Why do I have to pay taxes in Canada?
Receiving a notice indicating an amount of tax to pay can be surprising, especially when deductions have already been made from your salary during the year.
Several situations can explain why a balance appears when you file your tax return in Canada or Quebec.
Understanding these situations often helps to avoid unpleasant surprises in the following years.
Why might a balance appear on the statement?
When your employer pays you, they generally deduct a portion of your salary for federal and Quebec taxes.
These deductions are estimates based on your situation at the time of hiring.
During the annual tax return, the Canada Revenue Agency (CRA) and Revenu Québec recalculate the exact tax based on all your income and applicable credits.
If the deductions made during the year are less than the actual amount of tax, a balance payable may appear.
Insufficient withholding tax
In some cases, the deductions made by the employer do not fully cover the actual tax.
This can happen particularly when:
- credits were applied in error
- your family situation has changed
- Your income has increased over the year
In these situations, the tax withheld may be lower than the tax actually owed .
Multiple jobs in the same year
When a person holds more than one job, each employer calculates the deductions as if that salary were the only income for the year.
When all income is added together in the tax return, the total income may fall into a higher tax bracket.
This may result in a tax balance to be paid.
Self-employment income
Income from self-employment or independent activities (contracts, freelance work, personal services, etc.) is generally not subject to automatic tax withholding.
In this case, the tax is calculated during the annual tax return.
If no amount has been set aside during the year, a significant balance may appear when filing the return.
Income from multiple sources
A tax balance can also appear when a person receives different types of income, for example:
- employment income
- services
- investment income
- rental income
When these amounts are combined, the total tax may be higher than the withholdings made during the year.
Changes in personal circumstances
Certain changes can also influence the tax calculation:
- arrival or departure from Canada during the year
- change of civil status
- moving to another province
- change in family situation
These changes may impact the credits and amounts you are entitled to.
How to avoid an unpleasant surprise next year
If a tax balance has appeared this year, it is often possible to adjust the situation for the following year.
For example :
- adjust tax withholdings from the employer
- setting aside a portion of your income when you are self-employed
- check applicable credits and deductions
A good understanding of your tax situation often helps to avoid surprises when filing your tax return.
Need help understanding your tax situation?
Every tax situation is different.
If you have received a notice indicating an amount to pay, or if you simply want to understand how your tax is calculated in Quebec or Canada, it may be helpful to get some guidance.
Ana Ramirez Inc. notably assists:
for the preparation and understanding of their tax return.
Frequently Asked Questions about Taxes in Canada
Why should I pay tax if my employer is already taking it?
The deductions made by your employer are estimates based on your salary and certain information provided at the time of hiring. When all income is added together on your annual tax return, the actual tax due may be higher than the deductions made.
Is it normal to have a tax amount to pay?
Yes. In several situations, a balance may appear on the tax return. This can happen, in particular, when a person has multiple jobs, receives different types of income, or when tax withholdings are insufficient.
Do I have to pay taxes in my first year in Canada?
This depends on your tax residency status and the income earned during the year. Newcomers may have tax obligations as soon as they arrive in Canada. New arrivals can consult our guide on filing taxes for immigrants in Montreal.
What happens if I cannot pay the tax immediately?
In some cases, it is possible to set up a payment arrangement with the Canada Revenue Agency or Revenu Québec. However, it is recommended to file the return on time to avoid additional penalties.
Discovering a tax balance to pay when filing a return in Canada or Quebec is a common situation for taxpayers, particularly in Montreal, Laval, Longueuil and several other regions of the province.