TAX

Personal income tax in Canada is levied by the federal government under the Income Tax Act and by each province and territory under its own statute. With the exception of Quebec, which administers its own personal income tax, provincial and territorial tax is calculated on the federal T1 return and collected by the Canada Revenue Agency (CRA). Quebec residents file a federal T1 return and a separate provincial return (TP-1) with Revenu Québec. Tax is self-assessed i.e. the individual computes income and tax payable, files a return, and the CRA subsequently issues a Notice of Assessment.

STRUCTURE OF THE T1 COMPUTATION

1. Total income (line 15000): the aggregate of income from all sources, including employment, business, property, taxable capital gains, pensions, and other income.

2. Net income (line 23600): total income less deductions such as RRSP and FHSA contributions, registered pension plan contributions, union and professional dues, child care expenses, moving expenses, support payments, and carrying charges. Net income is the measure used to determine eligibility for most income-tested benefits and credits.

3. Taxable income (line 26000): net income less further deductions, including loss carryforwards, the capital gains deduction, the northern residents deduction, and certain exempt income.

4. Federal tax (Schedule 1): graduated rates applied to taxable income, less federal non-refundable tax credits, plus any special taxes (such as tax on split income or alternative minimum tax).

5. Provincial or territorial tax (Form 428 for the applicable jurisdiction; TP-1 in Quebec): calculated on taxable income using provincial rates and credits.

6. Refundable credits and amounts withheld at source are deducted from total tax payable to determine the refund or balance owing (line 48400 or 48500).

SOURCES OF INCOME AND INFORMATION SLIPS

• Employment income: T4 Statement of Remuneration Paid, including salary, wages, bonuses, vacation pay, taxable benefits, and commissions.

• Self-employment income: reported on Form T2125 Statement of Business or Professional Activities; no slip is issued.

• Interest and dividends: T5 Statement of Investment Income. Eligible and other-than-eligible dividends are grossed up (38% and 15% respectively) and attract a dividend tax credit.

• Trust and mutual fund income: T3 Statement of Trust Income Allocations and Designations.

• Securities dispositions: T5008 Statement of Securities Transactions; gains and losses are reported on Schedule 3.

• Partnership income: T5013 Statement of Partnership Income.

• Pension and retirement income: T4A (pensions, annuities, and other income), T4A(P) (Canada Pension Plan), T4A(OAS) (Old Age Security), T4RSP (RRSP income), and T4RIF (RRIF income).

• Employment Insurance and other benefits: T4E (Employment Insurance), T5007 (social assistance and workers' compensation, deductible on line 25000), and T4A box 105 (scholarships and bursaries, generally exempt for full-time students eligible for the education amount).

• First Home Savings Account: T4FHSA for taxable withdrawals and transfers.

• Rental income: reported on Form T776 Statement of Real Estate Rentals.

• Foreign income: reported in Canadian dollars; foreign tax paid may be recovered through the foreign tax credit (Form T2209).

PRINCIPAL DEDUCTIONS

• Registered Retirement Savings Plan contributions (line 20800), limited to available deduction room shown on the Notice of Assessment.

• First Home Savings Account contributions (line 20805), limited to annual and carried-forward participation room.

• Registered pension plan contributions (line 20700) and pooled registered pension plan contributions.

• Annual union, professional, or similar dues (line 21200).

• Child care expenses (Form T778; line 21400), generally claimed by the lower-income spouse, subject to per-child limits.

• Moving expenses (Form T1-M; line 21900), where the new residence is at least 40 kilometres closer to a new place of work or full-time post-secondary study.

• Deductible support payments (line 22000): periodic spousal support under a written agreement or court order; child support under agreements made after April 1997 is not deductible.

• Carrying charges and interest expenses (line 22100), including interest on money borrowed to earn investment income and investment counsel fees.

• Deduction for enhanced CPP and CPP2 contributions (line 22215) and the deduction for the employer-equivalent portion of CPP contributions on self-employment income (line 22200).

• Employment expenses (Form T777; line 22900), deductible only where the employer has certified conditions of employment on Form T2200.

• Northern residents deductions (Form T2222), for residents of prescribed northern and intermediate zones.

• Net capital loss carryforwards (line 25300) and non-capital loss carryforwards (line 25200).

• Lifetime capital gains exemption (line 25400) on qualified small business corporation shares and qualified farm or fishing property.

NON-REFUNDABLE TAX CREDITS

Non-refundable credits reduce tax payable but cannot create a refund. Federal credits are generally calculated at the lowest federal rate (14% for 2026). Each province and territory provides corresponding credits at its own lowest rate and with its own base amounts.

• Basic personal amount: $16,452 federally for 2026, reduced for high-income individuals.

• Age amount: available to individuals aged 65 or older, reduced as net income exceeds a threshold.

