Dennis Hammer is a writer and finance nerd with six years of investing experience. He writes about personal finance for Wealthsimple. Dennis also manages his own investment portfolio and has funded several businesses in the past. Dennis holds a Bachelor's degree from the University of Connecticut.
The end of the year is approaching, which means tax season is creeping up on us. Deadlines have been relaxed due to the pandemic, but it’s still important to file your taxes on time. In this article, we’ll explain what it means to file your taxes and how to get started.
What is the tax deadline this year?
If you prefer to file paper forms, the government encourages you to file well before April 30. Paper forms could take as long as 12 to 14 weeks to process, or even longer due to COVID-19 protocols.
Furthermore, it’s important to remember that some Canadian benefit programs rely on your income tax return to determine your eligibility, including the Canada Recovery Benefit. Filing on time means your eligibility can be validated in a timely manner so your payments are not interrupted.
If you, your spouse, or your common-law partner are self-employed, the government gives you a little more time. You have until June 15 to file your tax return.
If you owe money, but can’t pay by the filing deadline, it’s best to file your return anyway. If you file on time, it’s possible to make a payment arrangement with the Canadian Revenue Agency (CRA). This gives you the opportunity to make smaller payments overtime until you’ve cleared the debt, including any interest that builds up.
Depending on your situation, the CRA has the authority to cancel or waive some or all of your penalties if you can’t meet your tax obligations. But in order to get some leeway, it’s important to file on time.
How should I file taxes?
Ultimately, you or a tax preparer need to prepare a return and send it to the Canadian Revenue Agency. If you owe money, the return should include your payment as well.
When it comes to preparing the return, you have several options. You could do it yourself on a paper form, hire an advisor or an accountant, or submit your return through a variety of web-based services.
Preparing paper forms
Submitting a paper tax return was once the only way to file your income taxes. The process was and is simple: Obtain the appropriate paperwork from the Canadian Revenue Agency, fill it out by hand, and drop it in the mail.
Preparing your taxes manually is exceedingly difficult. The tax code is complex and hard for a layman to understand. There’s a good chance you will make a mistake that may cost you money or cause you to underpay your tax obligation.
That said, there is one benefit to preparing your taxes manually. It’s a great way to become familiar with the tax code and obtain a better understanding of how your taxes are calculated. This may teach you how to save money by reducing your tax liability in the future.
Hiring a tax advisor
The simplest way to prepare your taxes is to hire a professional, such as an accountant or a qualified tax advisor. The professional will ask you a series of questions and request some basic documents. From there, the tax professional will submit the return on your behalf and explain how to submit a payment if necessary.
The drawback here is the expense. Hiring a tax professional isn’t prohibitively expensive, but it’s also not cheap. Expect to pay between $200 and $600 depending on your situation. If your taxes are complex, it may even cost more.
If you choose to work with a tax professional, make sure they have experience preparing taxes for people in situations like yours. Mention anything about your tax situation that makes you different from the average taxpayer. For instance, if you are the beneficiary of a trust (which isn’t common), check that the tax preparer knows how to incorporate that into your tax return.
Using tax preparation software
Tax preparation software is the middle ground. Modern tax preparation software is remarkably sophisticated. It walks you through the entire process by asking simple questions, and then calculates everything at the end to prepare your return.
The biggest benefit of tax prep software is automatic recalculation. If you change one number, the software will recalculate your entire return so your final tax bill or refund is always accurate.
Most tax preparation software gives you some kind of option to file your return electronically, instead of printing the paper form and mailing it manually. This is a fast and efficient way to file your taxes and receive your refund. In most cases, you will get your refund faster if you file electronically.
Getting your refund
If you are owed a refund, it’s best to set up a direct deposit with the CRA to get your money as fast as possible. You won’t have to wait for a check in the mail or make a trip to your bank to deposit it. In order to set up direct deposit, complete and submit form T1DD (Direct Deposit Request) with your banking details. You can send this form to the CRA at any time, including with your return.
Popular Canadian tax services
If you’re looking for an online tax preparation service, you actually have quite a few options. All of these Canadian tax software programs are approved by the Canada Revenue Agency. They differ in terms of features and price.
TurboTax is a simple and user-friendly Canadian tax software program. The software leads you through the tax preparation process using simple questions in plain English. There are several desktop and online versions available depending on your needs. Prices range from $39.99 to $249.99.
One helpful feature is TurboTax Assist & Review, which lets you talk to a Canadian tax expert about your taxes and get a final review before you file. Or you could pay for TurboTax Full Service product where an Intuit tax expert prepares and files your return for you.
TaxTron (formerly GriffTax) is a user-friendly Canadian tax preparation software that’s useful for both individuals and businesses. It’s quick, simple, and—like other tax prep software—uses a step-by-step approach to keep things manageable for the user. There are several versions available depending on your needs. It costs between $12.99 and $99.99, though there is a free web app for Canadian T2 returns.
GenuTax is a Canadian software app (including updates) that only asks for a donation of any amount (which can be as little as $1). You can prepare and file up to 20 tax returns for the current year and the past year. Like other apps, it walks you through a simple interview process to complete your return. The only downside is that you can’t file corporate returns or a provincial return for Quebec.
Wealthsimple Tax, formerly known as, SimpleTax is an online Canadian tax web app. Like its name suggests, this software is elegantly simple because it’s designed for taxpayers with basic needs. The entire return is just one page and it calculates your refund as you go. Some of the return can be auto-filled with information from the CRA. If you need a special form or deduction, it’s only a quick search away. The best part is that you can pay whatever you want to use it, even $0 if you wish.
UFile is another great tax prep app for Canadians that uses a simple interview interface. It’s especially useful for self-employed people and for calculating capital gains. There is a corporate version of the product called UFileT2 for T2 filers. The app costs $22.99 (for four returns). T1 returns cost $19.99, and T2 returns cost $153.95
Wealthsimple’s income tax calculator isn’t a tax preparation app, but it’s a useful tool for smart tax planning. It can help you quickly estimate your federal and provincial taxes. Simply enter a few details and the calculator will help you understand your tax liability. It automatically calculates the following non-refundable tax credits: the basic personal tax amount, CPP/QPP, QPIP and EI premiums, and the Canada employment amount.
File with Wealthsimple Tax. Maximum refund, guaranteed.Get started for free