Advice for newcomers filing their taxes in Canada for the first time
Tax time in Canada can be tricky for newcomers who are used to different rules and regulations in their country of origin. Here, we look at key differences in tax requirements and give advice for newcomers from four countries with the highest immigration rates to Canada as they file their taxes this year.
Where you are arriving from?
Tax advice for newcomers or cross-border workers from the United States
Although we share the world’s longest undefended border, the starkly different tax systems in Canada and the U.S. often leads to confusion for Americans filing taxes with the Canada Revenue Agency for the first time.
Some of the complexity stems not from Canada’s tax system, but rather from the U.S. tax system, which is based upon the citizenship of filers rather than where they live and work.
The U.S. requires its citizens to file a U.S. tax return annually – regardless of where they reside or work. Whereas in Canada, tax status is determined by residency status, meaning you pay Canadian income tax if you live and work in Canada.
“Americans in Canada always have a tax filing requirement for both Canada and the U.S. and those two tax returns are connected to each other because we have the U.S.-Canada tax treaty,” says Darren Coleman, senior portfolio manager with Raymond James in Toronto.
Mr. Coleman advises U.S. newcomers to Canada who are filing federal taxes in Canada (along with the mandated annual U.S. tax filing) to rely on just one professional or tax filing service.
The existing U.S.-Canada tax treaty is designed to avoid double taxation for citizens working in the other country. For Americans working here, it is intended to spare them from being taxed by Washington on income earned and taxed in Canada.
To gain this annual exemption, Americans are obligated to file a U.S. 1040 federal tax return accurately and before the annual deadline. The 2023 deadline for U.S. expats in Canada is April 18, although extensions may be available.
TurboTax, rated as Canada’s number one tax software, helps users discover deductions and credits that they are eligible for, so they get every dollar they deserve at tax time. Newcomers to Canada can use TurboTax Live Full Service to hand off their taxes to real experts.
“With TurboTax Live Full Service, you can meet with an expert from the comfort of your home, while they do your taxes for you in as little as a day,” says Natalija Andronikova, a senior tax expert with TurboTax Canada.
“TurboTax experts have on average 10 years of experience, so newcomers can have full peace of mind that their taxes are done right by an expert who understands their specific situation,” she says.
A TurboTax expert can help American expats understand the tax implications of coming to Canada. Those living and working in Canada are obligated to pay Canadian tax on money earned here as well as money earned from investing in Canadian securities such as stocks, bonds and investment funds.
Tax reporting on Canadian investments can become time consuming and expensive for American expats, observes Mr. Coleman.
“Many Canadian investments such as mutual funds and exchange traded funds (ETFs) are fine for Canadian taxpayers to own, but an American tax filing person has a lot more complexity now because the U.S. Internal Revenue Service looks at those securities as passive investment corporations and that requires a considerable amount of tax reporting to determine what the status of that investment is,” he says.
“So if you are an American, you might not have any additional tax to pay if you own a Canadian mutual fund, but you have a ton more tax reporting to do, so perhaps the cost of your tax return goes up.”
For those who are in Canada on a part-time basis, their tax treatment is based on their residency status and is determined by a number of factors. Individuals that are unsure of their residency status can contact CRA directly to determine their tax situation.
Other situations for Americans working in Canada include those who commute across the border for work (a U.S. citizen earning income in Canada), and they may be exempt from Canadian taxation and withholding of tax from Canadian employers.
Tax filers may also be considered a dual resident if they have a home in more than one country.
Tax advice for newcomers and returning residents from China
Long a source of immigration to Canada, the pace of newcomers from China is increasing again as pandemic restrictions subside and Ottawa targets skilled immigrants from cities such as Hong Kong.
Those newcomers are typically older and wealthier than previous generations of Chinese immigrants and arrive with more complicated tax reporting obligations.
“For the last year we have started to see a lot more of what we call returning residents,” says Matthew Ko, a chartered professional accountant, and partner with Manning Elliott LLP of Vancouver.
This is a group that previously came to Canada with their parents, then moved back to China and established careers and families.
“They are well-established, they have their wealth, and maybe decided to move back here with their own kids,” he explains, adding that they are often in their thirties or forties.
Though this is a cohort of newcomers that may know Canada well through friends and family, they often face a financial “culture shock” when encountering the breadth of Canada’s personal income tax regime for the first time as adults, the Vancouver accountant says.
“All the documentation required, the tax rates here and what is taxable, it is totally different. For example, in Hong Kong, trading and capital gains is not taxable, and interest income is not taxable at all.”
His advice to Chinese newcomers with significant assets is to seek professional advice before preparing their initial tax filing as Canadian residents.
