can somebody perhaps an accountant help in explaining in detail about Income Tax, Income tax returns and rebates and How to save tax and how to invest etc. Please explain in detail for new immigrants.

Like in India, we calculate gross Income and before calculating tax, we deduct mediclaim,house loan and standard deduction and after that, too till 150000, there is no tax and income above 150000 is taxable and 10%, 20% and 30% is charged and after that too, from that income tax, you can invest in PPF, Insurance, Mortgage etc. and save tax.

Can somebody explain in detail (in layman language )?

thanks in advance.

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The best way to find yourself is to lose yourself in the service of others.”
Mahatma Gandhi

I'd recommend you print a copy of T1 form and go through it line by line. While most items may not apply to you, it will give a sense of the items that belong to gross income, net income, taxable income, deductions, tax rates and tax credits. It's a great way of learning.

Ok, having said that, the concept is similar to what is in India. You have gross income, take out deductions and exemptions and you have taxable income. Calculate tax on that and subtract further items that are classified as tax credits and you will get net tax payable.

Compare net tax payable with what has already been withheld at source, you will then either get a refund or have to pay the difference.

So, what is gross income or income?
>>>>> Income from employment, commission income, self-employment income, income from rental property, interest from GIC or savings, etc, dividends from investments, capital gains from investments and much more.

= Total Income

What is net income?
>>>>> RRSP deduction available on the contributed amount, Union and professional association dues/fee, child care expense, moving expense, etc etc.

Total income minus above items = Net Income.

What is taxable income?
>>>>> Other deductions such as partnership losses, capital losses from previous years, etc

Net income minus above items = Taxable Income (usually line 260 on T1 form).

Now you will have to jump to form Schedule 1.

Here, you calculate tax credits and the tax payable. They are called non-refundable tax credits (see Schedule 1) because you cannot create a negative number and seek that amount for refund. In other words, your tax credit can only help you to take your tax to zero and not below that.

Anyway,

Using the tax table, you calculate the gross tax payable based off the taxable income you calculated way above.

Then, you calculate the tax credit. Tax credits could be "personal amount", amount for dependants (these 2 amounts are also called as personal exemptions), amount for children born after certain yr (something new introduced a couple of yrs ago), employment amount (another new thing that came about couple of yrs ago), public transit amount, children fitness amount (if kids enrol in swimming class or soccer etc), tuition paid, charitable donations, etc.

Tax credit = total of above items multiplied by certain percentage. Note charity is calculated differently, but you get the overall concept.

Now, you get gross tax by doing - Gross tax payable minus tax credits.

If you have certain items (not very common, perhaps) such as foriegn tax paid or dividend tax credit, you can further subtract these items from your Gross tax.

This will finally give you Net tax payable (doesn't mean you get to pay...not yet at least).

Now go back to T1.

Compare the net tax payable to the tax amount that has already been withheld at source. If amount withheld is more, you get a refund, else, you pay the difference.

Please note, the above description is simplified. Every year, something changes in the tax law and everyone's situation is different. Hope this helps a little. Usually, it increases the confusion before being of any use. Taxes are a charm

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Dimple2001

Gopal Pai,
As you know Canada lives on taxing its citizens but then there are many legal loopholes which make many people pay less taxes.
Let me educate you on what I know.
In Canada, the govt will track your spouse salary and ask you to declare who is your spouse. Some benefits (like childcare tax ememption) can only be put in the lower income earner's account for tax deduction.
Now the basics :
When you work in a company, they will pay you and give you a form in Jan end. stating your salary for the previous year and the deductions such as CPP, EI, Health tax and then your real taxes and then state you earned taxable income. Let me assume this as 17K for you and 13 K for your spouse.
Standard deduction is 8K for a single person and another 7K for a married person. So you have 15K exepmtions for this. (total for you and your spouse)
Universal childcare cheques ($ 100 a month) are taxable income and will be added to your total income.
Childcare with receipt is exempted from tax up to max. of 8K or so.
Tranist pass is considered exempt from tax.
You can take 18% of your salary (subject to a cap) to invest in RRSP. If you do invest in RRSP then the amount you take for RRSP investment is tax free and will be deducted from your income. So you pay the tax deducting the RRSP.
Wherever you give to a registered charity is taxfree in Canada.
Refer to my previous post which details the benefits of having a low income and what all the goodies that you can expect from the govt. if you are unemployed and in low income and have too many children (like GST/PST Credit, Ontario childcare allowance, etc...)
The more you earn (like say 60K for you and 60K for your spouse), the govt .will somehow combine this as 120K for your family and tax you heavily and also not give any free goodies even though you may have many children and need to some help from the govt. to provide for them.

Hope this helps.

Peace by a PD

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I am a Gents and not a Ladies.