T1 Personal Return Overview

Definition

The T1 General Income Tax and Benefit Return is the annual filing every Canadian resident individual uses to report worldwide income, claim deductions and credits, and reconcile tax already withheld or paid in instalments. One T1 covers both federal tax and the resident province's tax, with the province determined by where the individual lived on December 31. For owner-managers of a Canadian-controlled private corporation (CCPC), the T1 is where salary (T4), dividends (T5), interest, capital gains, and rental or self-employment income are all pulled together.

Key rules

• Filing deadline is April 30 of the following year for most individuals. Self-employed filers (and their spouse or common-law partner) have until June 15, but any balance owing is still due April 30.
• Residents must report worldwide income. Non-residents file a separate T1 reporting only Canadian-source income.
• Income is classified into five buckets under ITA s.3: employment, business, property, capital gains, and "other" (support payments, RRSP withdrawals, etc.).
• Credits apply at the 15% federal rate (the lowest bracket). Deductions reduce taxable income directly.
• Instalment payments are required when federal plus provincial net tax owing exceeds $3,000 ($1,800 in Quebec) in the current year and either of the two prior years.
• Keep supporting records for six years from the end of the tax year under ITA s.230.

Example

A BC resident earns $85,000 in T4 salary from her CCPC, receives $20,000 in non-eligible dividends reported on a T5, and contributes $10,000 to her RRSP in February of the following year.

Line 10100  Employment income             $85,000
Line 12000  Taxable amount of dividends   $23,000   (gross-up 15%)
Line 15000  Total income                  $108,000
Line 20800  RRSP deduction                ($10,000)
Line 26000  Taxable income                $98,000
Line 40425  Dividend tax credit           (~$2,074 federal)

The corporation already remitted source deductions on salary and issued a T5 for dividends. The T1 reconciles what has been paid against total tax owing at combined federal and BC rates.

Common mistakes

• Missing the June 15 deadline while assuming the balance is not due until then. Interest starts May 1 on any unpaid amount.
• Forgetting to include dividends from an owner-managed corporation because no cash was withheld (T5 slips are mandatory at any amount for related-party dividends).
• Failing to file Form T1135 when foreign property (non-registered) exceeds $100,000 cost at any point in the year. The penalty starts at $25 per day.
• Claiming the RRSP deduction for a contribution made after the 60-day window.
• Reporting capital gains on the year sold rather than the year of disposition (settlement date convention applies).

Related concepts

The T1 sits at the end of the personal tax cycle. Before it come the federal tax brackets that determine the rate on each layer of income, the choice between deductions and credits, and the Basic Personal Amount available to every filer. Owner-managers also rely on the eligible versus non-eligible dividends treatment and, where applicable, the foreign tax credit to avoid double taxation.