21 Breakdown of the Individual Income Tax Return

The T1 – Income Tax and Benefit Return is the tax return form used by individuals to compute the annual tax liability and filing to Canada Revenue Agency (CRA) each year.  Each individual taxpayer is to file a separate tax return regardless of the marital status of a person or if one is a dependent.  The tax return, along with any balances owing for that year, is due on or before April 30th of the following year (June 15th if self-employed).

There are 6 primary steps to the individual tax return form to complete:

Step 1 – Identification and other information

• This part relates to personal information about the taxpayer in order for CRA to correctly identify the person as well as determine specific benefits and credits that the individual is entitled to.
• For trade apprentices, the identifying information would assist CRA in such determinations as calculating entitlement to the federal training tax credit, availability to provincial trades training tax credit, and matching Social Insurance Number to filed tax slips available for tuition tax credit and grants.

Step 2 – Total income

• For Canadian tax residents, total income relates to all worldwide income from all sources that the individual has earned or received during the taxation year.
• For trade apprentices, this section would include salary and taxable benefits received from your employer, Employment Insurance (EI) received while taking block technical training, taxable grants received for completing levels of the trade, and any workers’ compensation benefits provided during the year.

Step 3 – Net income

• Determination of net income takes into consideration various deductions that can be claimed in order to reduce your total income. These amounts or expenses will reduce the income you pay tax on.
• For tax apprentices, common deductions available in this section would include for a Registered Retirement Savings Plan (RRSP), deduction for union or professional dues, approved employment expenses that the individual had to incur for their job (eg. purchase of own tools), and mandatory EI benefit repayments due to above threshold high net income.

Step 4 – Taxable income

• Determination of taxable income takes into consideration further other deductions that can be claimed in order to reduce your net income. These amounts will reduce the income you pay tax on.
• For tax apprentices, a deduction in this section may be the Northern Residents deduction for individuals who lived, on a permanent basis, in a prescribed northern zone.

Step 5 – Federal tax

• This part calculates the federal tax owing based on your taxable income, the applicable progressive tax rates, and the non-refundable tax credits the individual is entitled to.

Taxable income

X Federal tax rate (pre-determined percentage)

– Federal non-refundable tax credits

= Federal tax

Non-refundable tax credits mean that credits would only apply to reduce the tax amount owing to zero.  The tax credit amount cannot be refunded to an individual in cash.

• For tax apprentices, federal non-refundable tax credits would include basic personal amount, base CPP contributions, EI insurance premiums, and the Canada employment amount for working individuals. The federal non-refundable tax credit rate is 15%.

Step 6 – Refund or balance owing

• A corresponding calculation is performed for the provincial or territorial tax owing based on your taxable income, the applicable progressive provincial/territorial tax rates, and the non-refundable tax credits the individual is entitled to. This amount is added to the federal tax amount to get to total income tax liability.
• This part determines the final result of your tax return by subtracting total credits from total tax payable. A refund or balance owing will be calculated.

Total payable

– Total credits

= Refund or (balance owing)

Total credits include any income tax deducted at source by your employer and refundable tax credits, which reduce the tax payable.  Any excess amounts can be refunded.  Common tax credits for trade apprentices includes the basic personal amount, base CPP contributions, employment insurance premiums paid by employee, and tuition and education tax credits.

Total payable is the sum of all amounts you owe, including both federal and provincial or territorial taxes.

Refund happens when there are excess credits over the amount owing.

Balance owing happens when there is a tax payable amount surpasses the amount of tax credits.

Checklist for accurate completion of parts of tax returns that are common for trade apprentices

• Is all the personal identification information on the Tax Return correct?
• Are all the Tax Slips issued from CRA completed on the tax return?
  • T4 slips – salary from all employers
  • T4E slips – Employment Insurance (EI) benefits
  • T4A slips – grants/bursaries/scholarships received in the year including Apprenticeship Incentive Grant and Apprenticeship Completion Grant
  • T5007 – Workers’ Compensation benefits
  • T2202 certificate – for tuition paid to obtain tuition, education, and textbook credits
• Is all worldwide income reported on the tax return? (Other income, rental income, investment income, etc.)
• Has all paid union or professional dues been deducted? Line 21200 on T1 tax return
• Did I incur any employment expenses that were required for my job and that my employer has issued me Form T2200 – Declaration of Conditions of Employment (eg. purchase of own tools, parking, office supplies, lodging). Complete Form T777 – Statement of Employment Expenses.
• Have I reviewed my last Notice of Assessment for any available credits or issues? (eg. RRSP undeducted contributions, Canada Training Credit Limit (CTCL))
• Have I reviewed ‘My Account for Individuals’ CRA online for any other carry forward tax benefits or installments already made? (eg. RRSP contribution room, federal and provincial tuition carry forward amounts, previous refund balances applied to current tax year)
• Have all corresponding qualifying provincial deductions and tax credits been claimed? (Provincial Schedule 11 for Provincial Tuition, Education, and Textbook Amounts, Form T1014 – BC Training Tax Credit for Trade Apprentices)