Filing Your First Income Tax Return

If you were a Québec resident on December 31st of the taxation year, you are required to file income tax returns with both the Québec and Canadian governments.

Special considerations apply if you:

- Have income from foreign investments;
- Receive a foreign pension;
- Sell property you owned when you became a Canadian resident

If any of the situations below apply to you, you have to file your income tax return by mail.

Your social insurance number begins with 9, and no income tax return has been processed for you (unless you are a new resident of Canada or a foreign student).

Instead of a social insurance number, you have a temporary identification number that begins with 0.

Your address is outside Québec or you were not resident in Québec on December 31, 2024.

You were not resident in Canada throughout 2024 (unless you are a new resident of Canada or a foreign student).

Gather Your Tax Slips

Before a student files a tax return, they must gather all of their necessary tax slips. Students should be looking for the following slips depending on their own individual situation:

T4 – Statement of Remuneration Paid

T4A – Statement of Pension, Retirement, Annuity, and Other Income

T4E – Statement of Employment Insurance Benefits

T2202 – Education, and Textbook Amounts Certificate

Claim Tuition, Education and Textbook Amounts

Full-time and part-time college and university students are entitled to claim the tuition, education and textbook amounts. The tuition deduction is a non-refundable tax credit. If a student does not have enough taxable income and does not need to use the full amount to reduce their tax payable, they have two options: transferring or carrying forward the unused amount. In both cases, the tuition needs to be reported on your tax return in the year it is incurred from either a T2202 tax slip or an official receipt.

Filing deadline

The deadline for filing the personal income tax return is April 30. However, since you or your spouse operated a business during the taxation year or were a member of a partnership that carried on a business, you have until June 15 to file the return.

Required Tax Forms for Self-Employed Individuals

As a self-employed individual, you'll need to complete the following tax forms:

Form T2125: Statement of Business or Professional Activities
Calculate your gross income and net income using Form T2125. Gross income is your total earnings before deductions, while net income is your earnings after deducting eligible tax credits. You'll pay federal and provincial taxes on your net income. If you have multiple business activities, complete a separate Form T2125 for each.

T1 General Form

After completing Form T2125, transfer your net and gross income figures to lines 13499 to 14300 of your T1 General Form. If you have a loss, report it in brackets. Ensure you include all income sources, such as employment income and side hustles, on the T1 Form.

Form TP-80-V (Quebec)

As a self-employed individual in Quebec, you must either enclose your financial statements or complete Form TP-80-V, Business or Professional Income and Expenses. Additionally, report your business income on the province's income tax return, TP-1-V.

Key Reminders

- File your tax returns annually using Form T1 (General), the primary document for personal income tax returns in Canada.
- Ensure accurate reporting of all income sources to determine your tax liability.

Business Expenses

CRA provides a list of deductible expenses with some detail on each one. Most expenses incurred to generate business income are deductible unless specifically disallowed. Clothing expenses, for example, are generally disallowed. Professional fees incurred to buy a capital property, such as a building, cannot be deducted as an expense and are instead added to the capital cost of the property. Expenses paid in advance, like a security deposit for rent, are not deductible until used. Specific rules also apply to meals and entertainment expenses.

Home Office Expenses

If you work from home and use a dedicated space as your only office, you can deduct expenses related to your office and a percentage of expenses related to your total home, such as mortgage interest or rent, insurance, property taxes, alarm, condo fees, and utilities. Keep all bills and a record of calculations, as you may be asked to provide them later. Repairs and maintenance can be deducted if they relate to your home or office, but costs for specific areas, such as renovating your kitchen, are not deductible.

Cell Phones and Internet

Most people use their cell phones and internet for both business and personal purposes. These expenses are deductible to the extent that you can prove they relate to your business. Calculate your personal vs business use and apply this percentage to your business expense deduction.

