Canadian Taxation for the tax year 2021

Mr. Kumar visits Toronto for work. He accepts an offer for a tempting salary with the best available perquisites from a MNC in Toronto, Canada the land of myriad mysteries.

Being a layman, he wants to learn about the income tax return to be filed. This is related to the year 2021. Let us learn along with him.

Let me start with form T1 2021 which consists of 8 pages with step- 1, identification and other information (pages 1 and 2), step-2 total income, step- 3 net income, step-4 taxable income, step-5 federal tax, step-6 refund or balance owing. Serial numbers like 17700, 26600, 10100 to 15000, 20700 to 23600, 24400 to 26000, 30000 to 30500, 30800 to 35000, 40424 to 43500, 43700 to 48900 adorn various pages which one way or other help to fill up the form.

Detailed guide is available to explain various items of the tax return under form 5013 g which is reproduced below:

https://www.canada.ca/content/dam/cra-arc/formspubs/pub/5013-g/5013g-21e.pdf

Detailed discussions follow.

• Kumar must answer the following question: Does he have to file a tax return?

He may have to file the tax return if the living would be for a permanent period as a resident, as a newcomer from other country to settle in and become a resident.

Lots of information on residency of Canada are covered at the end of this chapter. The whole discussion is based on the information given by Canadian Revenue Agency in its website

https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html

Let us learn the basics.

• What are key dates including filing and payment due dates and dates for receiving credits and benefit payments from the CRA?

Filing dates for 2021 taxes

• Mar 1, 2022: Deadline to contribute to an RRSP, a PRPP, or an SPP
• Apr 30, 2022 (May 2, 2022, since April 30 is a Saturday): Deadline to file your taxes
• Jun 15, 2022: Deadline to file your taxes if you or your spouse or common-law partner are self-employed

What about the payment date?

Apr 30, 2022 (May 2, 2022, since April 30 is a Saturday): Deadline to pay your taxes.

Let us help Kumar to complete his tax return. Form T1 2021 aptly guides him.

Step 1 – Identification and other information like name, mailing address, email address, Canadian social insurance number, temporary tax number, or individual tax number, date of birth, date of death of the deceased person, in case of such a return, marital status on December 31, 2021, and language of correspondence like English or Francais will be required.

The next information required is province or territory of residence as well as the country of residence on December 31, 2021.

Spouse’s or common – law partner’s information is given thereafter.

Foreign property gets pride of place on page 2 of tax return.

Quoting directly,

“Foreign property

If you were a deemed resident of Canada in 2021, answer the following question:

Did you own or hold specified foreign property where the total cost amount of all such property, at any time in 2021, was more than CAN$100,000? 26600 1 Yes 2 No

 If yes, complete Form T1135, Foreign Income Verification Statement. There are substantial penalties for not filing Form T1135 by the due date. For more information, see Form T1135.”

Foreign income verification statement has been extensively covered in a separate chapter with adequate details.

Let us go ahead with our discussions.

Page 3 deals with Step 2 – Total income. (column numbers 10100-15000 need the information)

What is the total income?

From page 3 of the tax return.

• Employment income (box 14 of all T4 slips)
• Other employment income
• Old age security pension
• CPP or QPP benefits
• Other pensions and superannuation
• Elected split-pension amount
• Employment insurance and other benefits
• Employment insurance maternity and parental benefits and provincial parental insurance plan benefits
• Taxable combined amounts of dividends from taxable Canadian corporations
• Interest and other investment income
• Net partnership income (limited or non-active partners only)
• Registered disability savings plan income
• Taxable capital gains
• RRSP income
• Other income
• Taxable scholarships, fellowships, bursaries, and artists’ project grants
• Self-employment income
• Social assistance payments
• Other amounts you have to report on your return

Step 3-Net income

• Pension adjustment
• Registered pension plan (RPP) deduction
• RRSP Deduction
• Deduction for elected split-pension amount
• Annual union, professional, or like dues
• Childcare expenses
• Business investment loss
• Carrying charges, interest expenses, and other expenses
• Deduction for CPP or QPP contributions on self-employment and other earnings
• Deduction for CPP or QPP enhanced contributions on employment income
• Other employment expenses
• Other deductions
• Federal COVID- Benefits repayment
• Net Income

Step 4 taxable income

• Other payment deduction
• Net capital losses of other years
• Additional deductions

Step 5 Federal tax

It consists of three parts, namely, Part A- Federal tax on taxable income, Part B- Federal non-refundable tax credits, and Part C- Net federal tax.

Finally, the taxpayer arrives at Step 6-Refund or balance owing.

Line 153 minus 171 results in Refund 48400 or Balance owing 48500 as shown on page 8 of the tax return.

