If you're anticipating a tax refund, you can get a pretty good idea of how much you'll receive before you file. John Parker, CA, with Buckley Dodds Parker LLP Chartered Accountants in Vancover, says that some returns can be "time consuming" because individuals with complex situations are "looking to decrease tax liability."
But "a lot of people (also) have simple returns" that can be calculated easily, explains Parker.
Your total income is just what it sounds like -- all of the money you brought in for the year. It includes any money you earn from employment, accounting for any commissions, bonuses and tips.
It also includes income you earned from other sources. For instance, investment activities, like dividends, interest or renting a property, are amounts you would add into your total income.
Some common deductions include:
- The registered retirement savings plan (RRSP) deduction
- Child care expenses
- Moving expenses
- Support payments you make for a child or spouse
- Employment expenses
You can subtract deductions from your total income to get your taxable income. If your deductions are higher than your earned income, your taxable income would be considered $0.
For instance, say you earned $20,000, and your child care expenses, moving expenses and employment expenses totaled $23,000. Your taxable income would be $0, as opposed to -$3,000.
Your Tax Bracket
Your federal tax bracket depends on your taxable income. The income qualifications for each tax bracket depend on the tax year.
As of 2013, if you earned under $43,561, you are in the 15 percent tax bracket.
If you earned between $43,561 and $87,123, you're in the 22 percent tax bracket.
If you earned between $87,123 and $135,054, you would fall in the 26 percent bracket.
And, if you earned over $135,054, you are in the 29 percent tax
bracket, according to the Canada Revenue Agency.
Non-refundable Credits and Taxes
The tax credits you claim on the Schedule 1 form are non-refundable like deductions. These credits can reduce your tax liability, but cannot make you go from owing taxes to receiving a refund. The basic personal amount is a large chunk of your non-refundable credits.
This varies depending on the tax year. As of 2013, the basic personal amount is $11,038. You also receive additional credit for your spouse or common-law partner, and for your children. And, you can receive credit for other things, such as college tuition and medical expenses.
You are allowed to subtract 15 percent of the total amount of your credits from your tax amount as determined by your tax bracket. This amount is your net federal tax.
For instance, your credits total $20,000 and your taxable income is $40,000: ($40,000 X 15 percent) - ($20,000 X 15 percent) = $6,000 - $3,000 = $3,000 in net federal tax.
Refund or Balance
After you determine your net federal tax, you add any provincial or territorial tax to get your total tax payable. This is the amount you owe in taxes, prior to any refundable credits or over payments.
To determine your refund, you would subtract the amount of tax you paid and any items, such as over payments, refundable tax credits and working income tax benefits.
Parker names the disability tax credit as an example of a credit that creates a refund. The disability credit may be "evergreen or limited, depending on your disability," he says.
You may only receive this credit for a specific amount of time, or you could receive it each year if your disability is permanent. Other such refundable credits can take you from owing to receiving a refund, but you may be required to submit additional documentation to be eligible.
References & Resources