Income Tax

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The topics in the Dial-A-Law series provide general information on a wide variety of legal issues in the Province of Alberta.  This service is provided by Calgary Legal Guidance funded in part by the Alberta Law Foundation.

This topic will discuss income tax, who it applies to, some basic tax terms, the laws concerning personal income, and filing a tax return.   The information contained on this topic is not intended to be nor should it be used as a complete explanation of income tax procedures.

If you need assistance with your income tax, detailed information is available directly from Revenue Canada.  Several booklets and interpretation bulletins are available without charge from any district taxation office.  You may also call Revenue Canada at 1-800-959-8281 for all tax enquiries.

Income tax returns must be filed on an annual basis.  Most income earned in Canada must be reported to Revenue Canada on your income tax return.  For example, if you earned employment income, rental income, and income from a sale of capital or real estate or made any RRSP withdrawals you must file an income tax return and report the income.  If you had to pay back any of your Old Age Security or Employment Insurance benefits you must file a return.  Also, if you paid towards the Canada Pension Plan you must file an income tax return. You do not have to pay on lottery winnings, some inheritances or life insurance policies.  You would have to pay on the interest earned on those investments.

File the income tax package of the province or territory where you usually live.  If you are a student attending school in another province, file the income tax package of the province where you usually live.

The income tax system in Canada is based upon residency and not citizenship.  Generally, you are a deemed resident for tax purposes if you stayed in Canada for 183 days or more.  You are also considered a resident of Canada for income tax purposes when you establish sufficient residential ties in Canada.    For example, if you own a home or other personal property in Canada, have a Canadian driver’s licence or health insurance or have applied or received landed immigrant status, then you must file a tax return.  Also, if you had a spouse or common-law partner who stayed in Canada while you were living outside Canada, you are considered to have residential ties for income purposes.   Even if you have lived in Canada for only part of the year, you may have to file a tax return.  You should contact Revenue Canada for more information about whether you have to file an income tax return based on residency ties.

Even if you do not have to file a return, it may be to your benefit if you qualify for certain supplements.  For example, you may be entitled to a tax refund, GST/HST credits, and child tax benefit payments.  You may also want to carry forward an unused portion of tuition and education amounts or carry over a non-capital loss from previous years to apply against other years.  Also, you may also want to keep up your RRSP deduction limit by filing annually.

The following is a list of terms you should know when filing a tax return in Alberta:

Total Income & Taxable Income:

You must report your total income from all sources in your tax return.  However, you are taxed only on your taxable income.  Taxable income is calculated by subtracting deductions and non-refundable tax credits from total income.  Many taxpayers fail to claim all the deductions and tax credits for which they are eligible.   You will be better able to avoid this problem if you take note of the expenses allowed as tax deductions and credits and keep the receipts for all of your purchases.

Tax Deductions:

Tax deductions are expenses which you may subtract from your total income to arrive at your taxable income.  Some examples of tax deductions include private pension plans, RRSP contributions, alimony and maintenance payments, moving expenses, childcare expenses and annual union and other dues.

Tax Credits:

Non-refundable tax credits are expenses which you may subtract directly from the amount of tax you owe.  Expenses that qualify as tax credits include pension income deductions, CPP and EI contributions, charitable donations, medical expenses and tuition fees.

Federal and Provincial Income tax payable:

Federal income is calculated on an index rate.  Your taxable income is divided into sections or steps and as your income increases, the rate of federal tax payable also increases.  Alberta tax is now calculated by applying a single tax rate of 10% to taxable income.  The provincial non-refundable tax credits are then deducted from this amount. You must pay both the federal and provincial income tax payable on your tax return.

Filing a Tax Return:

In order to pay tax, you must file a tax return stating your income and the amount of tax you owe.   Tax returns are available at local tax offices and must be filed by April 30th each year.  The returns are reviewed by Revenue Canada and a Notice of Assessment is sent to every taxpayer who has filed.

The penalty for missing the deadline to file is 5% of the balance owing and 1% of the balance for each month your return is late.  The penalty is higher if you were already charged a late-filing penalty in the past 3 years.  Always send in your tax return by the deadline even if you cannot pay the balance owed immediately.  Write a letter explaining your circumstances to the Revenue Canada agency.

If you have income from sources other than a payroll, you may be required to pay tax in instalments throughout the year. If the instalments are not paid on time, Revenue Canada will charge interest or impose other penalties on you.

If you do not agree with your tax assessment, you may appeal by filing a notice of objection.  Should this be unsuccessful, there are additional avenues of appeal available.  If the full amount of tax has not been paid, collection may be delayed until the matter is resolved.

In summary, the amount of money involved in personal income tax makes it very important to take advantage of and properly document all deductions and tax credits.  If you are unsure of the tax procedures for your situation, contact Revenue Canada for more information.  If you do not agree with your tax assessment you may appeal. It is illegal to knowingly file an incorrect tax return and the tax department may reassess your returns from past years if it suspects fraud.