Coming to Canada is one of the biggest things you will do in your life – among the bills to pay, the school registration, getting a driver’s license – filing a Canadian income tax return in those first few months and years is one of the most important. For new immigrants, the Canadian system can be strange or confusing, especially if it’s a new way of doing things. However, early awareness goes a long way.
Canada’s tax system is administered by the Canada Revenue Agency (CRA). It operates on a self-assessment basis, which means individuals are responsible for reporting their own income accurately and filing on time. The CRA doesn’t automatically calculate your tax for you — you or your representative must file a return. Working with an accounting firm in Toronto that has experience with newcomer tax situations is one of the best investments a new immigrant can make in their first year in the country.
Your Tax Residency Status
Your first step in the process is to establish whether you are required to file as a resident of Canada or as a non-resident. In this regard, your status as Canadian tax-resident is effective from the date of “establishing significant residential ties” to Canada, which is generally the date when you generally arrive for the purpose of residing in Canada. Upon that date, your worldwide income becomes taxable from Canada.
This is a crucial point. Canada taxes based on worldwide income, not only on income that is earned in Canada. If you have income coming from a business, a rental property, a pension, or investments from your home country, then this needs to be included on your Canadian tax return. Although this income isn’t taxed twice due to tax treaties between Canada and many nations, it still needs to be disclosed.
Your First Partial-Year Return
If you moved to Canada in the middle of a calendar year, your initial T1 return would include any time between your date of arrival and December 31. For any income earned prior to arriving in Canada, you would generally only have to include this on your return if you earned it from a Canadian source. Any foreign income earned on the date of arrival or before is generally non-taxable in Canada.
Next on departure, you enter the date you entered Canada (as used by the CRA to adjust proration of some deductions and credits, according to days resident).
Social Insurance Number
You require a Social Insurance Number (or SIN) before you are able to submit a tax return or receive the majority of federal benefits. If you have the right to work in Canada, getting a SIN at a Service Canada is among the first things you should do when you land. It is used to identify you with the CRA, and make a link between your employment, investment earnings and benefit payments and your taxation account.
If you are employed before you get a SIN your employer will have probably with held tax; the SIN you will need to do the work out at tax time.
Documents You’ll Need
What you need to file your first Canadian tax return Here are some documents you’ll need to collect when you file your first Canadian tax return. If you’ve worked for anyone in Canada, a T4 slip will detail your employment income, such as wages, salary, and tips, and tax withheld. Investment income, including dividends and bank interest, will be detailed on T5 slips. Paying tuition at a Canadian post-secondary will be indicated on a T2202 form. If you received any of the government benefits during the tax year on interest from chequing and savings accounts, the GST/HST Credit, the Canada Child Benefit, or Employment Insurance, these are noted on T4A or RC62 forms
For newcomers with foreign income, you’ll need records from your home country showing what you earned and any foreign taxes paid. These are used to calculate foreign tax credits or treaty exemptions.
Benefits and Credits Available to Newcomers
A key reason for doing a tax return–even if you owe nothing–is to be able to access benefit programs. Many programs use the income recorded on your tax return to determine your entitlement, and they don’t begin making payments until you’ve filed.
The GST/HST Credit is a four times a year payment for lower- and middle-income individuals/families. The Canada Child Benefit(CCB) is a quarterly benefit for families who have children under 18, you can receive very high amounts based on the number of children and your household income. Also, the Ontario Trillium Benefit(OTB) and other similar provincial programs are also based on a current tax filing.
If newcomers wait to report, they lose the money they could have claimed for those months-and not as much as you might think. It can be frozen for a month, but is always better to report right away.
Foreign Assets and Disclosure Requirements
Foreign Property: If you have foreign property-bank accounts, investments or real estate outside Canada-that has an aggregate cost amount exceeding $100,000 CAD at any time during the year, you are required to submit a Form T1135, Foreign Income Verification Statement. This is an additional reporting requirement outside of your income tax return and is applicable whether or not any income was earned on the foreign holdings.
Failing to file T1135, Penalties are hefty for this – up to $2,500 per year plus other penalties for gross negligence. Most new immigrants are not aware of T1135 requirements, so first few years working with an advisor becomes very crucial.
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Tax Treaties and Your Home Country
Canada entered into tax treaties with numerous countries. The primary purpose of these treaties is to avoid double taxation of the same income, both in Canada and in the country of residence. Broadly, the treaty permits you to take a foreign tax credit on your Canadian return for tax paid to another country4 on the same income.
Treaty benefit rules can be complex and are different for each country, with some treaties covering pensions, other introducing provisions for business activities, and still others covering students and temporary workers. Determining which one applies and what you are entitled to under it can be very beneficial in minimizing your overall tax liability.
The tax system in Canada can be daunting when you first arrive but in reality it truly is a system that works to help – whether through the system of advantages and credits, or the high percentages of tax people pay depending on their level of income. The key in your first year of filing is to get off on the right foot: it will colour everything that comes after and employing someone who is knowledgeable about the tax position of newcomers is valuable.
Conclusion
In summary, the newcomer tax filing experience in Canada is not only a regulatory requirement – it is an essential part of establishing a sustainable personal financial situation, taking advantage of all of the benefits payable within the Canadian tax system, and effectively integrating into the Canadian society. Learning about your eligibility based on residency, disclosing all of your worldwide income properly, keeping appropriate records, and reporting foreign holdings on your tax return accurately and timely are important steps in minimizing both tax errors and penalties. Being timely and accurate on your tax return also enables new immigrants to receive benefits such as the GST/ HST Credit, the Canada Child Benefit (CCB), and other provincial programs that can ease the financial transition to Canada. Because newcomer’s individual tax situations as well as certain international income, treaty and other filing issues can be complex, having experienced professionals to help can make a large difference in avoiding surprises. If you need help settling into the Canadian tax system, trust WebTaxOnline to provide you with dependable guidance.
