Paying Taxes in Canada

Canada attracts immigrants for many reasons. Apart from the safe environment, the job opportunities, the healthcare, and the educational system, the tax benefits are also one of the most important reasons. Here are some basic tips on taxation in Canada.

BASIC INFORMATION ON CANADIAN TAXATION

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In general

  • You are taxed on the basis of your residence and not your citizenship.
  • Canadian residents are taxed on their worldwide income.
  • New permanent residents are allowed for offshore trusts.
  • Canadian citizens who are non-residents of Canada do not pay Canadian tax on their worldwide income.
  • Non-residents pay Canadian tax only on certain Canadian sourced income and capital gain.
  • There are no estate duties or succession duties in Canada.

Who collects the taxes in Canada?
Federal taxes are collected by the Canada Revenue Agency, formerly known as “Revenue Canada” or the “Canada Customs and Revenue Agency”.

The CRA collects and remits to the provinces:

  • Provincial personal income taxes on behalf of all provinces except Quebec
  • Corporate taxes on behalf of all provinces except Quebec and Alberta

Are taxes in Canada high?
The level of Taxation in Canada is average among Organisation for Economic Co-operation and Development countries.

Do I have to pay taxes during my first year in Canada?
If you are a new resident of Canada, there are different rules applying to you during your first tax year of residence.

You become a resident of Canada for income tax purposes when you establish residential ties in Canada, usually on the date you arrive in Canada.

Residential ties include a home in Canada, a spouse or common-law partner or dependants who move to Canada to live with you, personal property, such as a car or furniture, and social ties in Canada.

Other ties include: a Canadian driver’s licence, Canadian bank accounts or credit cards, and health insurance with a Canadian province or territory. After your first tax year in Canada, you are no longer considered a newcomer for tax purposes.

What are my tax obligations and claims in Canada?

Tax Form Being Filled Out
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  • You must report “world income” (income from all sources both inside and outside Canada) on your Canadian income tax return.
  • You must ensure that you pay the correct amount of taxes according to the law.
  • You have the right and responsibility to verify your income tax status each year.
  • You can claim all deductions, non-refundable tax credits, and refundable federal, provincial, or territorial credits that apply to you.

Most individuals file only one income tax return for the tax year.
Note that if you live in the province of Quebec, you may need to file a separate provincial income tax return (for questions, contact Revenu Québec).

When do I have to file a tax return?
You must file a tax return if you owe tax or if you want to receive a refund. You must also file an income tax return if you are eligible for certain payments or credits in order to receive them.

Which tax package is suitable for me?
To choose the right package for you, it is recommended that you use the General Income Tax and Benefit Guide and the forms book for the province or territory where you live on December 31st of the tax year because tax rates and tax credits are different in each province and territory.

Note that if you live in the province of Quebec, you may need to file a separate provincial income tax return. For more information, contact Revenu Québec.

When do I have to file my income tax return?
It must be filed before April 30th of the year after the tax year; or if you or your spouse or common-law partner carried on a business in Canada (other than a business whose expenditures are mainly in connection with a tax shelter), the return has to be filed on or before June 15th of the year after the tax year. The Canada Revenue Agency has helpful publications for newcomers (call 1?800?959?2221 or visit "this site":www.cra.gc.ca/forms) and volunteers who can help you fill out your tax forms for free.

Are there any tax benefits and credits?
As a newcomer to Canada, you may be eligible for

  • The Canada Child Tax Benefit (CCTB),
  • The goods and services/harmonized sales tax (GST/HST) credit,
  • The Universal Child Care Benefit (UCCB)

CANADA CHILD TAX BENEFIT (CCTB)

What is the CCTB?
The Canada Child Tax Benefit is a monthly tax-free payment, the amount of which is based on your family income, the number of children you have and their ages, your province or territory of residence, etc.

What do I do to receive the CCTB?
To receive the Canada Child Tax Benefit, you must file an Income Tax Return each year or you may need to complete a separate form to declare your world income. With your application, you must provide proof of your Canadian immigration status and proof of birth for any of your children born outside of Canada.

For more information, call the Canada Revenue Agency’s toll-free enquiry service at 1?800?387?1193, or visit CRA website.

GOODS AND SERVICES / HARMONIZED SALES TAX

What is the Goods and Services/Harmonized Sales Tax?
The GST is a tax that you pay on most goods and services sold or provided in Canada. In some provinces, the GST has been blended with the provincial sales tax and is called HST. The GST/HST credit helps individuals and families with low or modest incomes offset all or part of the GST or HST that they pay.

When am I eligible for the GST/HST credit?
You are eligible if you are a resident of Canada and 19 years of age or older. If you are under 19, you are only eligible for the credit if you have a spouse or a common-law partner or if you are a parent.

