Moving to... Canada

Welcome to your tax information guide on moving to the Canada. Our detailed Q&A guide has been split into 6 key areas in order to help you find the information you need – quickly and easily!  If you require further help, simply click here to contact us.

This guide is for reference only and professional tax advice should be taken before any action is taken.

Before/Once you arrive

Q. Do I need a work permit to work in Canada?
A.  Yes. Generally, a work permit will be required for a non-resident, non-citizen entering Canada for employment purposes.

Q.  Should I complete any documentation upon arrival in Canada?
A.  If you have obtained a work permit you should contact your local Human Resources Centre of Canada to apply for your Social Insurance Number (SIN). This will facilitate payroll withholding and the remittance of appropriate tax deductions.

Although it is not necessary to register with the tax authorities, you should make a list of the capital assets you own and the fair market value of those assets (as of the date of arrival in Canada). This is necessary in order to calculate any capital gain on the sale of the assets or, in the event that you become non-resident (see Capital Gains Tax section below).

Q. Should I open an offshore bank account or is it OK to have an account on the Canadian mainland?
A. An offshore bank account does not create tax savings from a Canadian perspective but one may be advantageous from a home country perspective.

Tax - Basics

Q.  What is the tax year?
A.  1 January to 31 December.

Q. How will I be taxed in Canada?
A.  If you are a resident in Canada you are taxable on your worldwide income. If you are non-resident you will be subject to Canadian tax on Canadian source income only.

Q. How is tax residence determined?
A. The question of where an individual is considered to be resident is significant in assessing potential Canadian tax liability. Whether you are considered resident in Canada is a question of fact, to be determined by the Canada Customs and Revenue Agency according to your particular circumstances. Generally, if you move to Canada for an extended period of time you are likely to be resident as of the date of your arrival.

The following factors are considered in determining whether you will be resident for Canadian tax purposes:

• Permanence and purpose of stay;

• Residential ties within Canada;

• Residential ties elsewhere, and

• Regularity and length of visits to Canada.

If you do not meet these tests, but are physically present in Canada for more than 182 days in a calendar year, you will be considered resident for an entire calendar year under the sojourner rule. If you are deemed resident under the sojourner rule, the residency provision of any applicable tax treaty should be reviewed. If you will be regarded as non-resident in Canada under such a treaty, you will be regarded as non-resident for all domestic Canadian tax purposes as well. The province of Quebec does not follow federal tax law with respect to the deemed non-resident provision. Individuals deemed resident of Quebec under the sojourner rule are required to report their worldwide income and claim a deduction for any income that is exempt under a tax treaty.

You will be non-resident if you are not either resident or deemed resident. As such you will be taxed on Canadian source income only, subject to exclusions that may exist under double tax agreements.

Non-residents who earned employment income in Canada or who earned income from a business carried on through a permanent establishment in Canada should file an ordinary return for the province or territory where the income was earned.

Q. Are there any regional or state taxes?
A. Yes.

Municipal Taxes
Most municipalities levy taxes at varying rates on real estate, including land, commercial buildings, and residential property.  Municipalities also charge taxes for local improvements.  Local license fees are often charged, but there is no trade or business license tax as such.

Provincial Taxes
Provinces levy income tax at substantial rates.  Personal income tax for all provinces except Quebec is calculated on the federal income tax return. Quebec imposes a separate definition of taxable income; the other provinces use the federal taxable income figure.

Q. Can I file a joint tax return with my spouse?
A. Individuals are taxed separately; there are no provisions for the submission of a joint return.

Q.  What rate of tax will I pay in Canada?
A.  Federal tax rates - 2006

 Additionally, there will be a provincial tax based on the province you are registered in.

Q. Can I claim a tax deduction for charitable contributions?
A. Yes, a tax credit is available limited to 75% of net income. A federal tax credit of 16% is available for up to C$200 of donations and 29% on donations over C$200. The credit is then enhanced to approximately 22% and 40 - 50% respectively by a parallel provincial tax credit. Receipts must be attached to the income tax return.

Q. Are any other tax deductions available?
A.  Credits

Tax relief in Canada is given mainly through credits against tax, rather than through deductions from taxable income. Federal tax credits include the 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.

Deductions
Deductions from income in general 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).  As a rule, home ownership expenses such as mortgage interest, insurance, and property taxes are not deductible, but an individual may be able to deduct some of the expenses connected with renting out a dwelling or maintaining a business office in a dwelling. 

