Tax information: going to Canada
Welcome to the tax guide on going to Canada, produced by Deloitte. Looking for tax information about leaving Canada, Click here
This document has been prepared based on the legislation and practices of the country concerned as at 01 April 2009. Tax legislation and administrative practices may change, and this document is a summary of potential issues to consider. This document should not be used as a substitute for professional tax and immigration advice which should be sought for the country of arrival and departure in advance of moving in order to discuss your specific circumstances.
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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. Please also see the services offered by HSBC at the following link: www.HSBC-immigration.com.
Q. Should I complete any documentation upon arrival in Canada?
A . If you have already obtained a work permit you should contact your local Department of Human Resources and Skills Development Canada (HRSDC) to apply for your Social Insurance Number (SIN). This will facilitate payroll withholding and the remittance of appropriate tax deductions. Or visit the website at http://www.hrsdc.gc.ca/en/home.shtml .
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 disposition of those assets in the event that you become non-resident (see Capital Gains Tax section below).
Q. Is it beneficial to open an offshore bank account compared to 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. Where non Canadian investments are held it is important to ensure that any withholding taxes are creditable in Canada, as typically the Canadian authorities will only allow a credit for taxes withheld at the rate prescribed in any applicable tax treaty.
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 Revenue Agency (“CRA”) 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
• 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.
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.
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.
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.
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, although in some situations some credits and deductions can be transferred between spouses.
Q. What rate of tax will I pay in Canada?
A. Please refer to the pdf for more information.
http://www.deloitte.com/dtt/cda/doc/content/ca_tax_QTF%202008_en.pdf
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 15% is available for up to C$200 of donations and 29% on donations over $200. A provincial tax credit is also available on donations. Receipts should 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 and only claimed by the lower-earning spouse), alimony and maintenance payments, carrying charges and certain interest expenses, personal moving expenses (excluding moves from outside Canada), and registered retirement savings plan (RRSP) contributions (up to set limits). 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, or vice versa. 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.
You should seek professional tax advice for preparation of returns in both countries.
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
Q. When does it need to be filed?
A. Where a return is required, it must be filed by 30 April in the following year, i.e. a return for 2008 must be filed by 30 April 2009. 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) may not have to file until 15 June. However, any balance owing on the return is due by 30 April.
Q. What is the procedure for paying tax?
A. Employers are required to withhold tax and other applicable withholdings from employment compensation. Each employee is required to complete a Form TD1 for their employer, which sets out the various deductions and credits, which should be available to the employee.
On or before the end of February in the year following the year for which a return is to be filed (i.e. 28 February 2009 for the 2008 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 installment 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$3,000. 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.
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.
Q. Will I pay Canadian tax on investments and rental income generated in my home country?
A. If you are resident in Canada for tax purposes you will be liable to Canadian tax on worldwide income. If you are regarded as a non-resident you will be liable to Canadian tax only on Canadian source income.
Q. Is there a Capital Gains Tax regime in Canada?
A . Canada does not have a separate capital gains tax. One half of the capital gains realized by individuals are included in taxable income and charged to income tax at the normal rates. As a rule, no distinction is made between short- and long-term gains. The Canadian authorities can look to the nature of the transactions to determine whether they are capital or income in nature.
Generally, all capital gains arising from the disposal or deemed disposal of capital property are taxable, regardless of the location of the property sold, but non-residents are taxed only on gains arising from the disposal of taxable Canadian property. Individuals may claim an exemption for a gain realised on the disposal of their principal residence. Property held for business purposes are dealt with in the same way as assets held for other purposes.
The capital gain is defined as the difference between the proceeds of disposition and the tax cost of capital property. The tax cost is also known as the adjusted cost base (ACB).
The proceeds from the disposal of a capital property are normally taken as the amount of the consideration received. In the case of a non-arm's-length transaction the assets are deemed to have been sold at market value. Adjustments under the deeming provisions may be one-sided because the provisions may not allow the purchaser's cost base to be increased to market value. The penalising effect of the provisions is intended to discourage parties that are not at arm's- length from conducting transactions at values other than market value. Any expenditure incurred in connection with the disposal is deductible.
The tax rules deem property to have been disposed of in a number of situations. For example, you will be deemed to have disposed of all your property when you cease to be resident in Canada (although it is usually possible to make an election to defer the tax due, until such time as the property is actually sold and the regime has limited application if you are a resident of Canada for less than 60 months). Disposals are also deemed to occur immediately before death and when you make gifts of specified types during your lifetime.
Similarly, upon becoming a Canadian resident, you will be deemed to have disposed of and immediately reacquired at fair market value on your arrival date your entire property owned at that time. Disposals are also deemed to occur immediately before death (see Inheritance Tax below) and when you make gifts of capital assets, unless such gifts are to charitable organizations.
Q. What do I need to know about any other tax regime, e.g. Inheritance, Estate or Wealth tax?
A. Goods and Services Tax
The Canadian government imposes a goods and services tax (GST) of 5% on all goods and services sold in Canada. Prices quoted are assumed to be exclusive of GST, unless otherwise specified.
Each of the provinces, except Alberta, also imposes a point-of-sale tax (retail sales tax) on the price of goods sold in the province. The retail sales tax rate ranges from 5% to 10%. In some provinces, the provincial retail sales tax has been harmonized with the GST, so that a combined rate is levied on all goods and services sold in the province.
Inheritance Tax
Canada does not levy an inheritance or estate tax. On death, however, there is a deemed disposition of assets, and tax must be paid by the estate on any taxable capital gains which arise as a result of that deemed disposition. Some exceptions from the deemed disposition exist for certain types of property received by the surviving spouse.
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.
The maximum employee contribution to CPP for 2009 is C$2,119 and for EI is C$732.
Certain provinces also levy payroll health taxes. Quebec also has a number of additional payroll levies that may apply.
If your home country has a social security agreement with Canada you may be able to remain in your home 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. Canadian 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 at the lowest federal and provincial tax rate.
Certain non Canadian social security liabilities may be deductible for Canadian tax purposes, and this will be dependent on the tax treaty concluded with that other country.
