Filing a zero income tax return in Canada, also known as a nil return, means filing a tax return when you yourself had no taxable income in the tax year. Most think that never earning any income means owing no tax. Yet in most cases, it is worth it to file, and at times, you are obligated to file. Read all you need to know to correctly file a zero income return, why you would file it, and what you can lose out on if you fail to file it.
What is a Zero Income / Nil Tax Return?
A zero income tax or nil return is literally a standard Tax Return in that you report you have a zero income, or all of the income you did have was tax-exempt income. There are no taxes due because you never attained those taxable levels, but various forms and procedures are still followed. It is not a unique tax form, just a return filled out with respect to those situations when there is literally no tax income to account for.
Why Bother Filing a Zero Income Return?
You can wonder: Why bother if I earn no income? The following are some key reasons:
Access to Benefits and Credits
Submission of a tax return is how the Canada Revenue Agency is informed about you, and certain government benefits or credits only require a submitted tax return without income. The GST/HST credit and some provincial and territorial credits are a couple of benefits and credits you may forego otherwise.
Carrying Forward of Credits
If you are a student yourself, or you have interest-paid or tuition student loans, you may have non-refundable tax credits you can carry over. Filing with no income whatsoever keeps you eligible to claim those at a later date.
Proof of Residency and Eligibility
Staying up to date with your filings keeps you eligible for related benefits, child benefits, senior benefits, and disability credits if you’re eligible. Failure to file can result in loss of eligibility or delayed payments.
Legal or Administrative Requirements
Occasionally, you’ll get asked for returns by the CRA, and circumstances like owing tax arrears, reimbursing certain plans (i.e., RRSP redemptions through certain plans) necessitate you to report regardless of having any income at all. Failing to do so can cause issues.
Maintaining Sound Tax Record
Even when nothing is due, a normal frequency of filing avoids misunderstandings, potential penalties or letters, and makes future communications with CRA less difficult.
When You Will Not Be Required to File
Whereas you must report most with no income at all, there are certain situations when you are exempted. For instance:
If you are never required by regulation, and you never intend to make benefit claims.
Certain tax-exempt receipts, such as certain receipts from the Indian Act or receipts while a person is on a reserve, may not need to be reported or are treated differently.
Even there, however, it can earn you things you never knew you were eligible for.
Key Terms to Grasp
The following are helpful to know before you file:
- T1 General: The main form for individual tax returns.
- NETFILE: The CRA system by which taxpayers who are eligible can submit their tax return by using certified software.
- Tax credit vs. refundable credit: Non-refundable credits decrease the tax you owe; refundable credits may bring you money back when you owe no tax.
- Benefit and credit programs: Some are the Canada Child Benefit, payments for provincial and territorial benefits, and the GST/HST credit.
Step by Step: Filing a Zero Income Return
Below is how you submit your tax return when you had no income during the year:
Collect Needed Personal Information
Be sure to bring with you your Social Insurance Number, birth date, current address at present time, marital status, and dependent information, if you have any.
Establish if There is Income or Exempt Income
If you absolutely had no income at all, you’re set to go. If you did have income from non-taxable sources or tax-exempt sources, list those out as well. Some income is tax-exempt, and yes, it still needs to be reported, but is never subjected to tax.
Choose How to File
You can file using NETFILE-certified software, generally the least complicated process. The majority are free, and commercially marketed programs will take you through it. Or you can print out a paper T1 General return and mail it in. There are also volunteer-run tax clinics in most communities to prepare basic-subtraction returns.
Complete and Sign the Return
Enter zeros for income, or if you’re exempt from tax income, enter that accordingly in the respective fields. Identification fields, marital field, and dependents are to be filled out. Input fields for any credits you think you’re entitled to, like GST/HST or provincial credits.
Submission On Time
The deadline for everyone else is April 30 in the year following the tax year. For those who are self-employed or married to someone who is self-employed, however, you have until June 15, although any tax owing is still to be submitted by April 30.
Maintain Records
Despite having no income, retain records like your SIN, notifications, and receipts for any credit or change in status you’re receiving. Proof can be requested by the CRA.
Check Your CRA Account or Notice of Assessment
Once you submit it, a Notice of Assessment is mailed to you by CRA. It tells you that it has been properly processed and whether you are eligible for benefits and credit. Payments will arrive sooner if you have already set up direct deposit.
What Credits and Benefits are you still Entitled to?
Filing out a zero income tax return means not receiving anything. Rather, you may qualify for:
- The GST/HST credit is a tax-free quarterly payment to families and individuals who earn little or nothing.
- The Canada Child Benefit, if you’re eligible with kids. Payment and eligibility are based on your tax return you’ve submitted.
- Provincial or territorial credits, such as property or energy rebates, depending on where you live.
- Carry-over of tuition and student loan interest Credits to subsequent tax years.
- Even when you owe nothing whatsoever, you will eventually get a payment or refundable credit.
What to Reasonably Expect (But Probably Won’t)
- Expect it to be less tedious to submit than a full income tax return, with fewer fields to fill out.
- Be prepared to spend time entering personal information and agreeing that you can answer eligibility questions for benefits.
- Do not anticipate a large reimbursement, as you never had tax income and probably paid no tax, and you may collect benefit payments.
- Do not assume skipping the filing will do you no harm. This can postpone or waive you from receiving credits.
Common Misunderstandings & Questions
“If I made less than my minimum personal amount, I am exempt from filing.”
Even if it is less than the federal basic personal amount, it may matter to file for you for credits, benefits, or eligibility.
“No income, and you have no reason to deal with CRA.”
Not correct. The CRA still requires your new status, and it can affect benefits and creditworthiness.
“No income implies no papers are needed.”
You are still requested to present identification and, at times, benefits verification.
Example Scenario
Presume Jane is a new grad and she volunteered during the year. She never received employment income, T4 statements, business income, or investment income.
She prepares and submits a nil return with a free program. She inputs her information, reports zero income, claims the GST/HST credit, and verifies her marital status as single with no dependents. Once she has submitted her return, CRA processes it, verifies she owes nothing, and starts her credit payments.
Despite the non-payment of tax by Jane, she can expect four quarterly payments of GST/HST and retain her entitlement to other benefits upon entering work later.
Steps to Reduce Error
Most individuals are wrong when registering a nil return. These are things to keep in mind:
- Forgetting to file because they believe no income means no responsibility.
- Misstating income or tax-exempted amounts.
- Missing eligible credits by not filling that section.
- Late payment and postponing benefits.
- Not updating CRA with the correct addresses or marital status leading to miscalculated credits.
Filing a nil or zero tax return in Canada may seem unnecessary when you have no income, but there are frequently good reasons to do it after all. It can release benefits and Credits, secure future program eligibility, maintain credit carry-forwards, and keep your tax history up to date. Even when you believe there is “nothing to report,” there may still be a case to be made for filing it, and it may be more critical than you suspect.
