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Taxes

An introduction to Canada's tax system, including income tax, GST/HST, and the importance of filing annual tax returns.

Sections

Income Tax

  • Who Pays Income Tax?

    • Residents of Canada are taxed on their worldwide income.
    • Non-residents are taxed only on income earned in Canada (e.g., employment income, rental income, or business income in Canada).
    • Immigrants are considered residents for tax purposes once they establish significant residential ties in Canada.

  • Tax Year: The tax year in Canada is the calendar year (January 1 to December 31).

  • Tax Rates: Federal income tax rates for 2023 are:

    • 15% on the first $53,359 of taxable income.
    • 20.5% on income between $53,359 and $106,717.
    • 26% on income between $106,717 and $165,430.
    • 29% on income between $165,430 and $235,675.
    • 33% on income over $235,675.
    • Provincial/territorial tax rates vary and are added to federal rates.

Sales Tax

  • Canada has a Goods and Services Tax (GST) of 5% at the federal level.
  • Provinces may also charge a Provincial Sales Tax (PST) or a Harmonized Sales Tax (HST), which combines GST and PST. Rates vary by province:
    • HST Provinces: Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Prince Edward Island (rates range from 13% to 15%).
    • PST Provinces: British Columbia, Saskatchewan, and Manitoba (rates range from 6% to 8%).
    • No PST: Alberta, Northwest Territories, Nunavut, and Yukon only charge the 5% GST.

Payroll Deductions

Employers deduct the following from employees' pay:

  • Canada Pension Plan (CPP): A retirement savings program (not applicable in Quebec, which has its own Quebec Pension Plan).
  • Employment Insurance (EI): Provides temporary income support for unemployed workers.
  • Income Tax: Based on federal and provincial rates.

Corporate Tax

  • Federal corporate tax rates vary depending on the type of business:
    • General corporate tax rate: 15%.
    • Small business tax rate: 9% (on the first $500,000 of active business income).
  • Provincial corporate tax rates vary.

3. General Costs of Taxes

Income Tax

  • The amount of income tax you pay depends on your income, deductions, and credits. Canada offers various tax credits to reduce your tax burden, such as:
    • Basic Personal Amount: A non-refundable credit that allows individuals to earn a certain amount tax-free.
    • Childcare expenses, tuition fees, and medical expenses are also eligible for deductions or credits.

Sales Tax

  • Sales tax is added to most goods and services, except for essentials like basic groceries, prescription medications, and some medical devices.

Property Tax

  • Property owners pay annual property taxes to their municipality, based on the assessed value of their property.

4. Standard Procedures for Filing Taxes

Who Needs to File Taxes?

  • Residents of Canada must file an income tax return if they:
    • Earned income during the year.
    • Want to claim a refund or benefits (e.g., GST/HST credit, Canada Child Benefit).
  • Non-residents must file if they earned Canadian income.

How to File Taxes

  1. Obtain a Social Insurance Number (SIN):

    • A SIN is required to work in Canada and file taxes. Immigrants and temporary residents can apply for a SIN through Service Canada.

  2. Gather Necessary Documents:

    • T4: Employment income.
    • T5: Investment income.
    • Receipts for deductions (e.g., childcare, medical expenses, charitable donations).

  3. Choose a Filing Method:

    • Online: Use certified tax software (e.g., TurboTax, UFile) to file electronically through the CRA’s NETFILE service.
    • Paper: Download and mail a completed tax return form to the CRA.
    • Professional Help: Hire an accountant or tax preparer.

  4. File by the Deadline:

    • The deadline for most individuals is April 30 of the following year.
    • Self-employed individuals have until June 15, but any taxes owed must still be paid by April 30.

  5. Pay Taxes Owed or Receive a Refund:

    • Taxes owed can be paid online, at a bank, or by mail.
    • Refunds are issued via direct deposit or cheque.

5. Country-Specific Considerations for Visitors and Immigrants

Visitors

  • Visitors to Canada are generally not subject to Canadian income tax unless they earn income in Canada.
  • Sales tax applies to purchases made in Canada. Some provinces offer rebates for visitors on certain purchases.

Immigrants

  • New immigrants are taxed on worldwide income starting from the date they become residents.
  • The CRA offers a Newcomers to Canada Guide to help immigrants understand their tax obligations.
  • Immigrants may be eligible for benefits such as the Canada Child Benefit (CCB) and GST/HST credit.

Tax Treaties

  • Canada has tax treaties with many countries to avoid double taxation. Immigrants and non-residents should check if their home country has a treaty with Canada.

Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP)

  • Immigrants can open a TFSA or RRSP to save money tax-free or defer taxes on retirement savings.

6. Resources and Support

  • Canada Revenue Agency (CRA): The CRA website (www.canada.ca/en/revenue-agency) provides detailed information, forms, and tools.
  • My Account: An online portal where individuals can view tax information, file returns, and track refunds.
  • Community Volunteer Income Tax Program (CVITP): Free tax clinics for low-income individuals and newcomers.
  • Provincial Tax Agencies: Some provinces have additional resources for provincial taxes.

7. Tips for Managing Taxes in Canada

  • Keep Records: Maintain receipts and documents for at least six years in case of an audit.
  • Understand Residency Status: Your tax obligations depend on your residency status, not your immigration status.
  • Claim Benefits: File taxes even if you have no income to access benefits like the GST/HST credit or CCB.
  • Plan for Deadlines: File and pay taxes on time to avoid penalties and interest.

By understanding the Canadian tax system and following the procedures outlined above, visitors and immigrants can ensure compliance and take advantage of available benefits. If you have specific questions, consult the CRA or a tax professional.