It’s not the most exciting or interesting part of your Canadian working holiday but it’s got to be done! It could also be quite beneficial for you, in the form of a tax refund if you have overpaid tax. If you’re like me and used to the government in your home country automatically calculating tax (and refunds), the idea of filing your own taxes can be a bit intimidating. Since moving to Canada we’ve had to file our taxes a couple of times now and I can assure you that it’s not as complicated as it sounds, especially as there are a few options that can make the process easier.
Canadian tax basics
The Canadian tax year runs January-December. Though you may have noticed tax being deducted from your payslip already, you need to file your own taxes after the end of the tax year to make sure that the correct amount of tax has been paid. Tax season usually starts in February for the preceding year i.e. in February 2017, tax returns for 2016 will be filed.
The deadline for filing taxes is the end of April. If you haven’t filed by then but do not owe any taxes, then it is no issue. If you do however owe any taxes in addition to what you have already paid, then there will be a penalty to pay.
Whether you are eligible for a refund or not depends on a variety of factors. Keep in mind though that you will never get 100% of the tax you have paid back. A certain amount of tax, as well as E.I (Employment Insurance) and CPP (Canadian Pension Plan) must still be paid out from your income, even if you’re in Canada on a working holiday and typically not eligible to receive either E.I or CPP.
A T4 is an information slip prepared by employers to summarise how much money you earned and how much income tax was deducted. To be able to file taxes in Canada, you will need a T4 from everyone you have worked for during that tax year. At the end of the tax year, any employer you have worked for during that year will provide you with a T4 by the end of February. In fact, they are legally obligated to do so.
Some of my employers have provided this by email, while others still prefer good old snail mail. If you leave Canada mid-way through a tax year, you will still have to wait until the end of the year to receive your T4. You cannot file your taxes without your T4(s). It is possible to apply for a refund not only on your income tax, but also certain other expenses such as medical, work-related or transportation costs.
How to file
Once you have your T4(s) you will need to decide how to file your taxes.
Complete the process yourself
This method is free, except for postage. You can download, print, complete and send the tax forms direct to CRA (Canada Revenue Agency). Packages of forms are also available from Service Canada offices and Canada Post. If you decide to use this method, you will need to read up and decide whether to apply as a resident or non-resident.
Use tax software to help complete the forms
For around $15-20 you can buy or download software to enter your information into. The program will complete the calculations and then all you have to do is print off the forms and send to CRA. This method will require you to have some understanding of your residency status. The lowest priced software is usually limited to just one return (so you can’t share the program around) and one T4. Examples of tax software: SimpleTax
Hire an accountant or company to prepare your forms
This option involves paying an accountant or company to fill out the forms with information provided by you., with the starting price around $50. Be aware that not every tax preparation company will have lots of experience processing tax returns from people on working holidays. Some companies may even claim they do not do returns for non-Citizens/Permanent Residents.
Use a tax filing service for the whole process
These companies will effectively do everything for you from start to finish. It is estimated that over half of Canadians choose a company to file their taxes for them. This tax filing method is usually the most expensive ($70+). Examples: H&R Block, Liberty Tax Canada
International tax filing service
For the most straightforward and hassle-free option, consider using taxback.com for your tax return. They will offer you an estimate for the return for free and then charge a fee should you choose to proceed. Taxback.com specialises in filing taxes for working holiday participants and will work to make sure you receive the maximum refund available. Their average tax return from Canada is $900. Jean Robert used Taxback to apply for an Australian tax return in 2008 after he’d returned to his home in Canada. As well as making the process super easy, he received a substantial amount back which he was extremely happy with. The link above offers a special 5% discount.
Working out your residency status
The official ‘determining your residency status’ page on Canada Revenue Agency’s (CRA) website is actually not as helpful as it sounds. There are few hard and fast rules concerning residency status; a lot of it is open to interpretation. Some of the status definitions are based on ‘residential ties’ to Canada and/or your home country, so it depends on your personal situation. If you are attempting to file your own taxes independently, give CRA a call for advice on your residency status – they are surprisingly helpful over the phone.
Post updated 6th December 2016
Extended tax section with more information is available in my ‘Ultimate Working Holiday Guide to Canada’ eBook (no more email requests please, thank you!)
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