How do I apply for the GST/HST credit?
You complete Form RC151, Goods and Services Tax/Harmonized Sales Tax (GST/HST) Credit Application. For more information, call the Canada Revenue Agency’s enquiry service at 1?800?959?1953 or visit CRA benefits website. To continue receiving the credit each year, you will have to file an Income Tax and Benefit Return and apply for the credit on that return.

TAXES FOR 2011

What are the federal income tax rates in Canada for 2011?

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Federal Tax Rates are:

  • 15% on the first $41,544 of taxable income
  • 22% on the next $41,544 of taxable income (on the portion of taxable income between $41,544 and $83,088)
  • 26% on the next $45,712 of taxable income (on the portion of taxable income between $83,088 and $128,800)
  • 29% of taxable income over $128,800.

For more information, consult tax rates page

What are the provincial/territorial income tax rates in Canada for 2011?
Under the current income tax method, tax for all provinces (except Quebec) and territories is calculated the same way as federal tax.

For more information consult local tax rates page, or calculate your income iwith this income tax calculator.

What are the income tax rates for Ontario for 2011?

  • 5.05% on the first $37,774 of taxable income
  • 9.15% on the next $37,776
  • 11.16% on the amount over $75,550

TAX-FREE SAVINGS

Tax-Free Savings Account
You can open a tax-free savings account at a bank or other financial institution, saving up to some thousands per year. This option is better than investing in the stock market or in savings bonds because the income or interest you earn on the investments in that Tax-Free Savings Account is tax-free. Withdrawal of this money is possible at any time without being taxed. For more information, see TFSA.

Registered Retirement Savings Plan (RRSP)
Another popular way to save for your retirement and defer taxes is a Registered Retirement Savings Plan (RRSP), which are registered with the federal government. In this way, you can add to the money you will receive from pensions and federal old-age benefits. For more informationbn about RRSPs, go to the Canada Revenue Agency website.

5 thoughts on “Paying Taxes in Canada

June 29, 2012 at 12:02 am
Bryon Percival says:

Hello . Hoping maybe you can answer a question for me or point me to someone who can.
Simply… I own 2 houses. House number one I lived in for about 6 years. I built a new house a bout 3 years ago, which I live in most of the time. My plan was to sell my first house after I built and moved into the new house(#2). The prices fell and have not had any luck selling it for what I need to. It has sat empty for quite a while as I hoped the market would get better. I have been doing some minor upgrades, and do stay there sometimes, but what I am worried about now is will I have to pay capital gains on it if I sell it now?
I can not find a simple answer? Should I move back into it permamnetly til it sells so it is my primary residence? Or can it still be considered my primary residence? Can I or should I claim the hoeowners grant for the one I want to sell? I do not want to break any rules, but dont think I should have to pay capital gains on what should still be my primary residence. It iis not my fault the market dropped and I could not sell it for what I need to as quickly as I hoped? Any suggestions?

Thank you

Bryon

April 24, 2013 at 8:47 am
Beverly Anderson says:

I don’t know how to start this letter.I am so upset by my hubby’s assessments he received in the mail today.One thing is for sure ,I am puzzled by amounts owing as there is 5 tax years with the same amount owing.Each income for those years were different.These pensions are from the U.K.One is a civil pension the other a state pension.The state pension is not taxed in the U.K.My problem right now is he IS NOT a Canadian citizen and has not been granted a stay in Canada through immigration.He does not have medical coverage and only has a S.I.N. which according to them is a temporary one.Every time we talk to them they ask why he still has that number.He has nothing in his name in Canada.

April 25, 2013 at 7:08 am
Jamie Sarner says:

Hi Beverly,
Your question requires the assistance of a specialized tax professional. I suggest that you engage the services of a qualified tax accountant who specializes in international sources of income. That person would be better suited to guide you with answers and options.

Sorting this matter out is also something that should not be delayed as any potential monies owed to the government would have penalties and interest accruing. Please be prepared for the fact that this is the busiest time of year for these tax professionals and so they may not be able to assist you right away–at least until after they have dealt with all of their existing clients’ filings that are due April 30th.

Regards,
Jamie

October 8, 2013 at 10:24 pm
Kelly Jayaram says:

Hi,

I haven’t done my taxes in Canada since 2011, this is because I am currently working and living in Australia. I bought a property in Canada before i left ) June 2011 and have been renting it out ever since.
I know I’m late but I was going to complete my taxes and I cannot figur out if I am a non resident or a deemed resident.
I’m not sure if I will be returning back to Canada, but i wanted to complete my taxes and report my foreign income.

Any help would be appreciated.

Regards,

Kelly

October 9, 2013 at 9:41 am
Jamie Sarner says:

Hi Kelly,

You can try these Toronto international tax accountants:

Michael Atlas: link to taxca.com – ideal for the smaller person (complexity-wise)
Cadesky: link to cadesky.com – for a bigger client

Hope it helps!

Best regards,

Jamie

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