Your Canadian income tax refund depends on your total annual income, your deductions, and how much tax you have already paid (or had withheld at source). Key elements of the calculation include, but are not limited to, the applicable Federal and Provincial tax rates, whether you have Non-Refundable Tax Credits, or whether you can subtract any losses from your income.
When completing your Income Tax and Information Return, you will need to enter the information from your tax slips and other sources to determine if you are eligible for a refund. If you are using tax software such as TurboTax, your information will automatically be transferred to the correct line of the tax return, and calculated accordingly.
How To Establish Your Total Income
To calculate your refund, add up your income from all sources to get your total income. This amount will be shown on Line 15000 – Total Income.
Some examples of income and the slips they are reported on are:
- Employment – T4 Statement of Remuneration Paid
- Pension, Superannuation, Self-Employed Subcontractors, Commission Salespeople, Wage-Loss Replacement Plans – T4A Statement of Pension, Retirement, Annuity, and Other Income
- Old Age Security – T4A(OAS) Statement of Old Age Security
- Canada Pension Plan – T4A(P) Statement of Canada Pension Plan Benefits
- Employment Insurance – T4E Statement of Employment Insurance and Other Benefits
- RRSP Withdrawals – T4RSP Statement of RRSP income
- RRIF Income – T4RIF Statement of income from a Registered Retirement Income Fund
- A complete list income sources and slips can be found on this link: CRA – All Types of Income.
Other income sources not reported on slips include:
- Any self-employed income from a business, profession, farm or fishing operation. Report your income and expenses on the corresponding form;
- T2125 – Statement of Business or Professional Activities
- T2042 – Statement of Farming Activities
- T2121 – Statement of Fishing Activities
- The “net amount” from your self-employment will be seen on Lines 13500 to 14300 of your tax return.
- Any Capital Gains if you have sold a Capital Asset for more than you paid or acquired it for. Complete Schedule 3 – Capital Gains & Losses and report the Taxable Capital Gains on Line 12700.
- Any interest and other investment income, report on Line 12100.
Deductions to Calculate Net Income
While you can fill out the income tax return and perform detailed calculations to get the exact amount of your refund, you can get a good estimate by including only the major amounts in your calculation.
The major deductions available in the net income section of the income tax return include include:
- Registered Pension Plan (RPP) Deduction – Line 20700
- Registered Retirement Savings Plan (RRSP) Deduction – Line 20800
- Child Care Expenses – Line 21400 Complete form T778.
- Moving Expenses – Line 21900 Complete form T1-M
- Line 22900 – Other Employment Expenses Complete form T777
Natalie Fong-Yee, CA, of the Fong-Yee Professional Corporation based in Toronto, says that each person’s tax situation is different, but that many people qualify for substantial income tax refunds.
“The biggest factor in receiving a refund is a large RRSP contribution and having too much tax deducted from your salary,” she explains. When you contribute to an RRSP or make other major deductions, you can subtract the amounts from your total income and get your net income. This ultimately affects your tax payable.
Losses From Other Years
Normally you calculate your income tax based on your net income, but sometimes you can subtract losses you incurred in previous years, therefore affecting your Taxable Income – Line 26000.
There are two types of losses that CRA keeps a record of and includes on each year’s Notice Of Assessment (NOA). You can deduct these amounts to reduce your net income and calculate your taxable income. When using tax software, you’ll need to manually input these losses in order for them to be applied in the correct spot.
- Non-Capital Losses of other years – Line 25200 Generally, a Non Capital loss for a particular year includes any loss incurred from employment, property or a business.
- Net Capital Losses of other years – Line 25300 Net Capital Losses incur when you dispose of or sell a Capital Asset for less than you paid or acquired it for. This is commonly seen when you dispose of shares or mutual funds, or real estate for which you are not claiming the Principal Residence Exemption. In order to claim these losses, you must have reported a Capital Gain on Schedule 3.
Federal and Provincial Income Tax
Once you have established your taxable income, you can calculate how much tax you have payable. You’ll need to know both the Federal and Provincial tax rates of the year that are applicable to your income level. A complete list of tax rates for the current and previous tax years can be found in this link: Canadian income tax rates for individuals – current and previous years.
All provinces (with the exception of Quebec*) use a separate schedule in the tax return that reflects the provincial tax rate percentages. This is titled Form 428 and is specific to each province with the Non-Refundable Tax Credits and tax rates. For example: Ontario residents complete Form ON428, Manitoba residents complete Form MB428. The amount from this form is entered on Line 42800 – Provincial or Territorial Tax
You then add the federal and provincial taxes payable on that amount shown on Line 26000 to get the total basic tax you owe for the year.
*Québec residents complete a separate provincial tax return – the TP-1. You can use this calculator from TurboTax to estimate your tax refund: Quebec Income Tax Calculator. Instructions on completing the TP-1 are available from Revenu Quebec.
Subtracting Non Refundable Tax Credit (NRTCs) Deductions
There are numerous deductions called Non Refundable Tax Credits or NRTCs that you can use to calculate your exact tax due and your refund.
If you want an estimate of your refund, the four major Non Refundable Tax Credits and where they are shown on your Federal tax return are:
- The Basic Personal Amount – Line 30000 All taxpayers can claim this basic credit on their income tax, known as the personal amount. It is adjusted annually to allow for inflation and other factors, and if your Taxable Income from Line 26000 is less than this amount, you will have no tax payable.
- The Spouse or Common-Law Partner Amount – Line 30300 You can claim this amount if, at any time in the year, you supported a spouse or common-law partner and their net income was below the Basic Personal Amount.
- The Age Amount – Line 30100 You can claim this amount if you were 65 years or older on December 31st of the tax year.
- The Amount for an Eligible Dependant – Line 30400 You can claim this amount if you did not have a spouse or common-law partner married and supported a dependent in the tax year.
- A complete list of these credits can be found here: CRA – Federal Non-Refundable Tax Credits
You multiply the total of these amounts by 0.15 and subtract the result from the total basic tax to get the total tax you have to pay.
Depending on your province of residence, you may have a similar schedule for provincial credits, and you may have to calculate and subtract them the same way. Consult this list to determine which Provincial or Territorial Non-Refundable Tax Credits you are eligible for based on your province of residence on December 31st.
Calculating Your Refund
Once you calculate your tax due or owing, the refund depends on how much tax you have already paid by deductions on your salary and by installments.
You can find these amounts on your tax slips and can subtract them from your tax due. If the result is negative, the government owes you money and represents the refund you can expect.
Two other factors that could influence your refund are:
- Canada Pension Plan (CPP) contributions on self-employed earnings: If you have self-employed income and have to pay a pension contribution, your refund is reduced by that amount.
- The Canada Workers Benefit (CWB): The CWB is a refundable tax credit available for low-income individuals in the workforce and if you qualify will be shown on Line 45300 – Canada Workers Benefit.
References & Resources
- Natalie Fong-Yee, CA; Fong-Yee Professional Corporation; Toronto, Ontario
- CRA: Refunds
- CRA: Provincial or Territorial Tax