1. Reporting Income (TAXES!)
Financial Unit
Reporting Income
(TAXES!)

2. Discussion Questions
Why do people have to report their income and pay taxes to the government?
What are tax deductions? What are they used for?
What tax credits and tax deductions do? How those deductions help?
What does it mean “it pays to be low-income” at tax time?

3. Tax Questions and Answers

4. Why do People Pay Income Tax?
Federal and Provincial governments require ALL residents to pay a % of their income in tax (with the exemption of people with income less than $11,474 annually)
Canada has a progressive tax system (people with higher incomes pay higher taxes)

5. What Happens to the Taxes that are Collected?
Governments spend them to provide services like schools, hospitals, roads and policing, to assist low-income people such as students, seniors and the unemployed, and to pay for other levels of government such as cities.

6. Have you ever received a T4, T5, or other tax form, or filed a T1?
What are they?
T4: the form on which an employer reports your earnings and paycheque deductions so that you can include them in your income tax return.
T5: the form on which a financial institution reports your earnings from investments so that you can include then in your income tax return.
T1: the form on which you report your income and calculate the amount of tax you owe or any tax refund that is owed to you.

7. What are Paycheque Deductions? Why are they Made?
Employers must withhold a portion of each employee’s pay (the pay cheque deduction) and send it to the government so that the government will have money to operate through the year.
Once a year, when completing their T1 income tax return, tax payers can review their total paycheque deductions and claim back any excess that was collected (or pay any unpaid taxes).
The T1 return for the year must be filed by April 30 of the following year.

8. What Happens When People Receive Income Without Paycheque Deductions?
All Canadian residents are required to pay tax on all income (except for approved exemptions).
However, paycheque deductions don’t apply to some sources of income, including investment income, self-employment and contract work.
In those cases, residents are required to report their own income, and may be required to submit tax installments monthly or quarterly.

9. What Happens When People Don’t Report Income OR file a false T1 income tax return?
Tax inspectors have the right to inspect tax, income & other financial records to ensure the T1 return is complete & accurate.
If it’s not, the tax payer can be assessed for any missing taxes, plus interest & penalties. (They can go back YEARS … not just the current year).
In serious cases, the taxpayer can be charged with tax evasion and, if found guilty, sent to jail &/or fined.
The CRA recommends keeping records for
up to 6 years.

10. Tax Reporting BENEFITS!
Tax credits: an amount you can deduct from the taxes you owe.
Example:
GST credit: Low income Canadians can claim a credit to offset a portion of the Goods and Services Tax (GST) they’ve paid.
Tax deductions: an amount you can subtract from your income when calculating the amount of income you have to pay tax on.
Moving deductions: If you have to move for your job.

11. Ways to save money on taxes
RESP (registered education savings plan)
RRSP (registered retirement savings plan)
TFSA (tax free saving account)
Marriage
Own Business

12. What is an RESP? Registered Education Savings Plan
One way to save for your education AND get a tax break at the same time. (When a person like your grandmother puts money into an RESP for you, the government doesn’t charge her tax on the income that’s earned on that money).
If the income earned in RESP is withdrawn (for education) it’s taxed as YOUR income (the student). It’s likely to be tax-free because your income is low while taking your classes.
If the income is withdrawn for any other reason, your contributor (grandma) would generally have to pay income tax with penalties on it.
In addition, Gov. of Canada will contribute up to $ per year (2004) to RESPS under the Canadian Education Savings Grant Program.

13. What is an RRSP? Registered Retirement Savings Plan
Gov. of Canada encourages Canadians to save for retirement by allowing them to DEDUCT from their income the money contribute to an RRSP.
For example, if you had $60,000 in taxable income one year but contributed $5,000 to an RRSP, you only have to pay taxes on $55,000.
The money contributed to your RRSP can grow, tax-free until you withdraw some of it.
When you withdraw it, the money is taxed as income… but if you are retired at that time you’ll probably pay less tax because your income and taxation rate are likely to be lower.
So RRSP’s allow people to defer taxes on their retirement savings for many years, and may also result in a lower tax bill at the time.

14. What is a tax-free account?
The interest earned from the investments is tax free!
You can contribute (add to your investments) up to $5,000 per year.
GIC
RRSP (and tax break)
Term
Shares
Mutual funds

15. Can you describe any TAX CREDITS and TAX DEDUCTIONS that are typically available to students?
Students can claim a tax credit for the amount of their tuition.
They can also claim an education amount of (in 2004) for EACH month they were registered in FULL time in an approved institution. The education amount is for each month for PART time students.
May also be eligible for tax deduction like the cost of moving to another location to go to school (or even a get a job). You must KEEP RECEIPTS to claim this.
Low-income Canadians (including students) can claim a credit to offset a portion of the Goods and Services tax (GST) they’ve paid. Students over the age of 19 may be eligible for a credit on their own income, alternatively their parents or guardians can claim it on their income tax returns.

16. Things to claim on taxes
Education Deductions(plus textbooks)
Public Transportation
Donations
First time home buyer
Family, child care, care giver deductions
Home renovations

17. How to do taxes? Companies to do the work for you Do them yourself
H & R Block
Do them yourself
Online
Turbo tax
Ufile
Students-free
First time filing-free
Low income(20,000 or below)- free
Computer Software
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