appeal; you should keep your records until the issue is settled, and until the time limit for filing any further appeal has expired.

15. What is the reassessment period?

The reassessment period depends on the facts leading to the reassessment. If a taxpayer makes a misrepresentation attributable to neglect, carelessness, willful default, or fraud, the CRA is not subject to any limitation period and can reassess the taxpayer at any time. Otherwise, CRA can reassess a taxpayer only within a period of three or six years (certain types of claims and tax losses) from the date that it mails the taxpayer's Notice of Assessment.

The normal reassessment period for a Canadian-Controlled Private Corporation (CCPC) is 3 years; while it is 4 years for mutual funds and corporation other than CCPC.

16. What should I do if I do not agree with the Notice of Assessment?

You should try to contact the Client Services Section of your tax services office to discuss the matter. If the disputes still cannot be resolved, then you could file a Notice of Objection. There are time limits for doing so, however.

If you are an individual (other than a trust), or filing for a testamentary trust, the deadline for filing an objection is the later of the following two dates:

one year after the date of the return's filing deadline; or

90 days after the day CRA mailed the Notice of Assessment.

All taxpayers other than those stated above should file the Notice of Objection within 90 days of the mailing of the Notice of Assessment from CRA.

17. What should I do if I do not agree with CRA's decision on my objection?

You can appeal to the Tax Court of Canada. The Tax Court of Canada has to receive your appeal notice within 90 days of the date CRA mail their decision (a notice of reassessment or a notice of confirmation) on your objection. You can also appeal to the Court if CRA do not give you a decision on your objection within 90 days of the day you filed it.

You can appeal a judgment of the Tax Court of Canada to the Federal Court of Appeal. You have to file the appeal within 30 dates of the date of the Tax Court's judgment. (the months of July and August are excluded from the 30-day calculation.)

Finally, you can appeal a judgment of the Federal Court of Appeal to the Supreme Court of Canada. However, you need to get the Supreme Court's permission first. The Supreme Court of Canada is the final appellate tribunal.

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Last Update: February 21, 2005