A balance owing and a smaller refund have the same root cause: the tax taken off your pay during the year didn’t match the tax you actually owed on your return. Owing money to the CRA doesn’t mean you did anything wrong. In most cases your employer simply wasn’t set up to withhold enough for your real income, or a deduction or credit you had last year has gone. This page covers both questions and how to avoid the surprise next year. (How a refund or balance arises in the first place is explained in how Canadian income tax works, and the rest of the filing process in the guide to filing a tax return in Canada.)
To check what you owe, see how do I know if I owe CRA money, and to test your payroll withholding, the withholding tax calculator.
Common causes of a tax bill
| # | Cause | Why it happens |
|---|---|---|
| 1 | Two or more T4 jobs | Each employer applies the full basic personal amount |
| 2 | Investment income (outside RRSP/TFSA) | No withholding on interest, dividends or capital gains |
| 3 | Self-employment or gig income | No payroll withholding on T4A Box 048 or cash income |
| 4 | RRSP withdrawal | The 10% to 30% withheld may not cover your marginal rate |
| 5 | EI repayment | Net income above $86,125 (2026) means repaying 30% of the lesser of the excess and the regular EI received; see how much you can earn on EI before repaying |
| 6 | OAS recovery tax | Net income over $93,454 for 2025 means repaying part of your OAS; see the OAS clawback |
| 7 | Rental income (net positive) | Fully taxable, with no automatic withholding |
| 8 | Capital gains (selling property or investments) | Part of the gain is added to income and nothing is withheld |
| 9 | New job mid-year | Both employers applied personal amount credits for the same year |
| 10 | Missing RRSP deduction | A contribution made but not deducted (or held for a later year) |
Common reasons for a smaller refund
A smaller refund usually means the same withholding met a higher tax bill, or a deduction or credit dropped off.
| Reason | Common for | What can change next year |
|---|---|---|
| A smaller or no RRSP contribution | Everyone | Contribute before the deadline |
| Job change mid-year | Employees who changed employers | Ask the new employer for additional withholding on the TD1 |
| Several income sources | Contract workers, side-hustle earners | Stop claiming the basic personal amount at the second job |
| Child aged out of the child care deduction | Parents of children turning 7 or older | Nothing; the deduction no longer applies |
| Separation or another change in marital status | Newly separated people | Update your marital status with the CRA and your TD1 |
| Lost disability or caregiver credit | Caregivers, people with disabilities | Reapply if still eligible |
| Tuition carry-forward used up | Recent graduates | Nothing; the balance is gone |
| Fewer charitable donations | Donors | Credits follow donations |
| New investment income | New investors | Set money aside or increase withholding |
| Home office claim no longer available | Remote workers | An employee claim now needs a Form T2200 from the employer (see home office expenses for employees) |
| A raise or promotion | Anyone whose income rose | More income, more tax: working as intended |
| Wrong withholding set up by the employer | Anyone | Review the TD1 and ask payroll to correct it |
Refund vs balance owing: what changed?
| Situation | What usually happened |
|---|---|
| The refund shrank sharply | A lost deduction (RRSP, child care) or new income with no withholding |
| A refund turned into a balance owing | Under-withholding from a job change, two jobs, or investment or rental income |
| The refund is a little smaller | Normal variation as income or credits shift |
| The refund is much larger than expected | A retroactive benefit recalculation or a one-time deduction (a large medical expense claim, moving expenses) |
Comparing last year’s Notice of Assessment with this year’s return makes the comparison quick, since the notice shows every deduction and credit line.
Why employer withholding falls short
Your employer works out payroll tax from:
- Your pay, annualized as if you worked the full year there
- The personal amounts you claimed on your TD1 form
What your employer doesn’t know:
- That you had a second job this year
- That you earned investment income
- That you rented out a property
- That you sold crypto, stocks or real estate
- What you’ll deduct at tax time (RRSP, medical, moving)
Any income your employer doesn’t know about goes untaxed until filing day.
The two-job scenario: a worked example
This is the most common cause of an unexpected tax bill.
| Employer A | Employer B | Total | |
|---|---|---|---|
| Annual salary | $45,000 | $35,000 | $80,000 |
| Basic personal amount applied | $16,452 | $16,452 | Applied twice instead of once |
| Result | Too little tax withheld across the two jobs |
The fix: at the second employer, fill in a new TD1 that doesn’t claim the basic personal amount, or ask for a set amount of additional tax to be withheld each pay period.
Capital gains: nothing is withheld
When you sell an investment that has gone up (stocks, ETFs, crypto, real estate outside your principal residence), the taxable part of the gain is added to your income and no tax is withheld on the sale. The capital gains tax calculator estimates the bill on a given sale.
Owing tax vs paying more tax
Owing tax means some of your taxable income wasn’t covered by withholding: a timing and collection issue, not extra tax. Paying more tax means your income (and possibly your marginal rate) went up. The two often happen together, which is why a bigger balance owing doesn’t always mean a worse year.
How to avoid owing (or a shrinking refund) next year
| Action | How | Timing |
|---|---|---|
| Request extra withholding | On the TD1, ask for additional tax to be deducted each pay | Any time before year-end |
| Reduce withholding instead, if refunds are large | Form T1213, explained in am I paying too much tax | Before the tax year |
| Make instalment payments | Due March 15, June 15, September 15 and December 15 if your net tax owing is more than $3,000 ($1,800 in Quebec) this year and in either of the two previous years; see tax instalments | Quarterly |
| Contribute to an RRSP | Up to your available room, by the deadline | December to February |
| Track investment income during the year | Set aside tax at your marginal rate | Ongoing |
| Sell losing positions before December 31 | Capital losses offset gains (tax-loss harvesting) | Before December 31 |
| Claim every deduction | Medical, donations, moving, employment expenses | At filing |
If you can’t pay the balance by the deadline, what to do if you can’t pay your taxes covers payment arrangements. Once you’ve filed, how long a tax refund takes has the processing times, and the reasons the CRA might later change your assessment are on why did CRA reassess my taxes.
Sources
The figures and rules on this page come from these sources, last checked against them between September 22, 2026 and September 29, 2026. How we check facts.
- Canada Revenue Agency: EI premium rates and maximums – Calculate payroll deductions and contributions
- Canada Revenue Agency: Indexation adjustment for personal income tax and benefit amounts
- Canada Revenue Agency: Required tax instalments for individuals - Payments for individuals
- Canada Revenue Agency: Who has to pay - Required tax instalments for individuals
- Government of Canada: Old Age Security pension recovery tax
- Justice Laws (Canada): Section 145
- Justice Laws (Canada): Employment Insurance Act
- Justice Laws (Canada): Section 145
- Justice Laws (Canada): Employment Insurance Act