• Spouse or common-law partner amount and amount for an eligible dependant (the latter generally claimed by a single parent).

• Canada caregiver amount: for individuals supporting a spouse, partner, or dependant with an impairment in physical or mental functions.

• Base CPP or QPP contributions and Employment Insurance premiums.

• Canada employment amount: a fixed credit for employment income.

• Pension income amount: on up to $2,000 of eligible pension income.

• Disability amount: requires an approved Form T2201 Disability Tax Credit Certificate. Unused amounts may be transferred to a supporting relative.

• Tuition amount: based on Form T2202 Tuition and Enrolment Certificate; unused amounts may be carried forward indefinitely or up to $5,000 transferred to a parent, grandparent, or spouse.

• Interest paid on qualifying government student loans, which may be carried forward five years.

• Medical expenses: eligible expenses exceeding the lesser of 3% of net income and an annually indexed dollar threshold.

• Charitable donations and gifts: 15% on the first $200 and 29% on the balance (33% to the extent the donor has income in the top bracket); donations may be carried forward five years.

• First-time home buyers' amount: $10,000 base amount on the acquisition of a qualifying home.

• Home accessibility expenses, adoption expenses, volunteer firefighter and search and rescue volunteer amounts, and the digital news subscription amount.

REFUNDABLE CREDITS

• Canada Workers Benefit (Schedule 6): a refundable credit for low-income workers, with a supplement for individuals eligible for the disability tax credit. Advance payments are issued automatically in three instalments to eligible individuals.

• Canada training credit: a refundable credit for eligible tuition and training fees, drawn from a notional training limit that accumulates at $250 per year from age 26 to 65.

• Refundable medical expense supplement: for low-income workers with significant medical expenses.

• Multigenerational home renovation tax credit: for the cost of creating a secondary unit for a senior or adult with a disability.

• Eligible educator school supply tax credit.

SPECIAL REGIMES

• Capital gains: one-half of a capital gain is included in income as a taxable capital gain; one-half of a capital loss is an allowable capital loss, deductible only against taxable capital gains. Net capital losses may be carried back three years or forward indefinitely. The gain on the disposition of a principal residence is exempt where the property is designated on Schedule 3 for each year of ownership.

PRINCIPAL FORMS AND SCHEDULES

• T1 Income Tax and Benefit Return, with Schedule 1 (Federal Tax), Schedule 3 (Capital Gains or Losses), Schedule 6 (Canada Workers Benefit), Schedule 7 (RRSP, PRPP, and SPP Unused Contributions, Transfers, and HBP or LLP Activities), Schedule 8 (CPP Contributions on Self-Employment Income), Schedule 9 (Donations and Gifts), and Schedule 11 (Federal Tuition, Education, and Textbook Amounts).

• Form 428 for the province or territory of residence (for example, ON428, BC428, AB428), together with provincial credit forms such as ON479 (Ontario Credits) and ON-BEN (Ontario Trillium Benefit application).

• Form TD1 Personal Tax Credits Return and the provincial TD1 form, completed for each employer to determine source deductions.

• Form T1213 Request to Reduce Tax Deductions at Source, used where significant deductions (such as RRSP contributions or support payments) are anticipated.

• Form T2201 Disability Tax Credit Certificate.

• Form T1135 Foreign Income Verification Statement, required where the cost of specified foreign property exceeds $100,000 at any time in the year.

• Form T1-ADJ T1 Adjustment Request, or the Change My Return service, to amend a filed return.

• Form T1-OVP Individual Tax Return for RRSP, PRPP, and SPP Excess Contributions, and Form RC243 Tax-Free Savings Account Return, where excess contributions arise.

• Form RC66 Canada Child Benefits Application and Form RC151 GST/HST Credit Application for Individuals Who Become Residents of Canada.

FILING, PAYMENT, AND COMPLIANCE

• Filing deadline is April 30 of the following year; June 15 for self-employed individuals and their spouses or common-law partners. Any balance owing is due April 30 in all cases.

• Electronic filing is available through NETFILE-certified software, the Auto-fill My Return service, and the SimpleFile service for eligible lower-income individuals.

• Late-filing penalty is 5% of the balance owing plus 1% per complete month late, to a maximum of 12 months; doubled for repeated failures within three years.

• Interest is charged daily, compounded, at the prescribed rate on unpaid balances and deficient instalments.

• The CRA may generally reassess within three years of the date of the original Notice of Assessment; the period is extended or unlimited in cases of misrepresentation attributable to neglect, carelessness, wilful default, or fraud.

• A Notice of Objection must be filed within 90 days of the date of the notice of assessment or one year after the filing due date, whichever is later.

• Taxpayer relief governs that penalties and interest may be cancelled or waived in extraordinary circumstances under the taxpayer relief provisions (Form RC4288).

• Records must be retained for six years from the end of the taxation year to which they relate.