Moving to a new country and dealing with brand new tax rules can be a dizzying experience. Tara Benham, national tax leader at Grant Thorton, goes through some basic and not-so-basic tips for people new to the Canadian tax regime.
Tax is based on residence, not status
This can differ from other countries, such as the United States, where you have to file a tax return if you’re a citizen or green-card holder, Ms. Benham says. In Canada, you have to file taxes if you’ve spent 183 days or more in the country, whether you’re an international student, temporary worker, permanent resident or citizen.
Tax is calculated on the calendar year, not a fiscal year
A common misconception Ms. Benham sees is that Canada follows a fiscal year that differs from the calendar year. Countries such as Australia and the United Kingdom calculate taxes on a different time period than the calendar year, but Canada uses the calendar year.
If you’re a resident of Canada, then you need to report worldwide income
Any income you make is taxable as a Canadian resident, but there are tax credits designed to ensure that you’re not being taxed heavily in two jurisdictions. Tax experts say that using an accountant is essential in these circumstances, and you may need to strategize which tax return to complete first to minimize how much tax you pay.
Consider transferring foreign investments into tax-sheltered investment accounts in Canada
Canada has a few options to shelter your investments from capital gains tax, such as registered retirement savings plans and tax-free savings accounts. If you have investment income in foreign accounts, Ms. Benham said it could be beneficial to move those investments to an RRSP or TFSA to shelter them from capital gains tax. She said taxpayers need to ensure they’re not exceeding Canadian-dollar contribution limits to those accounts by using the exchange rate on the day of the money transfer.
Tax is always filed as an individual
While you do declare if you’re in a relationship and whether you have dependants, everyone files their own tax return in Canada. This differs from a handful of other countries where it is possible to file a tax return as a couple.
You can claim certain dependants even if they don’t live in Canada
Ms. Benham recently had a case in which she filed taxes for a man who resided in Canada, but had a wife outside Canada who did not work. He was still able to claim his spouse as a dependant, despite her not being a resident.
Higher tax rates are calculated progressively
Ms. Benham says she often has to explain that Canada’s tax rate increases as you make more money, but that doesn’t mean your entire income gets taxed more if you’re in a higher bracket. For example, you’re only taxed 15 per cent by the federal government on the first $50,197 you make in 2022. Then you’re taxed 20.5 per cent on each additional dollar you make up to $100,392. The rates continue to increase at higher brackets.
Editor’s note: An earlier version of this article incorrectly said you are taxed on the first $15,197 you made in 2022. In fact, the figure is $50,197.
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