10 Important Things Newcomers Need to Know About Canadian Tax System
Updated: Jan 7, 2021
1. THE CANADIAN TAX SYSTEM: The Canadian tax system is based on Self-Assessment which means each tax payer is responsible to ensure to file their tax return and compliance tax rules for each level of government.
However, Canada Revenue Agency (CRA) reviews all the deductions, credits, and benefits that individuals claim on their tax returns to ensure people follow the rules and comply the tax laws.
2. RESIDENCY STATUS: Residency status is most important items regarding tax purposes. Because Canadian tax system based on residency. For instance, Canadian residents pay taxes on their income from all sources both inside and outside of Canada and on the other hand they have right to claim certain deductions, credits and benefits. However, Non-residents of Canada pays taxes only their income from Canada.
As a Newcomer, you need to know your resident status for tax purposes. Even if you are NOT a permanent resident nor a landed immigrant, you MAY still considered a resident of Canada for tax purposes.
3. TYPES OF TAXES GOVERNMENTS COLLECT: Canadian tax collected by three (3) different level of government: Federal, Provincial, Territorial and Municipal. Each level of government is responsible certain taxes and CRA collects, reviews and audits behalf of the each level of the government.
4. TYPES OF TAXABLE INCOMES: Most types of income that you received taxable and you have to report them on your tax return. Some of the common incomes are following:
5. TYPES OF DEDUCTIONS: There are many deductions that may be Newcomers can claim such as moving expenses, support payments, professional fees, carrying charges, employment and child-care expense etc. However, each item may have different requirements and you need to meet those requirements to deduct those expenses.
Moving expense is usually not deductible. However, if you come to Canada to attend the courses or full time students and you received taxable scholarship, bursaries, fellowship or research grant from Canada to attend the educational institution, you able to deduct your moving expenses.
Support payments one of the important items that Newcomers should know. If you are making payments to your spouse or common-law partner or child to support them, you able to deduct those amounts even though your spouse or common-law partner or child does NOT living in Canada.
6. TYPES OF CREDITS AND BENEFITS: As a tax payer, the reason we paid taxes is to pay roads, schools, health care, social security and public security. And also Canada’s tax revenue is used to delivery benefits to lower income families, students, charities, seniors and persons who is disability. Some of the social benefits that individuals MAY receive as follow:
Old Age Security
Canada Child Tax Benefit
Working Income Tax Benefit
Universal Child Tax Benefit
7. IDENTIFICATION REQUIREMENTS, DUE DATES and KEEPING THE RECORDS: In order to complete your tax return you need to have either Social Insurance number (SIN) which assigned by Service Canada or Temporary Tax Number or Individual Tax Number which assigned by CRA.
Tax year ends on December 31 and you need to file your tax return on or before April 30th of following year. If you or your spouse or common-law partner is a self-employed your return MUST be filed on or before July 15th. However, all balance due that you owe MUST be received by CRA on April 30th otherwise penalty MAY apply.
As a tax payer, you need to keep copy of your tax returns, benefit slips and all support documents for an at least six (6) years.
8. OBJECTIONS, APPEALS and RIGHTS AS A TAX PAYER: In Canada as a taxpayer, you have rights which called Taxpayer Bill of Rights and it protects when dealing with CRA. Some of the rights are include:
the right to service in either official language
the right to fair, professional, courteous treatment
the right to privacy and confidentiality
the right to a formal review and a subsequent appeal
the right to pay only what is owed according to what is required by law
Once you filed your tax return, CRA will process it and send you Notice of Assessment (NOA) which confirms the information you provided on the return and indicates the final results of the calculations. However, If you are NOT agree you can contact with CRA to ask more details, and if you still disagree you have right to file formal objection.
9. TAX AND BENEFIT PACKAGE NEWCOMERS SHOULD USE: Newcomers MUST use General Income Tax and Benefit return and need to ensure to use correct package of provincial or territorial where you resigned.
You can get General Income Tax Benefit packages on CRA web site, Postal outlets and Service Canada. And also you can order paper form from CRA by calling them.
10. TAX TREATIES TO AVOID DOUBLE TAXATION: Tax treaties are agreements between Canada and other countries to avoid double taxation and determines how much each country can tax your income.
As a tax payer, if you received income from outside of Canada, but already paid taxes on it in the other country, you need to ensure the income is exempt from the tax in Canada or NOT, because in both cases different rules and process apply. For instance, if the income is exempt from the tax in Canada because of tax treaty, you still need to report but you can claim deductions the amount that is exempt from tax.