Low-Cost Advance Pricing Arrangement Support for Canadian Businesses and Individuals

Canadian income tax is built up in layers. You total your income for the year, subtract the deductions you qualify for to arrive at taxable income, then apply the federal brackets and your province's brackets to that figure. Each bracket rate applies only to the income sitting inside it, so earning more never retaxes the dollars below. Non-refundable credits, starting with the basic personal amount, come off the tax afterwards. Look up the CRA bracket table for the tax year you are filing.

As the rules stand for the 2025 tax year filed in 2026, the late-filing penalty is 5% of the balance owing plus 1% of that balance for each full month the return is late, to a maximum of 12 months, so 17% at worst. It rises to 10% plus 2% per month for up to 20 months, a 50% maximum, but only where the CRA formally demanded the return and had already charged a late-filing penalty for any of the three preceding tax years. Interest compounds daily.

The route depends on the structure. A sole proprietor or partner reports business income on Form T2125 and files it with the personal T1 return; for the 2025 year the self-employed filing deadline was 15 June 2026, while any balance owing was due 30 April 2026. An incorporated business files a separate T2 corporate return for each fiscal year, due six months after that year end, on top of whatever the owner reports personally.

An exemption trust is an American estate planning structure that preserves a deceased spouse's federal estate tax exemption, so there is no direct Canadian equivalent. Canada levies no estate or inheritance tax. Instead, capital property is treated as sold at fair market value on death and the resulting gains are reported on the final return, while a qualifying transfer or spousal trust can defer that tax until the surviving spouse dies. Families with United States ties need advice on both systems.

Most corporations pay no capital tax at all in Canada. The federal large corporations tax and the general provincial capital taxes were phased out, so an ordinary operating company is outside the system entirely and needs no exemption. What survives is provincial capital tax on financial institutions such as banks, trust and loan companies and insurers, each province setting its own threshold and deduction. If your corporation is not a financial institution, check the relevant provincial ministry of finance page to confirm.

A refund grows when every slip and receipt reaches the return, so begin by downloading your slips from CRA My Account and matching them against your own records. Then check the items people miss: medical expenses, tuition and its transfer, child care, eligible moving costs, union and professional dues, charitable receipts, and unused RRSP room or capital loss carry-forwards. Prepare both spouses' returns together so transferable credits land in the right place.

You qualify by being a resident of Canada for tax purposes, meeting the CRA's age or family conditions, and filing a return. There is no separate application: the CRA works out entitlement from the adjusted family net income on your return and your spouse's, so both of you must file even with no income at all. Payments arrive quarterly and stop when a return is missing. Newcomers use the CRA's benefit application for new residents instead.

No GST or HST is charged on long-term residential rent: a lease of a home for a month or more is exempt, which is why your rent has no tax line. Short-term accommodation is different, since stays under a month can be taxable, and a landlord over the $30,000 small-supplier threshold must charge GST/HST on them. Some municipalities also add their own accommodation tax. Provincial sales tax does not apply to residential rent.

The age amount is a non-refundable credit for people who reach the qualifying age by the end of the tax year. It is reduced once net income passes a set threshold and disappears above a higher one, so it is aimed at lower-income retirees. Any portion you cannot use, because your tax is already nil, can be transferred to a spouse or common-law partner. The amount and both thresholds are indexed yearly and appear on the federal schedule.

The account number your bank asks for is your own CRA identifier, not a number the CRA issues for payments. An individual paying income tax enters their social insurance number. A business enters its business number with the program account the money is for, so GST/HST, payroll and corporate tax each go to a separate payee. Picking the wrong payee is the usual reason a payment lands on the wrong account and interest keeps accruing.

An allowance paid to an employee is generally taxable and belongs on the T4, because the employee never has to account for how it was spent. The main exception is a reasonable per-kilometre motor vehicle allowance based on kilometres actually driven for work. The CRA publishes a per-kilometre amount it accepts as reasonable, with a higher rate for the first block of business kilometres each year and a top-up for employees based in the territories; the amounts are reset annually, so check the rate for the calendar year in question on canada.ca before relying on it.

Non-resident income tax is Canadian tax on Canadian-source income earned by someone who is not a resident of Canada for tax purposes. Investment income, rents, pensions and some royalties are normally taxed by withholding at source, with the payer remitting to the CRA. Employment income, business income and gains on Canadian real property are instead reported on a Canadian return. A tax treaty may reduce a withholding rate or remove the Canadian tax altogether.