Personal Tax Frequently Asked Questions
Filing Basics
Q: When is the deadline to file my personal tax return?
A: The deadline is April 30 each year. If you or your spouse/common-law partner are self-employed, the filing deadline is June 15, but any taxes owing are still due by April 30.
Q: What happens if I miss the filing deadline?
A: The CRA charges a 5% late-filing penalty plus 1% per month (up to 12 months) on any balance owing. Interest also accrues daily. Filing on time avoids these costs, even if you can’t pay in full right away.
Q: Do I still need to file if I don’t owe any tax or have no income?
A: Yes, it’s usually a good idea. You may be eligible for benefits and credits (such as GST/HST credit or Canada Child Benefit), but you must file to receive them.
Q: What documents do I need to provide you to prepare my return?
A: Common documents include T4s (employment), T5s (investment income), T3s (trust income), RRSP contribution slips, tuition receipts, donation receipts, and medical expense summaries. We’ll provide you with a checklist each year.
Deductions & Credits
Q: What deductions or credits am I eligible for?
A: That depends on your situation. Common deductions include RRSP contributions, child care expenses, and moving expenses (in certain cases). Credits include medical expenses, charitable donations, tuition, and disability credits.
Q: Can I claim medical expenses, and what qualifies?
A: Yes. Eligible expenses include prescription medications, dental care, vision care, certain travel expenses for medical treatment, and medical insurance premiums. Keep all receipts.
Q: Can I claim child care expenses?
A: Yes, if paid for daycares, day camps, babysitters, or nannies, provided the child is under 16 (or has a disability). Usually, the lower-income spouse must claim the expense.
Q: How do tuition and education credits work?
A: Students can claim tuition paid to post-secondary institutions in Canada (and some abroad). Unused credits can be carried forward or transferred to a parent, spouse, or grandparent.
Q: What’s the difference between a tax credit and a tax deduction?
A: A deduction reduces your taxable income, while a credit directly reduces the tax you owe.
Family & Income Splitting
Q: Can I split income with my spouse or children?
A: Income splitting is limited. You may be able to split pension income or use spousal RRSPs, but most other forms of income splitting are restricted by attribution rules.
Q: Can I transfer unused tax credits to my spouse?
A: Yes. Certain credits (tuition, age amount, disability, pension amount) can be transferred if not fully used by the individual.
Q: How does pension income splitting work?
A: If you receive eligible pension income, you may allocate up to 50% to your spouse on your tax return, often reducing your combined tax bill.
Investments & Property
Q: What are the tax implications of selling my home?
A: If it’s your principal residence, you may not owe tax, but you must still report the sale on your tax return. If it’s a rental or second property, capital gains tax may apply.
Q: How are investment income, dividends, and capital gains taxed?
A: Interest is fully taxable. Eligible dividends are grossed up and receive a dividend tax credit. Only 50% of capital gains are taxable.
Q: What is the Lifetime Capital Gains Exemption (LCGE)?
A: It allows you to shelter up to $1.25 million (2025 indexed amount) of capital gains on the sale of qualifying small business corporation shares, farming, or fishing property.
Registered Plans
Q: What is the RRSP contribution deadline and limit?
A: Contributions made in the first 60 days of the year can be applied to the previous tax year. Your annual limit is 18% of prior year’s earned income, up to a CRA-set maximum.
Q: What is the difference between an RRSP and a TFSA?
A: RRSP contributions are tax-deductible, and withdrawals are taxable. TFSA contributions are not deductible, but withdrawals (including growth) are tax-free.
Q: How does the Home Buyers’ Plan (HBP) work?
A: First-time homebuyers can withdraw up to $35,000 from their RRSP tax-free, provided they repay it within 15 years.
Q: How does First Home Savings Account (FHSA) work?
A. Allows eligible first-time homebuyers in Canada to save for a qualifying home with tax-free growth on investments and tax-deductible contributions. You can contribute up to $8,000 annually, with a lifetime maximum of $40,000. When you make a qualifying withdrawal to buy a home, you won't pay taxes on that money, and the contributions you make can be deducted from your taxable income, similar to an RRSP.
Q: What is the Lifelong Learning Plan (LLP)?
A: You can withdraw up to $20,000 from your RRSP to finance education for yourself or your spouse, with repayment required over 10 years.
Foreign Income & Residency
Q: Do I need to report foreign income or property?
A: Yes. Canadian residents must report worldwide income. If you own foreign property worth more than $100,000 CAD, you must file Form T1135.