To the relevant question, what else needs to be done for completing the tax returns let us find an answer.

Canada prominently exclaims in its website as under:

Select the province or territory you resided in on December 31, 2021.One of the following needs to be selected.

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec, Saskatchewan, Yukon.

Quebec has been chosen for deeper understanding of the taxation of a province.

Form TP-1. D-V emerges as the tax return.

https://www.revenuquebec.ca/documents/en/formulaires/tp/2021-12/TP-1.D-V%282021-12%29.pdf

Enriched as” Revenu Quebec- Income tax return”, the following information may guide us.

Titled “Information about you”, lines 1-23 contains the basic information like name, place of residence, tax status and other information as per the form on page 1.

Followed is the data as “Information about your spouse on December 31, 2021,” on page 1 itself.

Page 2 proudly requires the details of total income like employment income, details of employment outside Canada, parental insurance benefits, other employment income, various insurance benefits, taxable dividends, interest/rental/taxable capital gains, etc.

Adding lines 101 and 105 through 164, the amount of total income emerges.

Thereafter “Net Income” arrives through lines 201 through 275.

Taxable income is narrated through lines 275 through 299.

Non-refundable credits details are explained among lines 350 through 399.

Income tax and contributions follow in lines 401 -432, and 432-450 and the final figures are given on page 4 in line 450.

It is but natural that as an income tax- payer, you would like to know whether there is any refund or balance due.

Lines 451-481 on page 4 finally announce the results among the refund or balance due.

Total proclamation as under, completes the tax return.

“I certify that, in this return and documents attached to it, the information about me is accurate and complete and fully discloses all of my income.

If I am entitled to a refund and entered an amount on line 476, I agree to have the amount applied to the payment of my spouse’s balance due (line 475 of my spouse’s return).

If I entered an amount on line 123, it is because of I have elected to add part of my spouse’s retirement income to my income.

Signature

Date.”

With globalization of income tax at all levels in the globe among all civilized nations, one does hear in a clear commanding tone, what are the penalties for non-compliance of form t 1135 and that too on time?

Myriad books by authors exhort the taxpayers to be wise and if possible, avoid paying taxes. But my potent information from my clients narrates huge penalties and terrible consequences for non-filing of above form.

Let me quote from the website of Canadian revenue agency the following information.

“Failure to comply, Failure to furnish foreign-based information, failure to furnish foreign-based information, additional penalty, false statement or omission, due diligence exception etc.

• 162(7) – Failure to comply – The penalty for failing to file a return is $25 per day for up to 100 days (minimum $100 and maximum $2,500).

• 162(10)(a) – Failure to furnish foreign-based information – Where the failure to file is done knowingly or under circumstances amounting to gross negligence, the penalty is $500 per month for up to 24 months (maximum $12,000), less any penalties already levied. This penalty does not apply to Form T1142.

• 162(10)(b) – Failure to furnish foreign-based information – Where a demand to file a return is issued under subsection 233(1) and the person or partnership knowingly or under circumstances amounting to gross negligence fails to comply with the demand, the penalty is $1,000 per month for up to 24 months (maximum $24,000), less any penalties already levied. This penalty does also apply to Form T1142.

• 162(10.1) – Additional penalty – After 24 months, the penalty becomes 5% of whichever of the following resulted in the requirement to file the information return, less any penalties already levied: the cost of the foreign property; the fair market value of the property transferred or loaned to the trust; or the cost of the shares and indebtedness of the foreign affiliate. This penalty does not apply to Form T1142.
• 163.(2.4) – the penalty is the greater of either $24,000 or 5% of whichever of the following the false statement or omission was made about: the cost of the foreign property; the fair market value of the property transferred or loaned to the trust; or the cost of the shares and indebtedness of the foreign affiliate.”

Yes, timely payment of taxes for all types of taxpayers like corporations, partnerships, and trusts, are inevitable and penalties as exposed above have made tax authorities to realize their dues on a timely manner.

Form number t 1135 along with the detailed instructions will be explained in a separate article. Of late non submission of this form has resulted in huge financial loss to a taxpayer.

Tax forms can be filed both online electronically for easy compliance.

What is the income tax rate for a taxpayer?

For Quebec province, the income tax rate chargeable based on taxable income for 2021 is as under:

Conclusion: Many Indians visit Canada, have business relations there, earn money, and their children get education from various Canadian universities which are world class by rating. Reporting of worldwide income has become essential for those who have immigration status in two or more countries. An attempt has been made to cover the income tax payable in Canada in details, both for federal as well as province levels.

One needs to approach an expert like a CPA to formally lodge the tax returns to avoid complications later.

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.