Automobile Expenses

If you use your vehicle for business purposes, such as meeting clients or making sales calls, it is deductible. However, driving from home to your office is not deductible, unless your office is at home. If you lease your vehicle, you can deduct up to $800 of monthly lease costs, prorated based on business use. You can also deduct the same percentage of license, registration, fuel, and maintenance costs. Keep an automobile log to track business-related travel.

As a Business Owner

Filing your tax return after the due date and having a balance owing will result in a late-filing penalty. This penalty is 5% of your balance owing for the tax year, plus an additional 1% for each full month you file after the due date, up to a maximum of 12 months. If you've been charged with late payment in the past three years, the penalties will be higher.

If your business is incorporated, you must complete a corporate (T2) tax return for the business and a separate personal (T1) tax return. If your business is not incorporated, you only need to file a personal (T1) tax return.

With your personal tax return, you'll need to file a "statement of business activities," which includes an income statement for your business. If you have a business loss and other income, such as employment or investment income, the business losses will reduce the other income on your tax return.

As a business owner, you'll need to decide whether to take a salary or dividends. If you receive dividends, you'll need to include the gross-up amount on your tax return, where you'll receive a credit to offset the higher taxes.

Small Business Tax Myths

My business didn't make any money, so I don't have to report anything, right? False.

Many businesses don't see a profit in the first year or more. You're still required to include details of your business on your tax return, and if your business lost money, you can apply the loss to your other income.

I made less than $5,000, so I don't have to file: False.

I'm a student, so the money I make is tax-free: False. The CRA doesn't have special rules for small business owners who are still in school.

Although you may not owe taxes on your business income, you may be responsible for Canada Pension Plan contributions. As a small business owner, you pay both your share of CPP and the employer's share. The amount due is calculated by TurboTax Self-Employed on your tax return.

First-time home buyers

First home savings account (FHSA)

The FHSA is a new registered plan to help individuals save for their first home. Starting April 1, 2023, contributions to an FHSA are generally deductible and qualifying withdrawals made from an FHSA to purchase a qualifying home are tax-free.

First-time home buyers in Canada can claim a non-refundable tax credit on their personal income tax return by entering the Home Buyers' Amount on line 31270:
•  Amount: Up to $10,000
•  Calculation: The amount is calculated at the lowest personal tax rate, which is currently 15%
•  Maximum tax credit: The maximum tax credit is $1,500
•  Refund: If you owe less than $1,500 in taxes, you can only reduce your taxes to $0.

A non-refundable tax credit

To qualify, you must meet the following conditions:
•  You, your spouse, or common-law partner acquired a qualifying home
•  You, your spouse, or common-law partner did not live in another home in the year of acquisition or in any of the four preceding years.

You can split the amount with your spouse or common-law partner, but your combined total claims must not exceed $10,000.

The Final Return

When someone dies, their legal representative must file a final T1 Income Tax and Benefit Return, called the Final Return, to report the deceased person's property, investments and other taxable income, and can file other optional T1 returns if the person who died had eligible income. There are up to 3 types of optional T1 returns that you can file in addition to the Final Return.

The legal representative is required to file the deceased individual's final T1 income tax and benefit return.

The legal representative is usually a close relative or friend of the deceased person.

Canada Revenue Agency: If the death occurs between January 1 and October 31 — the deadline for filing and paying any tax owing is April 30 of the following year. This is the normal filing deadline. If the death occurs between November 1 and December 31 — the deadline is 6 months after the date of the death.
Revenu Québec: You must file the deceased's income tax returns for the year of death, which begins on January 1 and ends on the date of death and any previous taxation year for which the deceased was required to but did not file an income tax return.

The Canada Pension Plan Death benefit is a one-time, lump-sum payment on behalf of an eligible deceased CPP contributor. All CPP pensions and benefits are taxable.

A legal representative or 'guardian' of the estate can be held personally liable for taxes owed by the deceased. Once the final return is filed, the Notice Of Assessment is needed to apply for a clearance certificate from the CRA (or, if applicable, Revenu Quebec).

