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Multiple Income Sources? Avoid Tax Surprises - Plan Ahead!

Writer's picture: Shameless SpenderShameless Spender

If you have multiple income sources—like a second job, government pensions, rental income, or investment gains —it's easy to end up with an unexpected tax bill. Many people are caught off guard, feeling frustrated or even shocked when they realize not enough tax was deducted throughout the year.


ALERT: Plan Ahead to Protect Your Financial Well-Being

If you end up owing the CRA, it’s tempting to use a credit card, line of credit, or overdraft to pay the bill—costing you anywhere from 5.45% to 25% interest! Ignoring the bill altogether can result in CRA interest rates as high as 10% of your balance owing plus an additional 2% for each full month that you file after the due date, to a maximum of 20 months.


Instead, knowing what you owe in advance gives you the chance to prepare and pay off the balance by April 30th. This proactive approach not only saves you money but also helps you feel wise, in control, and financially healthy!

Woman in a pink sweater looks stressed while doing her taxes at a table. Laptop, notebook, and glass of water in bright kitchen setting.
Take Your Time Now to Avoid Tax Surprises Later - You Got This!

THE PROBLEM

Each income source only withholds tax based on what they pay you, not considering your total earnings. This can leave you with a shortfall come tax time. Understanding your taxes is key to making informed financial decisions. Tax rules change every year, and having a clear strategy can help you minimize what you owe and maximize your savings. Take a proactive approach to ensure no surprises.


Taxes: The Big Picture

Your income tax is determined based on several key factors, including:

  1. Total Income: All sources of income as listed below.

  2. Deductions: Eligible deductions like RRSP contributions, childcare expenses, and business expenses.

  3. Tax Credits: Non-refundable and refundable credits that reduce the amount of tax owed.

  4. Tax Brackets: Your taxable income is taxed at different rates depending on federal and provincial brackets.

  5. Withholding Taxes: Amounts already deducted from your income throughout the year, such as payroll deductions, pension amounts you designated, and RRSP withdrawals.

 

Fenske Financial Coaching, your accountant and tax preparers

keep up with annual tax changes

to help your take advantage of all available benefits.

 

Avoid Tax Surprises - Know What is Taxed

Your employer is responsible for remitting these deductions to the Canada Revenue Agency (CRA) on your behalf, ensuring you stay compliant with tax obligations throughout the year. If too much tax is deducted, you may receive a refund when you file your tax return. If too little is deducted, you may owe additional taxes.


Province of Employment:

  • Your tax deductions are based on the province or territory where you work, not necessarily where you live.


Tax Rates & Brackets:

  • Both federal and provincial tax rates apply to your income.

  • Employers use CRA tax tables to determine the correct amount to withhold. See 2024 tables here.


Types of Income Subject to Tax:

  • Regular salary/wages

  • Overtime pay

  • Bonuses/retroactive pay increases and vacation pay.

  • Certain taxable benefits (e.g., employer-provided health benefits)

  • Wages in lieu of termination notice.

  • Wage-loss replacement plans benefits.

  • Investment income

    • Including matured GIC (Guaranteed Investment Certificates) growth. The interest earned is typically taxed at your regular income tax rate.

  • Spousal support income is taxable for the recipient.

  • Honorariums from employment or office, director's fees, management fees, fees paid to board or committee members and executor’s, liquidator's, or administrator's fees earned to administer an estate as a designated person.

  • Remuneration paid while the employee is on vacation, furlough, sabbatical, or sick leave, or for lost-time pay from a union, vacation pay, benefits paid under a supplementary unemployment benefit plan to a trustee for payment of periodic amounts to employees and parental top-up amounts) and payments for sick leave credits and accrued vacation.

  • Tips and gratuities

    • SMART TIP: In many cases if you work in a restaurant CRA assumes you will have tip income. Include a reasonable amount or they may flag your file for more information.

  • Additional amounts that you pay while participating in a job creation project that Employment and Social Development Canada (ESDC) has approved.

  • Remuneration paid to a member of a religious order who has taken a vow of perpetual poverty, unless you pay the remuneration to the order or the employee gives you a letter of authority.   


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Taxes: A Fundamental Part of Canadian Life

Key Tax Responsibilities for the Self-Employed

If you're self-employed or an independent contractor, you're responsible for managing your taxes, including income tax, CPP contributions, and GST/HST if applicable.

SMART TIP: Keep all receipts associated with doing business in a file, envelope, or shoe box!

  1. Income Tax: Report business income on your personal tax return (T1) using Form T2125. Federal and provincial tax rates apply to your total income. Consider quarterly installments to avoid year-end surprises. [Learn more here.]

  2. CPP Contributions: Self-employed individuals pay both employee and employer CPP shares. In 2024, the rate is 11.9% on earnings over $3,500, up to $68,500, with a max contribution of $7,731. Quebec residents contribute to QPP instead.

  3. GST/HST: If annual revenue exceeds $30,000, you must register for GST/HST and remit sales tax. Below the threshold, voluntary registration allows you to claim input tax credits (ITCs) on expenses. [Learn more here.]

  4. Deductions and Expenses: Deduct eligible business expenses like office supplies, home office costs, and travel to reduce taxable income. Keep detailed records of income and expenses for accurate tax filings.

  5. Filing Deadlines: Your personal tax return, including self-employment income, is due by June 15, but any balance owing must be paid by April 30 to avoid interest charges.  SMART TIP: This seems confusing but if you know don’t owe CRA you can wait until June 15 BUT if you might owe or you don’t know use April 30 as your deadline. GST/HST filings may be required quarterly or annually, depending on your situation.

 

Staying on top of these responsibilities helps you avoid penalties and ensures compliance with the Canada Revenue Agency (CRA). Consider working with a financial professional to plan effectively and take advantage of available tax deductions.

 
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You Can be Ready to be Debt Free

THE SOLUTIONS

  1. Complete your TD1 forms correctly: At the start of every year and when you start a new job dial in to understand and complete these forms. You can also reduce the amount of tax deducted by claiming eligible credits on your TD1 forms (both federal and provincial).

  2. Track All Income: Keep detailed records of all your earnings and sources of income throughout the year.

  3. Understand Deductions: Familiarize yourself with eligible deductions to reduce taxable income.

  4. Make Installments: If self-employed, consider making quarterly tax installments to avoid a large year-end tax bill.

  5. Stay Organized: Maintain organized records of all expenses and receipts to support your tax filings.

  6. File on Time: Ensure your tax return is filed by the due date to avoid penalties and interest.

  7. Seek Guidance:

    • Don't wait—review your tax situation now to avoid surprises. Taking proactive steps now can help you manage your tax situation without added stress and keep you on track for future tax filings.

    • You choose:

      • work with an accountant to ensure compliance and optimize your tax strategy.

      • start your taxes now. The CRA opens NETFILE on February 24, 2025.

      • Book a session with Fenske Financial Coaching here to take charge of your finances! My goal is to help you gain control over your financial situation, build confidence in your decisions, and provide the peace of mind you need to live your best life.


        Woman smiling under leafy tree, wearing glasses and a green jacket. Bright sunny background with soft focus greenery. Peaceful mood.
        You can have peace of mind to live your best life.


 


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