Fortunately, there are many free or low-cost resources available to new residents preparing for their first tax season in Canada. A great starting point is the Canada.ca website, which outlines important steps such as obtaining a social insurance number, financial benefits that may be available by making a tax filing, as well as the process of completing an annual tax return.
Affordable tax preparation software such as TurboTax has proved popular with newcomers and long-time Canadians alike for its ease of use and step-by-step guidance to ensure tax filers fulfill their tax obligations correctly while ensuring they take advantage of all deductions and credits available to them.
For newcomers, TurboTax offers TurboTax Live Full-Service to make it easy to meet with a real expert while they do your taxes for you, so you can get your taxes done right, in as little as a day.
Natalija Andronikova, a senior tax expert with TurboTax Canada, advises newcomers to get their social insurance number (SIN) before filing their first return in order to be eligible for the GST/HST tax credit and child benefits, which are calculated based upon income and number of dependent children.
All new Canadian residents and returning residents from any country around the world need to file the RC151 GST/HST Credit Application form that, for those who are eligible, will provide them with payments every three months. As well, those with children under 18 may be eligible for the Canada Child Benefit, a tax-free monthly payment. The CCB might include a child disability benefit and related provincial and territorial programs.
New residents are required to apply for these benefits and both spouses must file tax returns on time each year in order for these payments to continue.
Tax advice for newcomers from the Philippines
Newcomers from the Philippines represent the third-largest group of new immigrants to Canada, meaning that tens of thousands of Filipinos newly arrived in the country will be filing a federal tax return for the first time this year.
With Canada’s tax system based on residency rather than on citizenship, a tax return is required for anyone deemed to be a resident of Canada for 2022.
This is a large group that can include those who are working, living with family in Canada, or who have come to study in the country.
New residents from the Philippines often benefit from advice and guidance regarding Canada’s tax system, says Sonny Martinez of CZM Tax and Accounting Services of Toronto, who is also the president of the Association of Filipino-Canadian Accountants (AFCA).
Canada’s tax system “is entirely different from the Philippines, so they don’t know they can get credits from donations, from tuition fees, and when they get to work, they don’t know how the payroll tax system works” with contributions for programs such as the Canada Pension Plan (CPP) and employment insurance (EI), Mr. Martinez says.
“There is not much education being given to new immigrants [about] Canadian taxation, so we are helping educate newcomers through the Philippine embassy” alongside the CRA, he explains.
The accountant notes that many newcomers do not know that there is an obligation to file a tax return regardless of whether they have a job and that filing their tax status potentially comes with benefits related to the GST/HST, provincial tax credits, tuition, as well as dependent children.
“In the Philippines, we do not have a child tax benefit [like the Canada Child Benefit],” he says.
Other differences include taxes related to capital gains, property and employment insurance, which are significant in Canada.
Mr. Martinez advises new residents to seek out resources about tax preparation through free seminars, federal government websites, and independent tax filing services.
Filipino Canadians are a big and growing ethnic group, with about one million residing in Ontario, he notes. That population is also increasingly younger, as international student status “is the fastest way to migrate.”
TurboTax has proven to be a popular tax filing software for Canadians based on its affordable cost, ease of use and step-by-step guidance to ensure tax filers fulfill their tax obligations correctly while ensuring they take advantage of all deductions and credits that are available to them.
Tax advice for newcomers from India
Canada has long been the destination of choice for Indian immigrants, who comprise the single largest group of immigrants in the country with 120,000 obtaining permanent resident status annually.
In general, Indian newcomers settle easily into Canada thanks to their strong existing social networks, high level of work skills and English-language proficiency.
One challenge many newcomers from India face, however, is the Canadian tax system, which is more complex and encompassing compared to their home country.
“With the Canadian tax system, you have to declare your worldwide income, whether it is earned in India or another part of the world, because you are a resident of Canada,” says Harkirat Khangura, a chartered professional accountant in Brampton, Ont. By comparison, “in India, whatever you earn there is your income.”
He advises newcomers to seek advice from a Canadian tax professional in making their first tax return to ensure they identify their sources of income properly and also take advantage of the range of deductions and credits that may be available to them.
The accountant notes that newcomers from India often make the same mistakes that many established Canadian tax filers make: namely, waiting until the last minute to seek professional tax advice and not keeping careful employment, investment and expense records.
Newcomers who prefer to work with an expert can use TurboTax Live Full Service to meet with an expert who will get their taxes done right. TurboTax also provides an extensive suite of tax tips, tools and resources.
“The TurboTax Canada Learning Hub offers educational articles, videos, and guides on tax topics ranging from tax basics to credits and deductions to expert advice for newcomers to Canada,” says Natalija Andronikova, a senior tax expert with TurboTax Canada.
“No matter your tax situation, TurboTax has you covered every step of the way,” she says.
For more top tax tips, click here.
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