NETFILE vs. E-file: How to File Taxes Online In Canada

If you’re filing taxes in Canada for the first time this year, the prospect may seem a bit daunting. But it doesn’t have to be, thanks to two online tax filing services offered by the Canada Revenue Agency (CRA).

In this article, I’ll cover everything you need to know about filing taxes online, including NETFILE and E-file – their similarities and how they differ from one another. I’ll also give you a couple of top tax software options to consider when doing your taxes this year. Are you ready? Here we go!

NETFILE vs. E-file

There’s a good chance you’ve heard of both of these terms, but you may not know the differences between the two. Essentially, NETFILE and E-file do the same thing – transfer the information from your tax return to the CRA online almost instantly, safely, and securely. The difference comes down to the user.

NETFILE is dedicated to individual users who are filing their own tax returns. On the other hand, E-file is designed for professional tax preparers like accountants and companies like H&R Block or Liberty Tax Service.

How Does NETFILE Work?

If you’ve prepared your own tax return this year using a certified tax software program such as TurboTax or Wealthsimple Tax, you can transfer your return to the CRA online using their NETFILE service. There are several advantages to doing this:

• Your refund can be directly deposited to your account within 1-2 weeks.
• You’ll know immediately that the CRA has received your tax return.
• There’s no need to send in your receipts (but keep them handy)

Once you’ve completed and reviewed your return for errors, your tax software program will transfer you over to NETFILE, where you will confirm your identity with the CRA and proceed to transfer your return using the highest levels of encryption. The process is highly secure. The CRA will let you know that they’ve received your return, and providing that your direct deposit information is up to date, you’ll likely get your refund within a week or two.

Who Is Eligible for NETFILE?

Beyond using NETFILE certified tax software, you should know the other eligibility requirements for using NETFILE. For starters, you can’t send a return for any year before 2017. Also, you can only send your own return. Each taxpayer needs to have their own NETFILE account.

If you claimed bankruptcy in Canada in 2019 or 2020, you can’t transfer via NETFILE. And last but not least, you must be a Canadian resident. For a full list of eligibility requirements and restrictions, visit the CRA website.

New for 2020: NETFILE Access Code

According to the CRA, you will now have an opportunity to enter an 8-character Access Code before “netfiling” your return. The code is located on your previous year’s Notice of Assessment. It’s not mandatory; however, it will allow you to confirm your identity with the CRA by using your tax return information. Without it, you’ll have to find other means of identification. First-time tax filers won’t be able to use the access code.

How Does E-file Work?

Like NETFILE, E-file is a highly secure way to send your tax return to the CRA online. The only real difference is that E-file is for tax providers filing a return on your behalf. Perhaps the best example of a tax preparation service would be H&R Block. At least, that’s the name most Canadians are familiar with. E-file is not available to individuals who are preparing their own taxes. That’s what NETFILE is for.

How Does a Tax Preparer Qualify for E-file?

For an individual or business to qualify as an E-File tax preparer, they must apply using an online form. However, everyone is approved. Applications are screened for suitability. For example, if it’s determined that you will be filing a small number of returns or you don’t have plans to file any returns at all, CRA will decline your application. 

According to the CRA, it can take as much as 30 days for an E-file application to be processed, so you should apply before tax season to make sure you’re ready.

As with NETFILE, tax preparers are required to use tax software that is E-file Certified. Thankfully, the list of qualifying applications is long – names like Profile T1 and Taxtron are well known by E-file users.

Which Tax Software Should I Use to File My Return?

When it comes to filing your own taxes, the good news is that there are plenty of great tax software options to choose from. The first thing you need to decide is whether you prefer to pay for software that comes with some extra tools and enhanced customer support or go the free route while giving up some of the bells and whistles.

Here at MapleMoney, we’re big fans of Wealthsimple Tax as a free option and the longstanding TurboTax as the best paid tax software. However, just about any NETFILE Certified tax software can get the job done without much hassle.

Important Tax Filing Dates for 2021

Here is a list of important dates when filing your 2020 income taxes:

Feb 22, 2021 – Online tax filing system opens.

Mar 1, 2021 – RRSP contribution deadline

Apr 30, 2021 – last day to file personal income taxes

Jun 15, 2021 – last day for self-employed individuals to file taxes

Apr 30, 2021 – the final day to pay 2020 taxes owing

Final Thoughts on Filing Taxes Online

If you’re filing your own taxes this year, make sure you use CRAs NETFILE, as long as you are eligible. Once you’ve completed your return, it only takes about 5 minutes to set up and send your return to the CRA. Has anything involving the government ever been this easy?