If you’re preparing to move to Canada, sorting out your tax affairs and making sure you are informed about your tax liabilities should be an important part of your preparations.
So here is what you need to know about Canadian taxes when moving to Canada.
If you’re moving to live and work in Canada, you will also, of course, come under the umbrella of Canada’s tax authority, which will also want you to pay taxes.
So it’s fortunate that there is what’s called a ‘double taxation agreement’ in place between the two countries.
The double taxation agreement offsets your Canada taxes against any ongoing liability that you have in your home country for the current and even the following tax year.
Becoming a Canadian tax resident
Establishing residency for tax purposes can be a very complicated matter, but usually, if you move to Canada permanently, you become a resident for tax purposes and are therefore liable to Canadian taxes.
You should keep a detailed travel log of travel inside and outside Canada during the year of your move in case there are any questions as to the date your residence was established.
A good accountant will be essential for you in the first year or so just to iron out any cross-border liability issues.
In the year that you become a tax resident in Canada, you will be treated as a part-year tax resident.
As a tax resident of Canada, you are subject to Canadian tax on your worldwide income.
If you are a non-resident of Canada, you are only subject to Canadian tax on Canadian source income.
On relocating to Canada, you will need to obtain a social insurance number (SIN) or a tax identification number (TIN) to file a Canadian tax return.
Knowing the Canadian taxes essentials
Tax matters are never simple, so regardless of how much reading you do on taxes, you will never be able to fully understand a taxation system in your new country of residence unless you are a qualified tax advisor/accountant.
Therefore consulting a tax advisor/accountant is a very wise step for those moving abroad. However, there are some essential facts you need to be aware of to be able to keep your taxes in order:
PAYE system
If you are going to be employed in Canada, your income tax will be normally paid under the PAYE system, i.e., it will automatically come off your paycheque.
Canadian tax year
The tax year in Canada is from the 1st of January to the 31st of December.
As a resident of Canada for any part of a tax year, you will generally need to file a Canadian tax return by April 30th of the following year if you owe tax or if you want to receive a refund because you paid too much tax in a tax year.
Types of Canadian taxes
Besides the federal income tax in Canada, there are municipal and provincial taxes.
You can check the updated federal income tax rates here.
Municipal tax is levied at varying rates on your property, and provincial tax is a form of income tax and ties in with the federal tax rate except in Quebec, which imposes a separate definition of taxable income – just to confuse things.
Note, when you file your tax return in Canada, you have to do it as an individual even if you are married – there is no provision for joint returns.
For most provinces, you only need to file one tax return for both federal and provincial taxes. You may need to file a separate provincial tax return if you live in Quebec.
If you keep assets outside of Canada worth more than $100,000, there are additional Canadian tax filing requirements that must be filed, and there are some potentially hefty penalties for not being compliant with the foreign reporting requirements.
Tax credits and deductions
Now for the good news – charitable tax deductions and credits!
If you make regular charitable donations, keep a receipt of them. A tax credit is available limited to 75% of net income.
The tax credit for the first CAN $200 of donations is at the lowest personal tax rate (except for Quebec, which uses 20%), and the tax credit for the amount over CAN $200 is at the highest tax rate in 2016 for all provinces and territories except in Alberta, New Brunswick, and Ontario.
When it comes to tax relief, this is usually in the form of credits rather than deductions. There are the following credits from federal taxes: personal credit amount, married credit amount, equivalent to spouse credit amount, age amount, dependent amount, disability amount, CPP premiums credit, tuition fees and education credit amount, and medical expenses credit.
There are a few deductions that may apply to you; they include child care expenses (up to set limits), alimony and maintenance payments, carrying charges and certain interest expenses, personal moving expenses (under certain circumstances), and registered retirement savings plan (RRSP) contributions (up to set limits). You must file a tax return to receive these credits, even if you have no income to report or tax to pay.
Unlike in some nations, general homeownership expenses such as mortgage interest payments, insurance, and property taxes are not deductible. However, if you’re a landlord or you work from home and have an office or business premises within your home, then you are usually able to deduct some of the expenses connected to your situation.
Taxes in Canada – summary
A good accountant will be invaluable to you until you familiarise yourself with the intricacies of Canadian taxes and what you can and cannot claim. Find one who is used to dealing with expats so that they can help you with any dual nation tax liabilities.
You might find useful:
- Living In Canada – Plan Your Move With Our Expat Guide;
- Best Places To Live In Canada;
- Canada Visa – How To Move To Canada As A Skilled Person
Helpful external links:
- Income tax rates in Quebec – Revenu Quebec.
- Capital Gains Tax – The Government of Canada site.
- Tax credits and benefits for individuals – The Government of Canada site.