By the time you read this blog, the deadline for RRSP contributions will have passed and you are likely in the process of gathering your documents to prepare your 2025 income tax return. Whether you are preparing it yourself or if you have the assistance of a tax professional, it is important to remember a couple of things at this time of year.
First, the income sources and deductions available to you for the 2025 year are already determined by the actions you took and expenditures you made during the 2025 calendar year. In addition to tax credits available to you, these income sources and deductions will result in a certain amount of income tax payable on April 30, 2026. The sooner you prepare your form T1 – Income Tax and Benefit Return – the sooner you will know the net amount of income tax payable due on April 30th. There really is no room for tax planning or tax strategy at this point. The real quest is to make sure that you take advantage of the deductions and tax credits available as a result of your personal tax situation so that there is no money “left on the table” (so to speak).
Second, the Canada Revenue Agency has published their prescribed interest rates for the second quarter of 2026 (April to June). If you do not pay your net tax payable on April 30th, 2026, interest will be charged at a rate of 7% on any outstanding tax balance during this quarter. If your net income tax balance due on April 30th is $10,000 and you do not pay this balance until June 30th, 2026, you will be charged $117 ($10,000 x 7% x 61/365) of interest. In addition, if you do not actually file your tax return on time, you will be charged another $500 ($10,000 x 5%) as a penalty and a further $100 ($10,000 x 1%) per month the tax return remains unfiled. Remember, if you were self-employed in 2025 your deadline for filing the T1 is June 15th instead of April 30th. So, this is really just a reminder, don’t procrastinate, file your return on time and pay the net income tax payable as soon as possible.
Finally, since income tax is on your radar at this time of the year, it is a good idea to sit down and think about planning into your 2026 net income tax payable. Chapter 8 of my book, “Income Tax for the Everyday Canadian”, walks you through the steps for calculating the income tax that may be payable and provides strategies for reducing your tax burden. You may also need to consider paying income tax installments if your net tax payable was greater than $3,000 for the 2025 tax year and it’s important to pay the installments on time to avoid interest and penalties.
If you need further information on these topics or regarding your personal tax story, feel free to reach out at info@taxschoolcanada.ca and I will help you navigate the stormy seas to get you back in control.
Luisa