With the tax filing season coming up, it’s a good idea to brush up on your tax lingo so that you’re all set when you start the filling process. We’ve put together a list of the key Canadian tax terms that you need to know to make your filing process simple and easy.
Key Canadian Tax Terms
Balance Owing: The remainder when your payable amounts are higher than your credits and deductions. It means that you actually need to pay an additional amount of tax, and can happen if your taxes weren’t properly deducted or accounted for throughout the year.
Carry Forward: When you have certain credits available during filing, but you don’t use them, you might be able to keep these credits and have them available on your account to claim in a later year. In other words, the credit is “carried forward”. Tuition tax credits are a good example of this.
CRA: The Canada Revenue Agency, which is responsible for collecting taxes and providing different credits and benefits to Canadian citizens. They receive your tax claims, calculate your return, and send you a Notice of Assessment.
Credits: These are dollar-for-dollar reductions on the income tax you owe, and are usually offered by the government to encourage Canadians to make financial decisions that benefit the economy or environment. Credits usually have requirements that you need to meet before they can be claimed.
Deductions: Similar to credits, deductions are amounts that add to your expenses throughout the year that can be used to reduce the amount of tax you have to pay. Ideally, you want to find and claim as many of these types of expenses as possible, since they lead to a larger return when filing. Some examples include childcare expenses and donations..
Dependent: A dependent is someone who is quite literally dependent on you for support at any point during the tax year. This term most often applies to children, but may also refer to seniors or individuals with specific circumstances that make them dependent on you and your income.
Employment: The place where you work and earn income. You might have multiple places of employment, and therefore many different streams of income. Most places of employment will account for and make necessary tax deductions on your behalf from your paycheck, and they’re also responsible for providing you with important tax documents for filing your return.
Investment: Any place where you’ve placed money in hopes that it will lead to a profit. There are many different types of investments, from stocks and bonds to real estate and crypto. Depending on the types of investments you’ve made, you might be eligible for one or more tax credits.
NETFILE: A digital tax filing service that allows you to file your taxes and send your tax return directly to the CRA. NETFILE certified software like TurboTax allows you to file much more accurately and with less chances of mistakes or errors. It also interfaces directly with NETFILE, so you can get immediate confirmation that the CRA has received your return, and you get your refund much faster as well.
Notice of Assessment: A document that is sent to you by the CRA to confirm the details of your return after it’s been assessed, and contains the details of the refund you’ll be getting.
Pension: A pension refers to a monthly benefit that you’ll receive, usually after retirement or reaching a certain age. It replaces a part of your income when you retire, and it’s considered taxable when filing. The Canada Pension Plan (CPP) and Old Age Security (OAS) Benefit are examples of pension amounts.
Refund: When you have more credits and deduction amounts than what you need to pay, you’ll receive a refund. This is essentially the opposite of a balance owing, as it usually happens when you’ve paid more tax throughout the year than what you owe.
Revenue Quebec: A branch of the government of Quebec that is responsible for the collection of taxes to finance various public services and social programs.
Self-employment: Self-employed individuals don’t work for a company or organization directly, and usually earn income through trades, services, or a business. These individuals differ from employees that work for an organization, as they have different tax considerations and claims amounts to consider.
Social Insurance Number (SIN): The 9 digit number that identifies you to the CRA and is needed to be able to work in Canada. It’s also necessary if you want to receive benefits and services from the government.
Tax bracket: The different levels of income that determine how much taxes you owe. These come in preset levels, and your income will fall into one of the brackets to outline how much taxes you owe. Higher income ranges will fall into higher tax brackets and owe more taxes when filing.
Tax slip: This refers to any kind of documentation you receive related to your taxes, usually as a form or a slip. The T4 Form that outlines your income and earnings is a common example of this.
Tax return: The general term used to refer to the set of forms and documentation you provide for filing your taxes every year. It’s usually extensive and covers all forms of income, earnings, deductions, and credits that are used by the CRA to assess whether you’ll have a balance owing or a refund.
Tax year: The dates from the 1st of January to the 31st of December which you’ll use for tax purposes. You will usually file your taxes for the year prior, though in some situations you might be able to file for years that are even further back.
Taxable income: The amount of income that is considered taxable after making specific deductions from your net earnings. In Quebec, you’ll calculate this amount through Revenue Quebec, and at the provincial and federal level in all other provinces and territories. These amounts are directly used to determine how much money you owe in taxes during your filing process.
How does TurboTax help me understand my tax terms?
TurboTax takes the mystery out of complex tax terms and makes it easy for you to understand the overall tax filing process. You can have our tax experts assist you or even handle your taxes entirely with TurboTax Live Assist & Review and TurboTax Live Full Service. Let us help you by making taxes simple this filing season.