Employment & Employees, Self-Employed

How Does Changing Jobs Affect your Tax Return?

Moving from one job to another can be a smooth process if you understand the tax consequences. You might move because of a salary increase, change of interest, or simply adding to your existing income.

If you are employed, your employer is responsible to calculate the payroll deductions such as CPP, EI, Union dues, taxes, etc., and pay them to CRA. The employer might provide you with a TD1 form to determine when they should start deducting taxes from your salary. Your employer will deduct taxes by referring to the total claim amount on your TD1 and according to the CRA payroll guide.  Since you can claim at least the Basic Personal Amount, any taxes deducted before you reach this amount will be claimed as a credit by the end of the tax year.

Moving from one employment to another

Not every employer provides you with the TD1. Most employers assume that you can claim the full Basic Personal Amount. However, if you move to a new job within the tax year, the new employer will not correlate with the old one. You must submit a new TD1 to request deducting taxes from the first dollar you earn. Failure to do so might result in more taxes owed by the end of the tax year.

Furthermore, both employers might deduct the full amount of CPP and EI for each job resulting in overpayments in the tax year. Since you cannot over contribute, you must claim the overpayment as a credit on your income tax return.

Changing jobs from employment to self-employment

If you decide to open your own business as self-employed, you will have to calculate the deductions on your own. For CPP you complete the Schedule 8 – Canada Pension Plan Contributions and Overpayment. This form is completed and submitted with your income tax return. Quebec residents must complete the 5005-S8 Schedule 8 – Quebec Pension Plan Contributions(for QC only). CPP contributions usually are divided between you and the employer. Since as a self-employed individual you are your own employer, your CPP deductions will double.

EI contribution is optional for self-employed. it covers parts of the employment EI: Maternity Benefits, Parental Benefits, Sickness Benefits, Family Caregiver Benefit for Children, Family Caregiver Benefit for Adults, and Compassionate Care Benefits. Once you claim any of these benefits in any given year, you will not be able to opt-out of the program in the future. So make sure you can be covered before you start contributing to the program.

You have to calculate your tax dues and any GST/HST owing to CRA. It is a good practice to set money aside from your business income to prepare for the tax season. If you hire employees, you need to calculate their payroll deductions and submit related slips to CRA. You will need to open a payroll account with CRA, collect the TD1 forms from your employees, and deduct applicable taxes, CPP, EI, etc.

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