Q: What are the tax implications of moving to or from Canada?
A: Tax residency rules apply. You may be deemed a resident or non-resident, and departure or arrival can trigger special reporting.
Q: How do tax treaties affect me if I earn income abroad?
A: Treaties help prevent double taxation. You may be able to claim a foreign tax credit or benefit from reduced withholding rates.
CRA & Compliance
Q: What should I do if I get a letter or audit notice from the CRA?
A: Don’t panic. Contact us right away — as your representative, we can communicate with the CRA and help resolve the issue.
Q: How long should I keep my tax records?
A: At least six years after the end of the tax year, unless the CRA asks you to keep them longer.
Q: How do I authorize you to speak with the CRA on my behalf?
A: You can sign authorize us through your CRA My Account. This allows us to access your file and represent you.
Q: How do I correct a mistake on a tax return I already filed?
A: File a T1 Adjustment Request (T1-ADJ) or use CRA My Account to submit changes electronically.
Payments & Refunds
Q: What are my options if I can’t pay my taxes in full by the deadline?
A: You should still file on time to avoid penalties. The CRA may allow a payment arrangement, and we can help negotiate terms.
Q: How do I set up or change direct deposit for my tax refund?
A: You can set it up through CRA My Account, online banking, or by providing banking details on your return.
Q: Can I request relief from penalties or interest?
A: Yes. In certain cases (illness, financial hardship, CRA delays), you can apply for taxpayer relief.
Corporate Tax Frequently Asked Questions
Filing & Compliance
Q: When is my corporate tax return due?
A: Your T2 corporate tax return is due six months after your fiscal year-end. For example, if your year-end is December 31, your return is due by June 30 of the following year.
Q: When are corporate taxes payable?
A: Corporate taxes are generally due two or three months after year-end, depending on your corporation type. Most Canadian-controlled private corporations (CCPCs) with active business income have three months to pay.
Q: What happens if I file late?
A: The CRA charges a 5% penalty on the balance owing plus 1% per month (up to 12 months). Interest accrues daily, so timely filing and payment is key.
Q: Do all corporations have to file a tax return, even with no income?
A: Yes. Every corporation in Canada must file a T2 return annually, even if there’s no activity or tax owing.
Deductions & Expenses
Q: What expenses can my corporation deduct?
A: Reasonable business expenses such as salaries, rent, office supplies, professional fees, advertising, insurance, and certain meals/entertainment (50%) are deductible.
Q: Can I deduct my car expenses through the corporation?
A: Yes, if the vehicle is used for business. You must keep a mileage log to support the percentage of business vs. personal use.
Q: What about home office expenses?
A: If you operate your business from home, you may be able to deduct a portion of utilities, mortgage interest, property taxes, and insurance, based on square footage.
Owner Compensation
Q: Should I pay myself salary or dividends?
A: Both have pros and cons. Salary provides RRSP contribution room and CPP benefits, while dividends are taxed at lower personal rates but don’t create RRSP room. Often, a mix is best — we’ll help design a tax-efficient strategy.
Q: Can I hire family members and pay them a salary?
A: Yes, as long as the salary is reasonable for the work performed and actually paid. This can be a tax-efficient way to distribute income within the family.
Q: Can I take money out of my corporation tax-free?
A: Generally, no. Funds withdrawn are considered salary, dividends, or shareholder loans. Improper withdrawals can create tax problems — we’ll guide you on the best options.
Small Business Deduction & Tax Rates
Q: What is the small business deduction (SBD)?
A: The SBD allows Canadian-controlled private corporations (CCPCs) to pay a reduced tax rate on the first $500,000 of active business income.
Q: What’s the current corporate tax rate?
A: CCPCs that qualify for the SBD typically pay about 9% federal tax, plus provincial tax (combined around 11%–15%, depending on the province). Income above $500,000 is taxed at the general corporate rate (approx. 26%–31%).
Q: Does passive income affect the small business deduction?
A: Yes. If a CCPC earns more than $50,000 of passive investment income in a year, its SBD limit may be reduced.
GST/HST & Payroll
Q: Do I need to register for GST/HST?
A: You must register if your taxable revenues exceed $30,000 in a single calendar quarter or over four consecutive quarters. Many businesses register earlier to claim input tax credits.
Q: How often do I file GST/HST returns?
A: Filing frequency depends on your revenue. It could be annual, quarterly, or monthly. We’ll help determine the best filing period for your cash flow.
Q: What are my payroll obligations as an employer?
