By Olev Edur
It’s no fun, but we’re here to walk you through it
Tax-return time is upon us once again and, yes, assembling and completing all those forms can be a perennial headache. Nevertheless, it is an essential inconvenience. If you owe any taxes and don’t file a return, the penalties can be severe. On the other hand, it can be costly not to file simply because your income is low enough that you don’t owe any taxes—you may lose out on thousands of dollars’ worth of credits and benefits including:
- the Guaranteed Income Supplement (GIS).
- the Goods and Services Tax/Harmonized Sales Tax.
- (GST/HST) credit.
- the Climate Action Incentive payment (CAIP).
- the Canada Workers Benefit (CWB).
- various provincial or territorial credits and benefits.
As for the return itself, the process has become so complex for most taxpayers that if you want to do it yourself, you should definitely get a Canada Revenue Agency (CRA) certified software program to help take care of the myriad calculations and cross-references involved in completing the combination of federal and provincial/territorial returns, schedules, work- sheets, and supplementary forms properly.
These programs are also NETFILE-ready, meaning that you can file your return electronically instead of having to print out a ream of paper and mail it off before the filing deadline. (Late filing can result in substantial penalties.) An advantage of this is that your return can be processed much faster—if you’re expecting a refund, it will be in your hands (or in your bank account, if you’ve arranged with the CRA for direct deposit) much sooner.
“Several NETFILE-certified software products are avail- able, some of which are free,” says Kim Thiffault, a CRA spokesperson. “The list of products can be found at canada.ca.” (Search for “certified tax software.”)
If your income is low and your return is relatively straightforward, you may be able to get free assistance through the Community Volunteer Income Tax Program, or the Income Tax Assistance – Volunteer Program in Quebec. To find out if you qualify, or to locate a tax-preparation clinic near you, go to canada.ca/guide-taxes-help or call the CRA at 1-800-959-8281.
In addition, the CRA’s File My Return is a free tax service available to those with low or fixed incomes and whose tax situations are the same each year. If you’re eli- gible, you’ll have received an invitation by mail and can file your return simply by giving the CRA some personal information and answering a series of short questions on an automated phone service.
If you don’t qualify for free help, and especially if your financial situation is relatively complex, professional help can be worthwhile. That’s because there may be various ways to minimize your longer-term tax liability and the fees could be more than offset by the potential tax savings.
Getting Started
Whether you’re relying on a professional to help with your return or doing it yourself using CRA-approved software, you still need to assemble all the necessary information and documents to ensure you don’t miss out on potential tax savings or incur delays or even penalties for failing to include necessary items.
Accordingly, the first step is to make sure you have all the required information slips, tax receipts, schedules, forms, and any other supporting documents at hand. You may not need to include all of these, especially if you are filing your return electronically, but you should keep them in case you’re questioned later.
If you’re missing any receipts or information slips, you should already have contacted the issuer(s), but if they don’t show up by the April 30 filing deadline (June 15 for the self-employed), submit your return on time anyway, estimating the missing amounts using whatever information you do have (such as pay stubs or credit-card records). Make note of your efforts to get the document(s) and keep this with your other return information; if you’re filing a paper return, include a copy of the note with your return.
On the return itself, first make sure that all the correct personal identification information (Step 1) is included on the first and second pages. If you own $100,000 or more worth of foreign property, answer accordingly at the bottom of page 2 of the return and complete Form T1135. Note that “foreign property” excludes non-Canadian holdings in registered plans, pensions, or TFSAs; it also excludes assets used only in carrying on an active business.
Step 2: Total Income
After the identification section comes the meat of the re- turn, starting with the calculation of your total income on page 3 (Step 2). There’s no longer a Guide accompanying the return, but you can go to canada.ca and download a copy if you need additional information. The following is a summary of the lines in the return that could be of interest to most retirees.
For starters, the general rule is that you must list all the money you received from anywhere in the world during 2023. There are, however, various exceptions, including lottery winnings, gifts and inheritances, most life-insurance proceeds, GIS payments, and GST/HST credits. (A more complete list can be found at canada.ca.)
If you earned any employment income (CRA statistics show that increasing numbers of Canadians are continu- ing to work part- or full-time past age 65), this is entered on line 10100. The necessary information will be on a T4 information slip you should have received earlier this year. Commissions shown on T4 slips must be entered on line 10105.
Most Canadian retirees receive pension benefits from Old Age Security (OAS) and the Canada/Quebec Pension Plan (CPP/QPP), and these are entered on lines 11300 and 11400 as per T4A(OAS) and T4A(P) information slips respectively, while income from private pensions (per T4A(P) slips) is entered on line 11500.
