Many people think they need to file a tax return only if they owe tax.
But you do need to file to collect certain benefits, even if you have no income. And in most cases if you do have income but don't owe tax, you should still file a return to build up your RRSP contribution room for use in the future.
"Eligibility for certain benefit payments is based on information from your yearly tax return," says the Canada Revenue Agency. "If you don't file your income tax and benefit return, you could miss out on these credits and benefits."
For example, the taxfree Goods and Services Tax credit is paid based on your previous year's income. So you need to file a return to show your income - even if you had no income.
If you qualify for the Canada child tax benefit and have a spouse or common-law partner, they must also file a return for you to receive your benefit payment.
If you worked but didn't earn enough to pay tax, income tax was probably still withheld at source. You need to file a return to have that tax refunded.
Also, the amount you may contribute to an RRSP is based on your income - even if you didn't earn enough to pay tax. By filing a return, you can build up this contribution room to use in the future when you do have to pay tax - and can then make an RRSP contribution to lower your tax bill and build up tax-deferred savings for retirement (or a home purchase or education).
Talking of RRSPs, if you don't have a selfdirected plan, should you have one? Think of a self-directed plan as a shelter in which you may hold a variety of qualifying investments. This enables you to move money efficiently from one investment to another - for example, when a term deposit or bond matures, or if you want to sell or buy a mutual fund or individual stock.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally. Email [email protected]