Claiming an eligible dependant

You can claim the amount for an eligible dependant if at any time during the year, you met all of the following conditions at the same time:
•  You didn't have a spouse or common-law partner or, if you did, you weren't living with them, supporting them, or being supported by them
•  You supported a dependant in 2024 and
•  You lived with the dependant (in most cases, in Canada) in a home you maintained. You can't claim this amount for a person that only visited you temporarily.

In addition, the dependant must also be one of the following persons by blood, marriage, common-law partnership or adoption:
•  your parent or grandparent
•  your child, grandchild, brother, or sister under 18 years of age
•  your child, grandchild, brother, or sister 18 years of age or older with an impairment in physical or mental functions.

If you have more than one dependant, choosing the dependant with the lowest net income can help to maximize your benefit from the tax credit. If all your dependants have the same net income, or zero net income, it doesn't matter which one you choose.

The CRA doesn't allow you to claim both the eligible dependant amount and the spousal amount for the same tax year. If you're eligible to claim both, you'll need to choose one or the other.

Don't let it be

Don't let late filing penalties and interest accumulate. Filing your taxes is crucial to avoid:
•  Late filing penalties
•  Interest on tax debt

If you discover a mistake from a past year and don't think you will be audited, you're not legally required to notify the CRA. But you're taking the risk of being reassessed, and penalties and interest applying, if the CRA does audit you and find the error.

What happens if you find that you inadvertently under-reported your income, or claimed a deduction or credit that you were not entitled to?
As with the case where you paid too much tax, you can report the correction, or you can make an adjustment request online using My Account.

If more than one year has passed since you filed the return, you may wish to make a voluntary disclosure to eliminate any penalties that may apply, and possibly reduce past years' interest as well.
To be accepted, a disclosure must be "voluntary" in the sense that you are not currently under any audit or enforcement action that might discover the error; and it must be "complete" in that you must disclose all errors in your tax filings for all years.

Filing Your First Income Tax Return

If you were a Québec resident on December 31st of the taxation year, you are required to file income tax returns with both the Québec and Canadian governments.

Special considerations apply if you:

- Have income from foreign investments;
- Receive a foreign pension;
- Sell property you owned when you became a Canadian resident

If any of the situations below apply to you, you have to file your income tax return by mail.

Your social insurance number begins with 9, and no income tax return has been processed for you (unless you are a new resident of Canada or a foreign student).

Instead of a social insurance number, you have a temporary identification number that begins with 0.

Your address is outside Québec or you were not resident in Québec on December 31, 2024.

You were not resident in Canada throughout 2024 (unless you are a new resident of Canada or a foreign student).

Gather Your Tax Slips

Before a student files a tax return, they must gather all of their necessary tax slips. Students should be looking for the following slips depending on their own individual situation:

T4 – Statement of Remuneration Paid

T4A – Statement of Pension, Retirement, Annuity, and Other Income

T4E – Statement of Employment Insurance Benefits

T2202 – Education, and Textbook Amounts Certificate

Claim Tuition, Education and Textbook Amounts

Full-time and part-time college and university students are entitled to claim the tuition, education and textbook amounts. The tuition deduction is a non-refundable tax credit. If a student does not have enough taxable income and does not need to use the full amount to reduce their tax payable, they have two options: transferring or carrying forward the unused amount. In both cases, the tuition needs to be reported on your tax return in the year it is incurred from either a T2202 tax slip or an official receipt.

Filing deadline

The deadline for filing the personal income tax return is April 30. However, since you or your spouse operated a business during the taxation year or were a member of a partnership that carried on a business, you have until June 15 to file the return.

Required Tax Forms for Self-Employed Individuals

As a self-employed individual, you'll need to complete the following tax forms:

Form T2125: Statement of Business or Professional Activities
Calculate your gross income and net income using Form T2125. Gross income is your total earnings before deductions, while net income is your earnings after deducting eligible tax credits. You'll pay federal and provincial taxes on your net income. If you have multiple business activities, complete a separate Form T2125 for each.