In addition to private pension benefits, income from RRIFs or an annuity qualifies as pension income once you’re 65 or older; this is important because any income entered on line 11500 qualifies for the $2,000 annual pen- sion credit on line 31400. Otherwise, RRIF/annuity income goes on line 13000. In the case of pensions from a foreign country, refer to canada.ca/line-11500 for guidance on how to declare this income.
You’re allowed to split pension income with your spouse/common-law partner; both must complete Form T1032. One person declares the amount as income on line 11500, while the other deducts it on line 21000.
If you received GIS or net Allowance benefits, they will be noted in box 21 of your T4A(OAS) slip and must be entered on line 14600; the GIS isn’t taxable, so this amount can be deducted afterwards on line 25000.
Most retirees also receive investment income in various forms: interest, dividends, and capital gains. Again, you should be provided with information slips from each income source, and instructions are included in the tax return, although some additional calculations may be required.
There are two types of dividends (“eligible” and “other than eligible”). The amounts you actually receive are “grossed up” to taxable income amounts, and then you’re accorded an offsetting dividend tax credit (DTC); the gross-up and credit amounts differ for the two types. You must do the calculations on the Federal Worksheet accompanying the return and then enter the appropriate amounts on lines 12000 and 12010; don’t forget to claim the DTC on line 40425.
Interest income is declared on line 12100 after completing the appropriate section of the Worksheet for the return. This line may also be used for declaring foreign interest or dividends (which aren’t eligible for the DTC). Note that the declaration of interest on multi- year GICs, term deposits, and similar investments is based on anniversaries of the purchase date; if, for example, you purchased a two-year GIC on July 1, 2023, the first year’s income—through June 2024—would all be declared on your 2024 return rather than being split between 2023 and 2024; ditto for following years.
Capital gains become taxable only when the underlying asset is sold, and generally only one-half of the gain is actually taxable. Enter this amount on line 12700 after completing Schedule 3.
If you withdrew any money from an RRSP in 2023 (per T4RSP slips), generally this must be reported on line 12900. If, however, the income stemmed from the death of a spouse/common-law partner, you may be able to claim a deduction for all or part of this amount—see Guide RC4177, Death of an RRSP Annuitant, at canada.ca for details.
CRA data show that increasing numbers of retirees are earning rental income. Refer to lines 12599 and 12600 online for the necessary forms and information on declaring this income, and enter the gross and net income figures on these lines.
You must enter self-employment income (gross and net) on the appropriate lines from 13499 to 14300, de- pending on the type of business, after you’ve completed a statement of income and expenses and possibly addition- al forms—again, refer to the relevant line(s) at canada.ca for the forms and instructions.
Finally on page 3, you must enter certain payments on lines 14400, 14500, and 14600 and add them together on line 14700 to arrive at a total income figure carried forward to page 4 of the return.
Note that all of the foregoing are fairly common income sources for retirees, but your situation may be unique, so review page 3 again, line by line, just to make sure that you haven’t missed anything.
Steps 3 and 4: Deductions From Total Income
After arriving at a total income figure on line 15000 and copying it to the top of page 4, you can deduct certain amounts to arrive at a net income figure on line 23600 and then a taxable income figure on line 26000 of page 5. The following are lines that might be of relevance to retirees as well as those planning for their retirement:
• lines 20700 and 20800. If you made contributions to a pension plan in 2022, claim the amounts here (per T4 and/or T4A slips). Note that you may also need to enter amounts on lines 20600 and 20810 for your pension adjustment and for employer contributions respectively. Again, the necessary figures should be included on your information slips.
• line 21000. If you’re splitting some of your pension income with a spouse/common-law partner, claim the amount here after completing Form T1032.
• line 21500. Disability Supports deduction; complete Form T929.
• line 22100. If you incurred carrying charges, such as interest on investment loans or accounting fees for completing your tax return, you can claim them here.
• line 22200. This is where the self-employed can claim a deduction for their CPP/QPP contributions, after completing Schedule 8 or Form RC381 (in the case of QPP).
• line 23500. You may be subject to a clawback of OAS, Employment Insurance, or net federal supplements if your income is above a certain threshold; in this case, you must complete the chart for line 23500 on the Federal Worksheet and then carry the amount from this line to line 42200 on page 7. Next, you arrive at a net income figure on line 23600 and carry this figure to the top of page 5.
At this point, several further deductions that apply to specific situations (refer to canada.ca for details) are allowed to arrive at a taxable income figure on line 26000.