Q. I will also be paying tax in my home country. Am I being taxed twice?
A. Generally No. A foreign tax credit will usually be claimed on your home country tax return for Canadian taxes paid. Alternatively Canadian source income may be exempted on your home country return. The method used to mitigate double taxation will depend on your home country’s tax legislation, and the nature of any tax agreement between Canada and your home country.

Tax - Administration

Q.  Do I need to file a Canadian tax return?
A.  You are required to file a tax return in the following circumstances:

• If tax is payable for the year in excess of amounts which were withheld on your behalf

• If you dispose of a capital property in the year (regardless of whether the disposition resulted in a gain or a loss)

• If you have a taxable capital gain in the year

• If you have to repay any Old Age Security or Employment Insurance benefits.

• If you or your spouse are entitled to receive a Child Tax Benefit

• If you had self-employment earnings in excess of C$3,500 (the return is filed in order to determine the amount of Canada Pension Plan contributions which are payable on that income)

• If you have rental property in Canada

• If you have not repaid all of the amounts you withdrew from your RRSP under the Home Buyer's Plan or the Lifelong Learning Plan

• If the Canadian tax authorities (CRA) have issued a demand to file.

Married taxpayers must file separately.

Q. When does it need to be filed?
A. Where a return is required, it must be filed by April 30 of the following year to which the return relates, i.e. a return for 2004 must be filed by April 30, 2005. A single return covering both federal and provincial tax is filed in all provinces and territories except Quebec. In Quebec separate federal and provincial returns are required.

Q. Can the filing deadline be extended?
A.  There are no available extensions, although individuals who earn income from a business (professional services business or partnership) do not have to file until June 15. However, any balance owing on the return is due by April 30.

Q. What is the procedure for paying tax?
A. Employers are required to withhold from gross income, and to remit to CRA, the estimated tax payable by the employee. To enable employers to determine the amount of tax payable by an employee, each employee is required to complete and provide to the employer a Form TD1, which sets out the various deductions and credits which will be available to the employee in computing taxable income for the year.

On or before the end of February in the year following the year for which a return is to be filed (i.e. February 28, 2005 for the 2004 taxation year), the employer must provide to the employee a Form T4. This form sets out the amount of remuneration received (including the value of any taxable fringe benefits) as well as the amount of income tax, Canada Pension Plan and Employment Insurance contributions withheld.

The amount of tax withheld is then indicated on the tax return (Form T1). Any balance owing in excess of the amount withheld must be remitted to the revenue authority. Penalties are imposed and interest charges levied for late or deficient tax payments.

Certain taxpayers are required to make instalment payments of tax four times a year. This requirement is imposed on taxpayers whose tax payable on filing in the current year and either of the two previous years exceeds C$2,000 (C$1,200 for Quebec). Taxpayers whose main source of income is employment income and who therefore have tax withheld at source by their employers are not typically required to make instalment payments.

Tax - Income from Employment

Q. Will non-cash compensation be taxable (e.g. housing)?
A. Most employer provided benefits are taxable. There is an exemption in respect of reasonable board, lodging, transportation (or allowances) provided to individuals on assignment at a temporary work location (less than two years). These benefits are not taxable if the employee maintains a domestic residence elsewhere, and is not renting that property to a third party.

Q.  I will be working in different countries while living in Canada. Will all of my employment income be taxable in Canada?
A. If you are a resident of Canada you will be liable to Canadian tax on your worldwide income regardless of where your work duties are performed. Generally, a foreign tax credit can be claimed on your Canadian tax return for any foreign income taxes paid in relation to the foreign sourced income to mitigate the potential for double taxation.

Non-residents will be subject to Canadian tax only on employment income earned in Canada or on income earned from a business carried on through a permanent establishment in Canada.

Tax - Other

Q. Will I be required to pay Canadian Social Security?
A. Canada has two mandatory social security programs, the Canada Pension Plan (CPP) and Employment Insurance (EI), which are predominantly collected through payroll. Certain provinces also levy payroll health taxes.

If your home country has a social security agreement with Canada you may be able to remain in that country’s system, usually for a period of 2 to 5 years. Some form of continuing contractual link with your home country employer is normally a condition of social security agreements.

It should be noted that the Social Security agreements only exempt payment of CPP, and other payments must be made, unless specifically excluded in the legislation. Generally, EI must be withheld and remitted for Canadian employment unless certain conditions are met. For example, a non-resident of Canada paying into a similar regime in a foreign country may be exempt from EI in Canada.

Q. Are social security contributions deductible for tax purposes?
A. Social security contributions are not claimed as a deduction in computing taxable income.  However, a non-refundable tax credit can be claimed on these amounts. Non-refundable tax credits reduce an individual's income tax liability.