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How Tax Refund Works in Canada

As a resident or citizen of Canada, you must understand the Canadian tax refund and how it works. There are a few occasions that a taxpayer might have over-paid his or her tax dues while filing tax returns for any given year. This is why the government, through the Canada Revenue Agency issues tax refunds.

A tax refund is a reimbursement or payment made to a taxpayer by the Canada Revenue Agency (CRA) on the excess amount made to the government (Federal or Provincial) while filing income tax returns for a tax year.

Getting a considerable amount of tax refund each year or any given tax year implies that you have remitted to the Canada Revenue Agency (CRA) more than what you owe in tax debts. It should be noted that only those who have filed their income tax return can expect to get a tax refund.

Those who fail to file their tax return on due dates are subjected to payment of fines and penalties as determined by the Canada Revenue Agency. All income tax returns are expected to be filed by April 30 for individuals, and June 15 if you or your spouse or common-law partners are self-employed.

How Tax Refund Works 

Tax refunds are credits paid to only eligible taxpayers. Most times, these refunds are paid in installments by the government throughout the year to assist you with recurring expenses.

As part of the processes of tax return, the CRA sends a notice of assessment to taxpayers. This notice of assessment enables the taxpayers to determine:

  • If they have paid too much income tax.
  • If they are eligible for a tax refund.
  • If they have under-paid their taxes and thus have balances to pay up.
  • If they are eligible to get money back from tax credits and other benefits.

When the income deductions and credits have been claimed, you are expected to calculate your tax dues and make adjustments on:

  • Taxes deducted by your employer.
  • Taxes paid on pension installments.
  • Provincial or territorial tax credits.

You should get a refund of your excess payroll deductions if they were too high or overpaid, but if they were too low or underpaid, you would get a balance owing, which must be filed by April 30 of the tax year to avoid fines and penalties.

How much is Tax Refund in Canada?

There is no automatic or fixed amount that any individual will get from the CRA for an over-paid tax. The tax refund only applies to those who are eligible, and the amount to be repaid to the taxpayer will be appropriately calculated.

To determine the amount of money that will be refunded, you can use the online calculator from the free online CRA-certified tax preparation software and input your details to ascertain if you will be refunded, or if you are still owing the Canada Revenue Agency. To do this, you need to have the following information at hand:

  • Total income – This involves all the money (income) you made throughout a tax year, including salaries, tips, dividends, interests, commissions, etc.
  • Taxable income and deductions – After subtracting your deductions and credits from your income, the remaining amount is your taxable income upon which your tax bills will be determined.

Therefore, to calculate your tax refund in any tax year, you will need to deduct the amount of overpayment, refundable credits, and benefits that you are entitled to.

Time frame to get Tax Refund

After filing for your tax refund, it might take a while before you get the money. The process and method of filing your tax return will also determine the length of time for the refund processing. There is no need to get anxious as to when the reimbursement will eventually come.

If you are expecting your tax refund, the CRA has simplified the process; you can log into your CRA’s My Account or place a call to the CRA office for proper explanations. Before you make the call, make sure you have your correct information at hand, such as your social insurance number, full name and date of birth, address, and other tax documents.

The Canada Revenue Agency send refunds on tax returns filed on or before due dates, and after proper calculations within:

  • Two weeks if the tax refund is submitted online or electronically; or
  • Eight weeks if the tax refund is processed by paper; or
  • Sixteen weeks for non-resident paper filed return.

Delay or Withholding of Refunds

In some occasions, the Canada Revenue Agency (CRA) might use its discretion to delay or withhold the payment of your tax refund if:

  • You owe or about to owe the CRA some tax balances.
  • You have outstanding government debts (federal, provincial or territorial) like student loans, training allowances, social assistance benefit overpayments, etc.
  • There are errors in your tax return income and expenses.
  • The contact information you submitted has changed, and there is a need for the CRA to get in touch with you for verification.
  • You have a tax refund of $2 or less.
  • Your return was randomly chosen for an audit, probably due to errors on your tax return.

How to calculate your Tax Refund

A determining factor on the amount of refund you get is what you paid the Canada Revenue Agency or what was deducted from your paycheck. Your tax refund is calculated as the estimate of the amount withheld or deducted for your income tax minus your total tax dues.

For example, Steven has a total taxable income of $30000 with an income tax deduction of $2,360. He unknowingly paid $3,010 as income tax deductions for the tax year. Invariably, Steven will get a refund of the excess of the tax return, which is $650.

Tax Refund Agency

All tax payments and returns, reports, and refunds are handled by the Canada Revenue Agency (CRA). The CRA also coordinates the payment of other benefits and credits, such as the Canada child benefits. As such, all complaints, filing, and corrections are done by the CRA.

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