As an immigrant to Canada, it’s important to understand the Canadian income tax system and your tax obligations. Whether you’re a permanent resident, a temporary worker, or a student, you’ll probably need to file a tax return with the Canada Revenue Agency (CRA) each year.
Do you need to file a Canadian income tax return?
Residency for tax purposes
Your residency status for tax purposes may be different from your immigration status. Even if you’re not a resident for immigration purposes, you may still be considered a resident for tax purposes; and even if you have Permanent Resident (PR) status in Canada, if you’re not physically residing in Canada you may not be considered a tax resident of Canada.
Generally, if you’re living in Canada for more than 183 days in a year, you’ll be considered a resident for tax purposes and will need to pay taxes on your worldwide income. Your tax residency begins when you establish residential ties (i.e., a home) in Canada, though it may happen sooner if you have no significant residential ties in another country.
Filing a tax return
As a resident of Canada, you typically file an income tax return, called a T1 Income Tax and Benefit Return, every year. This return reports all your income to the Canadian government.
Unlike the system in the US where you must file an income tax return every year, in Canada you only have to file an income tax return with the Canada Revenue Agency (CRA) if you owe tax, or if the Canadian government has specifically requested one. Situations where you don’t owe tax would include years in which you earned too little money, and years in which you pre-paid more tax than you actually owe.
However, it’s generally advisable to file Canadian income tax returns every year, whether you earned money or not, and whether you owe tax or not. If you prepaid more tax than you owe, filing a return will trigger a refund of the overpayment. If you earned so little that you’re not taxable, you are probably entitled to some credits and benefits. These credits and benefits, which include things such as the Canada Child Benefit, the GST/HST credit and the Climate Action Incentive payment, can only be claimed by filing a Canadian income tax return.
Reporting foreign income
Canadian tax residents must report all their worldwide income on their Canadian income tax return. This means that if you have income from outside of Canada, you’ll need to report it on your Canadian tax return. This includes income from employment, self-employment, investments, or rental properties. If you have foreign assets costing more than CA$100,000, you may also have to report them on a special return called T1135 Foreign Income Verification Statement, even if they don’t earn any income.
Do you have a personal home back in your country of origin? It may not have to be reported on T1135.
Tax credits and deductions
As a resident of Canada, you may be eligible for various tax credits and deductions, such as the basic personal amount, the Canada Employment Amount, or the tuition tax credit. These can help reduce the amount of tax you owe or increase your refund. It’s important to keep track of your receipts and documents in order to claim these credits and deductions.
In addition to federal taxes, you’ll also need to pay provincial or territorial taxes, which vary depending on where you live. Some provinces, such as Alberta and Saskatchewan, have a flat tax rate, while others, such as Ontario and Quebec, have a progressive tax system. Be sure to check the tax rates for your province or territory. Though these provincial taxes are separate from federal taxes, you usually don’t have to file a special return for them. In every province except Quebec, the federal and provincial taxes are calculated on a single, combined return.
Only in Quebec do you need to file a separate provincial return.
Canada has tax treaties with many other countries, which can help prevent double taxation and allow you to claim certain credits or deductions. Generally if you’re taxed on income in a foreign country, you still report that income on your Canadian return, where it may trigger some income tax. You then cancel out some or all of that income tax by making a claim based on foreign tax paid.
Personal Tax Advisors has worked with thousands of new Canadian immigrants over the years. Contact us to get help with your Canadian income tax filing. And welcome to Canada!