A: You must withhold and remit CPP, EI, and income tax from employee pay. These source deductions must be remitted monthly or quarterly, depending on your size.
Corporate Records & CRA
Q: How long should I keep corporate records?
A: At least six years after the end of the tax year. This includes invoices, receipts, contracts, bank statements, and payroll records.
Q: What should I do if the CRA audits my corporation?
A: Contact us immediately. We’ll represent you, provide the requested documentation, and work to minimize disruption.
Q: Can you communicate with the CRA on my behalf?
A: Yes. With your authorization, we can speak directly to the CRA and handle correspondence, assessments, or audits for you.
Planning & Strategy
Q: Can my corporation contribute to my retirement savings?
A: Yes. Options include paying yourself salary to create RRSP room, setting up an Individual Pension Plan (IPP), or using a corporate-owned investment account.
Q: Should my corporation own investments?
A: Corporations can invest retained earnings, but passive income is taxed differently than active business income. A tailored strategy is important to avoid reducing your SBD.
Q: What happens if I want to sell my corporation?
A: The sale may qualify for the Lifetime Capital Gains Exemption (LCGE), allowing up to $1.25 million of gains to be received tax-free if certain conditions are met. Planning ahead is essential.
Estate Planning & Trusts Frequently Asked Questions
General Estate Planning
Q: What is estate planning, and why is it important?
A: Estate planning is the process of organizing your assets and affairs so that they are managed and transferred according to your wishes, with minimal tax and administrative burden. It ensures your loved ones are cared for and your legacy is protected.
Q: When should I start estate planning?
A: It’s never too early. Major life events such as marriage, children, buying property, or starting a business are good times to begin. Planning early helps minimize taxes and avoids complications later.
Q: What documents are typically part of an estate plan?
A: Common elements include a will, powers of attorney (for property and personal care), trusts, life insurance planning, and tax planning strategies.
Q: What happens if I don’t have a will?
A: Without a valid will, your estate will be distributed according to provincial laws, which may not reflect your wishes. This can also create delays, extra costs, and family disputes.
Trust Basics
Q: What is a trust?
A: A trust is a legal arrangement where one person (the trustee) manages assets on behalf of another (the beneficiary). Trusts are often used for tax planning, asset protection, or to provide for family members.
Q: What types of trusts are commonly used in Canada?
A: Common trusts include family trusts, alter ego/joint partner trusts, spousal trusts, and testamentary trusts (created upon death). Each serves a different purpose in estate or tax planning.
Q: How is a trust taxed in Canada?
A: Most trusts are taxed at the highest personal marginal tax rate on income retained in the trust. However, income distributed to beneficiaries is taxed in their hands, often at lower rates.
Q: What is the 21-year deemed disposition rule?
A: Every 21 years, most trusts are considered to have sold and repurchased their assets at fair market value. This can trigger capital gains, so advance planning is important.
Family & Wealth Transfer
Q: How can a trust help with passing assets to my children?
A: A trust allows you to control how and when assets are distributed. For example, you can stagger inheritances over time or protect assets from creditors or marital breakdowns.
Q: Can I use a trust to reduce taxes for my family?
A: Yes. A properly structured trust can allow income splitting, multiplication of the Lifetime Capital Gains Exemption (LCGE), and deferral of taxes.
Executor & Trustee Considerations
Q: What’s the difference between an executor and a trustee?
A: An executor administers your estate after death, while a trustee manages assets placed in a trust. Sometimes the same person acts in both roles.
Q: Who should I choose as executor or trustee?
A: Choose someone responsible, trustworthy, and capable of handling financial and legal matters. Many people select family members, but professional trustees (lawyers, CPAs, trust companies) can also be appointed.
Q: What responsibilities does a trustee have?
A: Trustees must act in the best interest of beneficiaries, manage investments prudently, file tax returns for the trust, and follow the trust’s terms.
Tax & Compliance
Q: Do trusts have to file tax returns?
A: Yes. Most trusts must file a T3 Trust Income Tax and Information Return each year, reporting income and distributions.
Q: How can I reduce estate taxes?
A: Strategies include using trusts, making gifts during your lifetime, maximizing the LCGE, using life insurance, and structuring ownership of assets effectively.
Q: What are probate fees, and can they be reduced?
A: Probate is the court process to validate a will. Fees vary by province (up to ~1.5% of estate value). They can often be reduced by using multiple wills, joint ownership, or trusts.
Q: What happens if the CRA audits a trust or estate?
