oceaneoneill

Dear All,

My husband has received his 1st pay packet here in Vancouver but we're unsure about the deductions. In the UK without a P45 etc he'd be on emergency tax for a while - but I'm not sure about here in BC..?
The deductions seem quite high...

conjonway

Hi there,

It'll depend on what his earnings are, but you can find information here:
http://www.tax-services.ca/cpp-ei-ma...ns-deductions/

Going by this, for 2011:

CPP contributions will be 4.95% of his pensionable earnings (up to max of $2,217.60 of contribs for the year)

EI contributions will be 1.73% (up to a max of $787)

If he ends up being overcharged, he'll get everything back when he files his tax return next year, which can be a nice surprise! Or if you're terrible at saving money, then consider it the government's way of helping you put money aside!

oceaneoneill

Thank-you so much - that is reeeally helpful.
Does everyone need to file a tax return though - even if employed by a company??
And do we need to employ an accountant to do so?

Thanks again!

Essay

In broad terms:
1. Canadian residents who earn income are supposed to file tax returns before the end of April for income earned in the previous year.
2. No, an accountant is not a legal requirement to file Canadian tax returns and lots of us do our own returns.

There are always exceptions and highly specialized situations. Someone with much more knowledge than I will likely answer your questions in more detail.

HTH

wolstie

His employer should have asked him to fill in a TD1 form when he started.

BC one is here: http://www.cra-arc.gc.ca/E/pbg/tf/td1bc/td1bc-11e.pdf

They use this to then work out how much tax to deduct. Otherwise it would be basic rate and then the rates quoted above for CPP and EI. He'd then claim back any overpayment through the tax return.

Forgot to add, there is also a Federal TD1 in order to work out how much federal tax to deduct.

Wolst

conjonway

Afraid unless you have a company which might provide the service for you, then yep you'll have to do it yourself.

Do you have to file a return? : http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

Not necessarily an accountant, but a tax preparer will do it. I'd recommend just googling around, get some reviews, or speak to those around you who might use someone. There are big firms such as H&R Block that will even appear in a booth in Walmart during tax season, and will do your returns as you wait, but be warned that you get what you pay for, and these cheap services can miss you out on a lot. (A friend of mine was told by H&R it wasn't worth her time and their fee to file - we've got her back about $3000 so far)

If you're a simple case then there is software out there for you to do it yourself, which a lot of people do use, and is actually pretty accurate if you put it in the right boxes! Hehe.

http://www.youtube.com/watch?v=A10PvpbPJZw

Auld Yin

Yes, everyone has to file a tax return by April 30th each year for taxes due as at Decenber 31st of previous year. You should only need an accountant if you have a complicated return involving such things as rental income and active investment porfolio. Canada does not have a P.A.Y.E scheme. Deductions made by employer are reasonably accurate but income from investments/rentals and other such things are not usually taxed at source. There are a number of tax programmes available for computer use. They readily guide you through the process. It is nothing to be scared of.

Aviator

For a first return, suggest getting a professional. Many bookkeepers and at home accountants are quite reasonable. Using a professional makes sure you don't miss out on any deductions you may not know about as well as RRSP, RESP etc. Also, using a good professional can help with tax planning, using allowances wisely. For example, you can invest in an RRSP without taking the tax benefit until you have a higher tax year in which to use it. The investment is still tax sheltered, and you maximise your benefit.

How accurate source deductions are depends on your TD1s and what you claimed for.

If you have self employment income, you don't have to file until June 15, however if you owe tax this still has to be paid by April 30.

Your CCTB is calculated based on past years return, fair pharmacare is based on the two years previous. If you have not done so, you need to register for fair pharmacare, it is not automatic with MSP.

Make sure he completed a TD1 and TD1 BC.

Don't get too excited about getting tax refunds, all that means is you gave the govt. a tax free loan. I would much sooner pay more tax in April and overpay.

oceaneoneill

Hi Wolst,

He filled in a TD1 with a figure of 10,527 in the top 'basic personal amount' box & and a TD1/BC but with 11,088 in the top box.
Which is figure used or do they both get added together..?
Sorry if I'm being verrrry slow...

JonboyE

No, they are not added together.

Although the calculation of taxable income is the same for both federal and provincial income taxes the calculation of tax payable is different.

To calculate taxable income you take all your sources of income then deduct certain amounts such as RRSP contributions, childcare expenses and union/professional fees (there are more, but these are the most common). What is left is taxable income and this is subject to both federal and provincial income taxes.

For federal taxes everyone can deduct an amount from taxes payable equivalent to $10,527 x 15% or $1,579.05. In BC everyone can deduct an amount from their provincial taxes of $11,088 x 5.06% or $561.05. There are quite a few other tax credits - some federal, some provincial, and some both.

In BC, someone on a regular salary (in the $40,000 to $80,000 range) will have total deductions from each pay cheque of between 22% and 25% for government withholding. The employer may make other deduction e.g. for a contribution to extended health benefits. If the government deductions are more than 25%:

a) he is earning a very nice wedge or
b) something is wrong.

As others have said, any under or over government deductions get sorted out when you file your tax returns. For all practical purposes everyone has to file a tax return every year.

I think that the basic versions of the software available (e.g. u-file and Turbo-tax) are excellent products and, unless you have complications like overseas income and assets, or self-employed earnings, these are all you need.

I would not use tax prepares like H&R Block. At tax time they take on a lot of barely trained temporary staff so you can never be sure you are dealing with someone who knows any more than the basics. If your tax affairs are too complex to do yourself go to a "proper" accountant. Though, of course, I would say that, wouldn't I?

JonboyE

To add:

In your first year the amounts of $10.527 and $11,088 are pro-rated over the year. If you arrived in Canad on July 31st 2011 you will only get half these basic tax credits in 2011.

oceaneoneill

Thanks JonboyE!
So helpful - I'll print that off & compare with our figures tonight

JonboyE

No problem. The CRA have a calculator here http://www.cra-arc.gc.ca/esrvc-srvce.../pdoc-eng.html you can use to check the deductions.

helcat12

Expats at my husband's company recommended some commercial software that they had used and it worked very well and was easy. He had his first pay packet in September last year. He has a simple situation - just him and one job which is permanent, full-time employment - maybe an accountant is a good idea if you have complex circumstances but otherwise the software is a good bet for stress-free calculations.
He also got quite a decent rebate back this year, which was a nice surprise (as another poster has mentioned.)