We often get asked, “how exactly does filing your taxes online work?” This is an especially good question given that this is the first year that the CRA is no longer sending out personalized paper tax documents.
Filing online is actually quite simple and very similar to filing on paper. Instead of using a paper tax package, you use CRA-approved software; instead of going to the post office and mailing your return, you visit the CRA’s website and upload your return.
Your tax return boils down to a bunch of “line numbers” and their values. For example, your taxable income is line 260 and your total income is line 150. When doing your taxes on paper, you need to calculate these values by hand, using the formulas on the page. Tax software takes care of these tedious calculations for you. Some products, like SimpleTax, show you these calculations on the paper documents so you can see what’s happening under the hood.
When you’re done, you need to send everything to the CRA. Instead of putting everything in one big envelope, you download a very small file called a “dot tax” file—for example, my_tax_return.tax. Like a paper return, this file contains all your line numbers and their associated values1. Once you have your dot tax file, you visit the CRA’s website. They’ll ask you a few questions to make sure you are who you say you are and then you upload (send them) your dot tax file2. After that, you’re done!
Since you don’t need to wait for your return to physically get to the CRA, and because they don’t need to key in everything from your paper return, the CRA can process everything much faster. Tax software also undergoes thousands of tests, so the CRA knows they can trust dot tax files produced by our software. This is why, with direct deposit, you can get your tax refund in less than two weeks.
1 If you’re really curious, and fairly technical, you can open your dot tax file in a text editor and see all the line numbers and their values. This is everything that gets sent to the CRA.