Why do I owe income taxes? 

Woman reviewing taxes and realizing she has income tax debt

You’ve gathered your tax slips, filed your income tax return, received your Notice of Assessment, and now you have tax debt.  

Owing income tax debt to the Canada Revenue Agency (CRA) is an uneasy feeling. An unexpected tax bill can strain your finances and feel overwhelming to manage before the CRA’s payment deadline. If you’ve never owed income tax debt before or weren’t expecting to owe, you might be asking yourself: ‘Why do I owe taxes this year?’ 

From a change in career to withdrawing from your RRSP, tax debt can happen for many reasons. Let’s explore common reasons that might lead to unexpected income tax debt. 

Why do some people get a tax refund, and I owe taxes? 

A tax refund is issued when the CRA collects more income tax from you than was due. It could result from your employer deducting more than what’s required from your paycheques or your eligibility for various tax credits that could reduce your taxable income. 

Why do I owe tax debt?

While everyone’s situation is unique, here are some common scenarios that may result in unexpected tax debt: 

You have multiple sources of income. It’s not uncommon for Canadians to have more than one job or source of income. Our recent survey found that 13% of Canadians have taken on an additional job to make ends meet. When adding up your income from all jobs, you might find yourself in a different tax bracket and, in turn, may owe more income tax than was deducted initially. 

You changed jobs. A new job can bring a higher salary and the opportunity to explore your interests, but it can also bring tax consequences. Switching jobs could bump you into a higher tax bracket, resulting in more income tax owed. In other cases, your new employer might not consider how much income tax you contributed during your past employment, which could lead to deducting less income tax throughout the year. 

You’re self-employed. Being your own boss means being your own bookkeeper, which can lead to surprises at the end of the tax year. Unlike employees whose employers withhold taxes from their pay, self-employed individuals are responsible for calculating and withholding their taxes to pay the CRA. Not remitting enough in taxes can lead to tax debt—if you’re self-employed, stay in the know and learn how to avoid tax debt. 

You incorrectly received government benefits. Canadians who accessed benefits such as CERB, CRB, or unemployment insurance (EI) but weren’t eligible or mistakenly received benefits may be required to pay back the total balance. The CRA may keep any of your future tax refunds or GST credits until your repayments are complete.  

You withdrew from your RRSP. Funds taken from your RRSP are considered taxable income. Depending on the amount you withdrew from your RRSP, your increased income for the year may bump you into a higher tax bracket, which could increase how much income tax you owe. Learn more about what happens when you use your RRSP to pay off debt.  

You received a lump-sum payment. You may have to pay taxes on lump-sum payments or taxable windfalls that you received. Depending on whether they withheld when you received the payment, you may owe taxes on pension pay outs, large inheritances, severance payments, etc.  

Your received pension income. If you’re retired and are receiving pension payments, you may owe taxes if the company deducted an insufficient amount of taxes. This could result in owing taxes at the end of the year, as pension payments are considered taxable income. 

When are income taxes due? 

The filing deadline for individual tax returns is April 30, 2024. By filing your taxes before the deadline, you may avoid late penalties, interest, and delays to your return. 

The deadline for self-employed individuals is June 17, 2024. It’s important to remember that if you owe money to the CRA (both individuals and self-employed), the payment deadline is still April 30, 2024. 

How can I pay my income tax debt? 

If you owe money to the CRA but can’t pay your balance when it’s due, there are informal and formal debt relief options you can consider. We’ve created a simple tax debt guide to help you stay informed and understand all your options.

If you’re struggling with income tax debt and aren’t sure about the best way to proceed, meet with a Grant Thornton debt solutions professional for a free, confidential consultation to learn more about your options.

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