February 27, 2020

Why do I Owe Income Taxes?

At some point in most people’s lives they will owe income taxes. Listed below are some situations that may result in you having to pay additional income tax.

General

  • Loss of dependant claim for lower income spouse due to separation.
  • Loss of dependant claim for child due to income earned by your child exceeding the 2019 $12,069 limit or your child is now over age 18.
  • Change in marital status resulting in change in total family income.
  • Withdrawal of RRSP.
  • Lump sum payment received (eg. disability claim, retroactive payments, etc.).
  • Receiving pension income from prior employer and federal government.

Employee.

Your employer deducts income tax based on the TD1 Personal Tax Credits form you complete. The following situations may result in additional taxes owing.

  • Failure to update your employer for change in the personal tax credits you can claim.
  • Employer payroll or software error.
  • More than one employer.
  • Employment insurance or wage loss replacement earnings.
  • Investment income where taxes may not be deducted (eg. dividends, interest, etc.)
  • Working and drawing your pension income.

Self-Employed.

Self-employed individuals are responsible for remitting their own income tax, employment insurance (if elect to participate), CPP and GST. Most self-employed individuals will owe taxes.

  • CPP is payable at 10.2% of your net self-employed income over $3,500.
  • Income tax is payable on your net self-employed income over your personal exemptions ($12,069 for the basic personal exemption).
  • GST is payable and you must register if your business(es) earn in total $30,000 gross at any point in the calendar year.

If you have tax software, you can input your estimated income into the software to calculate taxes payable. Alternatively, if your situation is more complex or you don’t feel comfortable using tax software, you may wish to consult with an accountant that specializes in income taxes.

 

 

Debora Kwasnicky

Debora has been actively practicing as a Licensed Insolvency Trustee since June 1997. She began her career with a national insolvency firm in 1984, attended university while working until her final year, returned to article to obtain her CA designation (now CPA, CA) and her trustee license before leaving in 2006 to open her own boutique firm. Her experience has been in various industries including construction, forestry, finance, retail and high tech. She currently focuses her practice on individuals and small businesses.

Covid-19 update: Due to the present uncertainty you do not have to deliver documents in person.