This article originally appeared on the SimpleTax blog. SimpleTax has joined Wealthsimple to become Wealthsimple Tax. Now you can invest, trade, save, and do your taxes all in one place.
When I was 16 years old and received my first T4 slip, my dad sat me down and told me it was about time that I learned how to do my taxes. After grumbling for a bit, I went to the post office, picked up the Alberta tax package, and spent the next several hours sitting at the dining room table—calculator in hand—carefully filling out the small boxes on the flimsy pieces of paper. And I was very surprised that it wasn’t really all that hard.
If 16 year old me could do it, I have no doubt that you can do it too (especially if we take care of all the tedious calculations for you)!
The Basics
As long as you have a SIN, you can file a tax return. Most people who earn income need to file a return every year. But even if you don’t need to file a return, you might want to. You must file a return to get your tax refund, apply for the GST/HST credit, and build up your RRSP contribution room.
Although doing your taxes for the first time might sound intimidating, it is really just a matter of reporting three things to the government: your income, your deductions & credits, and any taxes you’ve already paid during the year.
Your Income
Your income is most of the money you received in the year: your salary, profits from a small business, payments from certain government social programs, and your investment income (e.g., interest, dividends, and capital gains).1
You’ll receive “slips” for most types of income. If you have a job, you’ll get a T4 slip; if you earned interest or dividends, you’ll get a T5 slip; if you received scholarships, you’ll get a T4A slip. Slips usually start with a “T” but sometimes start with an “RC”.
You won’t receive slips for certain types of income (e.g., capital gains and small business income). But don’t worry, Wealthsimple Tax helps make calculating these amounts easy!
Your Deductions & Credits
Deductions and credits are both good things, because they reduce your tax payable (the difference between a deduction and a credit isn’t important for this post). The government creates deductions and credits to encourage certain types of behaviour. In theory, the RRSP deduction encourages saving, the tuition amount encourages post-secondary education, and the public transit amount gets cars off the roads.
If it’s the first time you do your taxes yourself, you might not know what deductions and credits you can claim. Sometimes it’s easy—your university sends you a T2202A slip, or a charity sends you a tax receipt. Sometimes you need to know about the credit in advance and keep your receipts—like your bus passes. And other times, you just need to know to apply for the credit. Wealthsimple Tax will help you claim the deductions and credits you are eligible for.
Taxes Already Paid
If tax was deducted from your earnings throughout the year, the slip you received for those earnings will reflect that. The total tax deducted in the year is compared to your “tax payable” (which is calculated from your income, deductions and credits). If your employer deducted more than your tax payable, you’ll get a tax refund. If you didn’t pay enough tax, you have taxes owing. Keep in mind that a refund is just the government paying you back your hard-earned money.
One of the best parts about doing your own taxes is learning about how taxes work. You are going to be paying taxes for the rest of your life (sorry), so understanding them is a very valuable skill. Not only will you feel in control, but you’ll save a lot of money.
We help you understand your taxes. We'll show you your total expected refund and how that last number you entered changed your refund. This is great if you want to see how a particular credit or deduction impacts your bottom line. You can also see how your tax is being calculated on the government forms at any time in the process. We don’t want you to just do your taxes, we want you to understand them!
