Paying taxes

Frequently asked questions

What types of income are taxable?

Individuals and corporations are taxed on their total income after subtracting allowable deductions. There are four general types of income that are taxed:

  • Employment earnings, which usually only apply to individuals;
  • Profit made from a business activity;
  • Investment income from property or investments; and
  • Capital gains on the sale of capital property.

There are different rules that apply to each type of income, which therefore affect the amount of tax you will have to pay. To file a tax return and claim deductions, you will need to know what type of income you earned.

How much do I have to pay?

The federal and provincial governments each levy and collect income tax. However, the taxes are combined so that the taxpayer only files one tax return, and pays the combined tax total which the governments then divide. The amount of tax you are required to pay will depend on the amount of income you earned during the year and the deductions and credits you claimed. In most cases, you are also required to pay tax on investment income earned in the year even if it is not received until the next calendar year.

When does CRA investigate?

Canada Revenue Agency may choose to audit an individual or business even if there is no apparent reason to do so. Generally, Canada Revenue Agency can only audit someone up to three years after a tax return has been filed, unless there is misrepresentation or fraud involved.

Who is responsible for paying a dead person's taxes?

After a person dies, someone has to be responsible for paying the deceased's taxes. Most people write a will and appoint a personal representative to act upon their death. This person carries out the instructions in a will, and is responsible for administering the estate. One of the responsibilities of a personal representative is to file the deceased's last tax return and pay any taxes owing, using money from the deceased's estate.

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