Step 5: Non-Refundable Credits and Net Federal Tax
Once you’ve arrived at a taxable income figure, you must perform the calculations in Part A of Step 5 to determine your federal tax and carry this figure over to line 116 on page 7 of the return. Coming back to page 5 (Part B), you can now claim a variety of federal non-refundable “amounts,” which are multiplied in most cases by 15 per cent to determine your credit total. (“Non-refundable” simply means the credits can’t be used to generate a cash refund once your tax bill reaches zero.) You may, however, be able to transfer unused portions of certain amounts to a spouse or other family members; refer to canada.ca for details.
Every tax filer is entitled to the basic personal amount (line 30000) of up to $15,000 depending on income; high earners may need to use the Federal Worksheet to deter- mine the appropriate amount. If you were 65 or older at the end of 2023, you can also claim the age amount (line 30100) of up to $8,396; complete the relevant calculation on the Worksheet to determine your entitlement.
If you have an eligible dependant, you can claim a basic personal amount, or your basic personal amount plus $2,499 if they were dependent on you because of a mental or physical impairment, on either line 30300 or line 30400 (but not both).
In addition to the above disability-related amounts and the caregiver deduction on line 21500, numerous credits are related to disabilities, medical expenses, and caregiver costs, including:
- Canada Caregiver amount (applicable to lines 30300, 30400, 30425, 30450, and 30500).
- Canada Caregiver amount for spouse or common-law partner or eligible dependant aged 18 or older (line 30425) after completing Schedule 5.
- Canada Caregiver amount for other infirm dependants age 18 or older (line 30450).
- Canada Caregiver amount for infirm children under 18 years of age (lines 30499–30500).
- Disability amount for self (line 31600) of $9,428, subject to a Disability Tax Credit Certificate from a medical practitioner.
- Disability amount transferred from a dependant (line 31800); complete the relevant part of the Worksheet.
- Medical expenses for self, spouse, or common-law partner and dependent children born in 2003 or later (line 33099).
- Allowable amount of medical expenses for other depend- ants (line 33199).
You may also be able to claim a refundable medical expense supplement (line 45200 on page 8 of the return). Note that the interrelated rules for claiming medical, caregiver, and disability credits can become extremely complex, so professional advice can be particularly valuable here, because many thousands of dollars could be at stake. Other non-refundable credits of possible relevance to retirees:
- Home-accessibility expenses (line 31285) of up to $20,000 can be claimed on the cost of modifications to make your home more accessible and livable.
- Pension-income amount (line 31400). You can claim up to $2,000 of any income that appears on line 11500.
- On line 32600, you can claim all or part of certain amounts for which your spouse/partner qualified but didn’t need in order to reduce their federal tax to zero after completing Schedule 2. Qualifying amounts include the Canada Caregiver (line 30500), age (line 30100), pen- sion income (line 31400), disability (line 31600), and tuition (line 32300) amounts.
All these credits are tallied up on line 33500 and then multiplied by 15 per cent to arrive at a credit subtotal on line 33800. Then, if you made any charitable donations or gifts in 2023 (or in the preceding five years but didn’t claim credits for them), complete Schedule 9 and enter the resulting credit on line 34900. Add the two totals together to arrive at a credit total on line 35000 and transfer that to line 121 on page 7.
If you declared any dividend income on line 12000 or 12010, you can claim a dividend tax credit on line 40425 after completing the relevant section of the Federal Worksheet.
Then come several other tax and credit items of relevance to few retirees, and possibly the claim for the advanced CWB (line 41500 after completing Schedule 6), and you end up with a net federal tax figure on line 42000.
Step 6: Refund or Balance Owing
At this point, you must add in EI and CPP contributions— lines 42100 and 42120 respectively— if you were self-em- ployed in 2023, as well as social benefits repayments from line 23500, and then turn to the provincial/territorial re- turns in order to complete line 42800. (This is where a software program can be particularly valuable, because these returns can be almost as complex as the federal return but use many of the federal figures.)
Finally, you arrive at a total payable figure on line 43500, which is copied to line 148 of page 8. Tally up the amounts you’ve already paid (line 43700), along with certain other deductions such as the refundable medical expense supplement (line 45200), CWB (line 45300), the new Multigenerational Home Renovation Tax Credit (see box) (line 45355), tax already paid by instalment (line 47600), and provincial/territorial credits (line 47900). Deduct the total of these items from your taxes and you arrive at the bottom line—a refund or balance owing figure on line 164.
Sign and date the form (if you’re filing a paper return), send it off, and you’re done for another year.