A: Trustees are responsible for compliance. We can assist by preparing filings, maintaining records, and representing the trust or estate in dealings with the CRA.
Planning Ahead
Q: Can a trust help if I become incapacitated?
A: Yes. Certain trusts, such as alter ego trusts, can ensure assets are managed if you lose capacity, without requiring a court process.
Q: How does life insurance fit into estate planning?
A: Life insurance can provide liquidity to cover taxes, debts, or equalize inheritances. Policies can also be owned by a trust to provide additional flexibility.
Q: How often should I review my estate plan?
A: Every 3–5 years, or after major life events (marriage, divorce, birth of a child, business sale, or inheritance). Laws and tax rules also change, so regular reviews are essential.
Bookkeeping Frequently Asked Questions
General Bookkeeping
Q: What is bookkeeping, and why is it important?
A: Bookkeeping is the process of recording and organizing all financial transactions for your business, including income, expenses, and payroll. It ensures compliance with tax laws, helps you track cash flow, and provides the financial information needed to make informed business decisions.
Q: What bookkeeping methods are available for small businesses?
A: Cash basis: Record income and expenses when money is received or paid. Simple and common for small businesses.
Accrual basis: Record income and expenses when they occur, regardless of payment. Provides a more accurate picture of financial performance.
Records & Compliance
Q: What financial records should I keep?
A: Keep all documents supporting your business transactions, such as invoices, receipts, bank statements, payroll records, and tax filings.
Q: Can I keep digital records instead of paper?
A: Yes. The CRA accepts electronic records if they are accurate, complete, and accessible. Many businesses use apps or cloud software to store receipts and invoices.
Software & Tools
Q: Do I need bookkeeping software?
A: While not required, software makes bookkeeping easier and more accurate. Popular Canadian options include:
- QuickBooks Online
- Xero
- Wave (free option)
- Sage 50
- FreshBooks (ideal for service-based businesses)
Q: How do I choose the right software?
A: Consider your business size, industry, the number of transactions, and your comfort with technology. Cloud-based options offer accessibility and automation, which can save time and reduce errors.
Managing Finances
Q: How do I separate personal and business finances?
A: Open a dedicated business bank account and credit card. Use them exclusively for business transactions to simplify bookkeeping, reporting, and audits.
Q: How do I track income and expenses?
A: Use software, spreadsheets, or a professional bookkeeper to:
- Categorize transactions (e.g., advertising, utilities, salaries)
- Match transactions to bank and credit card statements
- Reconcile accounts regularly
Q: What is bank reconciliation, and why is it important?
A: Bank reconciliation compares your records with your bank statements to ensure accuracy, detect errors, and prevent fraud. It is a key step in maintaining trustworthy financial records.
Payroll & Taxes
Q: How do I manage payroll for my employees?
A: Use payroll software to calculate deductions (CPP, EI, and income tax), remit amounts to the CRA, and issue T4 slips at year-end.
Q: How do I track GST/HST?
A: Record GST/HST collected on sales and paid on purchases separately. File periodic GST/HST returns (monthly, quarterly, or annually) depending on your revenue.
Q: Can bookkeeping expenses be deducted on my taxes?
A: Yes. Fees paid for bookkeeping and accounting services are deductible business expenses in Canada.
Outsourcing & Professionals
Q: Should I outsource my bookkeeping?
A: Consider outsourcing if:
- Your business is growing and bookkeeping is time-consuming
- You want to ensure compliance with CRA regulations
- You need accurate reports for decision-making
Q: How do I choose a bookkeeper or CPA?
A: Look for experience with Canadian small businesses, familiarity with CRA compliance, and proficiency in relevant software. Ask for references and check credentials.
Q: How often should I update my books?
A: Ideally weekly, but at minimum monthly. Regular updates prevent errors, make tax filing easier, and give a clear picture of your business’s financial health.
Best Practices & Mistakes
Q: What are common bookkeeping mistakes to avoid?
A: The following are common mistakes to avoid:
- Mixing personal and business expenses
- Failing to reconcile accounts regularly
- Not tracking small cash transactions
- Missing filing deadlines for taxes and remittances
Q: How do I prepare for tax season?
A: Ensure books are up-to-date, reconcile accounts, organize supporting documents, and review your Chart of Accounts for accuracy. This makes filing smoother and reduces the risk of errors or audits.
Q: How can I make bookkeeping easier?
A: Automate as much as possible with software, scan and store receipts digitally, categorize transactions consistently, and consider working with a CPA or professional bookkeeper.