T1 General Form

After completing Form T2125, transfer your net and gross income figures to lines 13499 to 14300 of your T1 General Form. If you have a loss, report it in brackets. Ensure you include all income sources, such as employment income and side hustles, on the T1 Form.

Form TP-80-V (Quebec)

As a self-employed individual in Quebec, you must either enclose your financial statements or complete Form TP-80-V, Business or Professional Income and Expenses. Additionally, report your business income on the province's income tax return, TP-1-V.

Key Reminders

- File your tax returns annually using Form T1 (General), the primary document for personal income tax returns in Canada.
- Ensure accurate reporting of all income sources to determine your tax liability.

Business Expenses

CRA provides a list of deductible expenses with some detail on each one. Most expenses incurred to generate business income are deductible unless specifically disallowed. Clothing expenses, for example, are generally disallowed. Professional fees incurred to buy a capital property, such as a building, cannot be deducted as an expense and are instead added to the capital cost of the property. Expenses paid in advance, like a security deposit for rent, are not deductible until used. Specific rules also apply to meals and entertainment expenses.

Home Office Expenses

If you work from home and use a dedicated space as your only office, you can deduct expenses related to your office and a percentage of expenses related to your total home, such as mortgage interest or rent, insurance, property taxes, alarm, condo fees, and utilities. Keep all bills and a record of calculations, as you may be asked to provide them later. Repairs and maintenance can be deducted if they relate to your home or office, but costs for specific areas, such as renovating your kitchen, are not deductible.

Cell Phones and Internet

Most people use their cell phones and internet for both business and personal purposes. These expenses are deductible to the extent that you can prove they relate to your business. Calculate your personal vs business use and apply this percentage to your business expense deduction.

Automobile Expenses

If you use your vehicle for business purposes, such as meeting clients or making sales calls, it is deductible. However, driving from home to your office is not deductible, unless your office is at home. If you lease your vehicle, you can deduct up to $800 of monthly lease costs, prorated based on business use. You can also deduct the same percentage of license, registration, fuel, and maintenance costs. Keep an automobile log to track business-related travel.

As a Business Owner

Filing your tax return after the due date and having a balance owing will result in a late-filing penalty. This penalty is 5% of your balance owing for the tax year, plus an additional 1% for each full month you file after the due date, up to a maximum of 12 months. If you've been charged with late payment in the past three years, the penalties will be higher.

If your business is incorporated, you must complete a corporate (T2) tax return for the business and a separate personal (T1) tax return. If your business is not incorporated, you only need to file a personal (T1) tax return.

With your personal tax return, you'll need to file a "statement of business activities," which includes an income statement for your business. If you have a business loss and other income, such as employment or investment income, the business losses will reduce the other income on your tax return.

As a business owner, you'll need to decide whether to take a salary or dividends. If you receive dividends, you'll need to include the gross-up amount on your tax return, where you'll receive a credit to offset the higher taxes.

Small Business Tax Myths

My business didn't make any money, so I don't have to report anything, right? False.

Many businesses don't see a profit in the first year or more. You're still required to include details of your business on your tax return, and if your business lost money, you can apply the loss to your other income.

I made less than $5,000, so I don't have to file: False.

I'm a student, so the money I make is tax-free: False. The CRA doesn't have special rules for small business owners who are still in school.

Although you may not owe taxes on your business income, you may be responsible for Canada Pension Plan contributions. As a small business owner, you pay both your share of CPP and the employer's share. The amount due is calculated by TurboTax Self-Employed on your tax return.

First-time home buyers

First home savings account (FHSA)

The FHSA is a new registered plan to help individuals save for their first home. Starting April 1, 2023, contributions to an FHSA are generally deductible and qualifying withdrawals made from an FHSA to purchase a qualifying home are tax-free.

