Canadian tax system offers all the immigrants and residents of Canada a quality of life to enjoy. Therefore, understanding the tax rules and obligations is essential for newcomers and temporary residents as it gives them the insight to file their taxes before the due date.
Moreover, a solid understanding of tax deductions, credits, and benefits can lead to cost savings and financial security.
It only applies to your first tax year as a new resident of Canada for income tax reasons. After your first year of paying taxes in Canada, you are no longer considered a newbie.
This blog will further help to give you insights on Tax rules, deductions, and benefits as a newcomer or temporary resident.
Determining Residency Status:
If you are an immigrant in Canada, figuring out your residency status means looking at how your stay and ties to the country comply with the rules set by Canadian tax officials.
Maintaining or establishing significant residential ties with Canada is crucial in determining residence status for Canadian income tax purposes.
Primary Residential ties include:
- Ownership of home in Canada
- a person who is either a spouse or a common-law partner in Canada
- dependents located in Canada
Relevant secondary residential ties include
- personal property in Canada
- economic relations such as personalized accounts in a Canadian bank
- social ties in Canada, such as membership in Canadian organizations
- Health insurance valid in a Canadian province or territory
- a valid Canadian driver's license
- a valid Canadian passport
Social Insurance Number (SIN) and Tax Identification:
You will be required to obtain a social insurance number (SIN) to work in Canada if you are a newcomer legally. The Social Insurance Number (SIN) is a nine-digit identification number that is exclusive, specific to each individual, and strictly confidential (CRA, 2023).
You will need a SIN to:
- Work
- File your tax
- To gain benefits and credits (Canada pension plan, etc.)
You can receive tax benefits and file your taxes through a temporary tax number (TTN) in case Service Canada cannot provide permanent or temporary SIN (CRA, 2023).
Understanding the Canadian Tax System:
Your financial responsibility for paying taxes in Canada is directly proportional to the type of residency you have in that country. Therefore, If you are considered a tax resident, you must pay taxes in Canada on all of your income, regardless of whether your money was generated in another nation or if you remitted that income in Canada, you must pay Canadian taxes.
However, it's important to remember that such earnings may also be taxable in the individual's native country. Once again, a tax treaty between Canada and the other country can help you avoid paying taxes twice.
If you are not a resident of Canada, you only have to pay income tax on money you make in Canada.
Filing Requirements and Deadlines:
For most Canadians, the annual tax filing deadline is April 30. Since April 30, 2023, is a Sunday, if your return is received by the Canada Revenue Agency (CRA) on or before May 1, 2023, it will be considered timely filed. However, if you or your spouse/common-law partner are self-employed, you have until June 15 to submit your taxes. You must pay taxes in full by April 30 or face penalties and interest if you owe taxes.
You must keep proper records of your income, spending, and deductions to correctly fill out your tax return.
Filling process:
If you file your taxes online and sign up for direct deposit, you can get your refund faster.
If you'd instead handle your electronic filings, you can choose from several NETFILE-approved programs. Free versions of some of the software are also available.
Tax Treaties and Foreign Income:
Two countries signed a tax treaty to avoid double taxation of their citizens' passive and active income. These treaties may include income, inheritance, value-added, and other taxes.
Even though most of Canada's tax treaties follow a more or less standard pattern, the exact terms of each one depend on what the two countries have agreed to. Suppose you are a resident of a country and have income from another country. In that case, you will need to analyze the precise provisions of each applicable tax treaty to determine the impact.
Foreign Tax Credit
You may be eligible for a federal foreign tax credit for foreign income or profit taxes paid on money earned outside Canada and reported on your Canadian tax return. Tax treaties with other nations may affect whether you qualify for this credit. Therefore, Form T2209: Federal Foreign Tax Credits is required to claim foreign tax credits in Canada.
Additionally, international income and taxes must be converted to Canadian dollars.
Tax Credits and Benefits:
Residents, considered residents, and non-residents with no Canadian income and who have been in Canada for fewer than 183 days may not need to file a tax return. Filing tax returns has benefits (Arrive, 2021).
Goods and Services Tax (GST) and Harmonized Sales Tax (HST):
The GST/HST credit is a non-taxable payment paid to low-income people and families four times a year to offset GST/HST. But if you're under 19 years old, you must have (had) a spouse/common-law partner, or you currently reside with your child or formerly did so (CRA, 2023).
Canada child care benefit:
Families that qualify receive a tax-free monthly payment to help cover the costs of raising children younger than 18. Depending on the province or territory, the CCB may include the provincial or territorial child disability benefit. (Child care benefit, 2023)
Fill out Form RC66, Canada Child Benefits Application, to apply for the CCB and linked provincial or territorial benefits. Your immigration and residence status may require you to complete Schedule RC66SCH, Status in Canada and Income Information, for the Canada Child Benefits Application (CRA, 2023)
Other Tax Benefits and credits:
Other Tax benefits and credits include:
- Canada Dental benefit
- Provincial and territorial benefits
- Climate action incentive payment
- Canada workers benefit
- Child disability benefit
Conclusion
- In conclusion, the Canadian tax system is crucial for immigrants and residents to ensure a quality of life and financial security. Understanding the tax rules and obligations is essential for newcomers and temporary residents, as it helps them file their taxes before the due date.
- A tax treaty between Canada and other countries can help you avoid paying taxes twice.
- You might be eligible to get a federal foreign tax credit for foreign income or profit taxes you paid on money you earned outside of Canada and reported on your Canadian tax return.
- Therefore, Form T2209: Federal Foreign Tax Credits is required to claim foreign tax credits in Canada.
- Depending on the province or territory, the CCB may include the provincial or territorial child disability benefit. Fill out Form RC66, Canada Child Benefits Application, to apply for the CCB and linked provincial or territorial benefits.
- Remember, staying informed and proactive about your tax matters will contribute to a smoother integration into Canadian society and set you on a path toward long-term success.
References:
Agency, C. R. (2023a, January 24). Benefits, credits, and taxes for newcomers - Canada.ca. https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/newcomers-canada-immigrants.html
Arrive. (2021a, December 13). Canadian Tax Return Basics for new immigrants in Canada. https://arrivein.com/finance/canadian-tax-return-basics-for-newcomers-6-things-you-should-know/
Agency, C. R. (2023c, January 24). Newcomers to Canada. https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4055/t4055-newcomers-canada.html