If you are expecting a refund, there is no greater disappointment than getting to the end of your tax return and finding your refund due is zero. Every tax situation is different but here are some reasons why your refund may not be everything you expected:
Can’t use credits: In order to use non-refundable credits, you have to have paid taxes during the year. Charitable donations, medical expenses and student credits are examples of non-refundable credits, which are credits that cannot create a refund on their own. You claim non-refundable credits against tax paid. So, if you did not pay income tax during the year, you will not be able to use your non-refundable credits. And only certain non-refundable credits can be carried forward.
Minimal income: You can earn up to $10,822 federally in 2012 before you begin paying income tax. If you did not earn more than this amount and no taxes were withheld from your earnings, then you will not receive a tax refund. But if you did have tax withheld, you should file a tax return so you can get the money back.
Self employed: If you started your own business this year or worked on contract, no one withheld income tax from your paycheque. Since you didn’t pay any tax during the year, you will not be getting a refund and will most likely owe money if you earned more than $3,500 since you are required to pay CPP or QPP contributions.
EI collection: Service Canada typically does not withhold enough tax from your EI benefits, so you may not have overpaid on your taxes even if your income is low. Without that, you will not receive a refund – and may owe money.
RRSP withdrawal: The money is considered income and you have to report it in the year you received it. There is some tax withheld when you withdraw the money but it may not be enough to cover your liability.
Remember, a tax refund is money that you have overpaid the government during the year. In order to receive a refund, you have to have paid income tax. So if your refund is less than you anticipated, you may want to look for the reasons why it did not add up as you expected.