First-time home buyers in Canada can claim a non-refundable tax credit on their personal income tax return by entering the Home Buyers' Amount on line 31270:
•  Amount: Up to $10,000
•  Calculation: The amount is calculated at the lowest personal tax rate, which is currently 15%
•  Maximum tax credit: The maximum tax credit is $1,500
•  Refund: If you owe less than $1,500 in taxes, you can only reduce your taxes to $0.

A non-refundable tax credit

To qualify, you must meet the following conditions:
•  You, your spouse, or common-law partner acquired a qualifying home
•  You, your spouse, or common-law partner did not live in another home in the year of acquisition or in any of the four preceding years.

You can split the amount with your spouse or common-law partner, but your combined total claims must not exceed $10,000.

The Final Return

When someone dies, their legal representative must file a final T1 Income Tax and Benefit Return, called the Final Return, to report the deceased person's property, investments and other taxable income, and can file other optional T1 returns if the person who died had eligible income. There are up to 3 types of optional T1 returns that you can file in addition to the Final Return.

The legal representative is required to file the deceased individual's final T1 income tax and benefit return.

The legal representative is usually a close relative or friend of the deceased person.

Canada Revenue Agency: If the death occurs between January 1 and October 31 — the deadline for filing and paying any tax owing is April 30 of the following year. This is the normal filing deadline. If the death occurs between November 1 and December 31 — the deadline is 6 months after the date of the death.
Revenu Québec: You must file the deceased's income tax returns for the year of death, which begins on January 1 and ends on the date of death and any previous taxation year for which the deceased was required to but did not file an income tax return.

The Canada Pension Plan Death benefit is a one-time, lump-sum payment on behalf of an eligible deceased CPP contributor. All CPP pensions and benefits are taxable.

A legal representative or 'guardian' of the estate can be held personally liable for taxes owed by the deceased. Once the final return is filed, the Notice Of Assessment is needed to apply for a clearance certificate from the CRA (or, if applicable, Revenu Quebec).

Claiming an eligible dependant

You can claim the amount for an eligible dependant if at any time during the year, you met all of the following conditions at the same time:
•  You didn't have a spouse or common-law partner or, if you did, you weren't living with them, supporting them, or being supported by them
•  You supported a dependant in 2024 and
•  You lived with the dependant (in most cases, in Canada) in a home you maintained. You can't claim this amount for a person that only visited you temporarily.

In addition, the dependant must also be one of the following persons by blood, marriage, common-law partnership or adoption:
•  your parent or grandparent
•  your child, grandchild, brother, or sister under 18 years of age
•  your child, grandchild, brother, or sister 18 years of age or older with an impairment in physical or mental functions.

If you have more than one dependant, choosing the dependant with the lowest net income can help to maximize your benefit from the tax credit. If all your dependants have the same net income, or zero net income, it doesn't matter which one you choose.

The CRA doesn't allow you to claim both the eligible dependant amount and the spousal amount for the same tax year. If you're eligible to claim both, you'll need to choose one or the other.

Don't let it be

Don't let late filing penalties and interest accumulate. Filing your taxes is crucial to avoid:
•  Late filing penalties
•  Interest on tax debt

If you discover a mistake from a past year and don't think you will be audited, you're not legally required to notify the CRA. But you're taking the risk of being reassessed, and penalties and interest applying, if the CRA does audit you and find the error.

What happens if you find that you inadvertently under-reported your income, or claimed a deduction or credit that you were not entitled to?
As with the case where you paid too much tax, you can report the correction, or you can make an adjustment request online using My Account.

If more than one year has passed since you filed the return, you may wish to make a voluntary disclosure to eliminate any penalties that may apply, and possibly reduce past years' interest as well.
To be accepted, a disclosure must be "voluntary" in the sense that you are not currently under any audit or enforcement action that might discover the error; and it must be "complete" in that you must disclose all errors in your tax filings for all years.