How to Calculate a Tax Refund in Ontario, Canada

by Philippe Lanctot

The Canadian tax system offers several opportunities to generate deductions and save money on taxes. The most popular deduction is undoubtedly the Registered Retirement Savings Plan (RRSP) contribution, as it encourages Canadians to save for their retirement in a tax-sheltered investment vehicle and claim an immediate deduction from taxable income. For the majority of Canadians, making an RRSP contribution is how they will generate a tax refund. For people living in Ontario, that tax refund can be calculated using the Ontario specific tax return forms.

Get the Federal and Ontario tax forms available on the Canada Revenue Agency (CRA) website. Click on "Individuals", and then click on "Tax Package" and finally select "Ontario". You will need the Schedule 1 - Federal Tax form and Form ON428 - Ontario tax.

Add up the amounts you can claim on Schedule 1 - Federal Tax for the federal non-refundable tax credits. Most people can claim the basic amount, your Canadian Pension Plan (CPP) and Employment Insurance (EI) contributions, as well as the Canada employment amount. See if there are other amounts in the list you can claim.

Multiply the total by the lowest federal tax rate (15% for 2009), as outlined at the bottom of page 1 of the Schedule 1 form. This is your non-refundable federal tax credit.

Subtract your RRSP contribution amount from your employment income stated on your T4 (statement of remuneration paid) slip. Use this amount as your taxable income to calculate your federal and Ontario taxes payable.

Calculate your federal tax by using the chart at the top of page two of the Schedule 1 form. Subtract the federal non-refundable tax credit from that amount to get your net federal tax. If the result is negative, use $0.

Add up the amounts you can claim towards your Ontario non-refundable tax credits using form ON428 - Ontario Tax. You can claim many of the same amounts as for the federal non-refundable tax credits, except for the Canada employment amount. Multiply the total by the lowest Ontario tax rate (6.05% in 2009) given at the bottom of page 1 of form ON428. That amount is your Ontario non-refundable tax credit.

Calculate your Ontario tax by using the chart at the top of page 2 of the ON428 form. Subtract your Ontario tax credit from that amount to calculate your net Ontario tax. If the result is negative, use $0.

Add up your net federal and net Ontario tax. This is your total tax payable.

Subtract your total tax payable from the total tax withheld at source stated on your T4 slip to determine the amount of your refund.

Tip

  • Make sure you have factored in all deductions to which you are entitled. Read the Canada Revenue Agency Income Tax and Benefit Guide to find out what you are allowed to claim as a deduction.

Items you will need

  • Calculator
  • T4 slip
  • RRSP contribution receipt

About the Author

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

Photo Credits

  • toronto harbour ferry image by Thilo Kierdorf from Fotolia.com