Canada can be a great place to live, work or even retire. But if you’re making money throughout the year, chances are you’ll have to pay taxes on that income. No matter if you’re a full-time citizen, long-term non-resident or a short-term expat, Canada’s authorities expect you to follow their rules. Use this guide to help you understand how to file and pay income taxes in Canada.
In Canada, the federal government imposes a tax on income gained by individuals and corporations. The Canada Revenue Agency (CRA) oversees the tax collections. The tax rate is usually assessed by the amount of income generated during the year minus expenses. It may also depend on the province you live in.
(Source 1 30 Dec 2017)
The Canadian tax year starts January 1 and ends December 31 each year. The filing deadline is April 30 each year.
(Source 30 Dec 2017)
Like most years, tax rules are always changing. It’s best to keep informed with the official news from the Canada Revenue Agency for all up-to-date tax rules. The following chart shows the tax rates for 2018 in Canada:
|Income||Tax Percentage Rate|
|C$0 to C$46,605||15%|
|C$46,605 to C$93,208||20.5%|
|C$93,208 to C$144,489||26%|
|C$144,489 to C$205,842||29%|
|C$205,842 and above||33%|
There are additional changes for 2018. Canadian small businesses have seen a drop in their tax rate from 10.5% to 10%. There was also a slight rise in Employment Insurance premiums at the federal level, but only at an average of C$6 for workers and C$13 per employee for employers.
Regardless of your permanent residency, if you’ve received income from a Canadian business or earned income from the sale or use of a Canadian property for example, you have to file a tax return. This can be done online or through the mail to the Canada Revenue Authority or you can use a third-party service that helps you file taxes.
An individual’s residency status is determined on a case-by-case basis. Residents are those with ‘significant residential ties’, including having a home, a spouse or domestic partner, or dependents in Canada. There are secondary residential ties that also may be considered, including:
- personal property in Canada
- social ties in Canada
- economic ties in Canada, bank accounts or credit cards for example
- a Canadian driver's license
- a Canadian passport
- Canadian health insurance
If you’re a resident, deemed resident (non-citizen with significant ties) or a factual resident (Canadian citizen who lives abroad and maintains significant ties), you must report your income from abroad and within Canada. You could be eligible for federal deductions and credits.
A non-resident is an individual who lives outside of Canada or is in Canada for no longer than 183 days of the calendar year and maintains no significant residential ties. These individuals are responsible for one of two types of income taxes under Canadian law, Part XIII Taxes or Part I Tax. This can include income like:
- rental and royalty payments
- pension or retirement payments
- annuity payments
- management fees
- income from carrying on a business in Canada
- income from selling or transferring a Canadian property
(Source 30 Dec 2017)
For Canadians living abroad, your tax payment requirements depend upon whether you’ve kept ‘significant residential ties’ to Canada. For example, Canadians abroad for school or temporary work or travel will likely still have to pay income taxes as though you were living in Canada for the full year. Canadian authorities call this being a ‘factual resident’ for tax purposes.
If you sever your residential ties with Canada but keep your citizenship, you may be considered a non-resident for tax purposes. You could still have to pay income tax if you receive gains from a Canadian business or property, but it will likely be reduced.
Your Canadian tax obligations are determined based on your residency, not your citizenship. Both residents and non-residents must generally report income if it was made with a Canadian business or property. However, non-residents will be subject to a lower tax rate than resident rates.
(Source 30 Dec 2017)
International students studying in Canada may have to file an income tax return, depending on their residency status. Similar to expats or non-citizens living and working in Canada, it’s not uncommon for international students to have significant ties and thus have to pay income taxes as a resident.
(Source 30 Dec 2017)
Employment status is determined on an individual basis. According to the CRA the main indicators that a worker is in fact self-employed and not an employee are as follows:
- A self-employed individual usually works independently.
- The worker does not have anyone overseeing his or her activities.
- The worker is usually free to work when and for whom he/she chooses and may provide his/her services to different payers at the same time.
- The worker can accept or refuse work from the payer.
- The working relationship between the payer and the worker does not present a degree of continuity, loyalty, security, subordination, or integration, all of which are generally associated with an employer-employee relationship.
If a person is deemed self-employed, Canadian tax law generally requires a higher tax rate and payment into the federal Canadian pension plan and employment insurances. Self-employed individuals often qualify for more deductions and credits than regularly employed Canadians.
Canada’s general rate of withholding tax for non-residents is 25%. This rate may be reduced if the individual’s country of origin has a tax treaty with Canada. Canada has tax treaties with tens of countries around the world, including the UK, the US, Spain, Singapore, Japan, France, Italy, Germany, Chile, Brazil, Australia, and many others. For a full list, you can research where to find Canada tax treaties.
The Canada Revenue Authority allows income tax payment in various ways, including cash, credit, debit, online direct deposit, and wire transfer from third-party payments, and in-person payments at a local tax office. You can pay in installments, but you’ll have to contact the tax office for more details in this case. To pay your taxes, you’ll need your completed tax forms and ID or tax number.
If you do have to pay Canadian taxes from an international account, consider using TransferWise. TransferWise can save you money by giving you the mid-market rate - the same one you’d find on Google - as well as only charging a fair and low fee, clearly stated upfront of setting up your transfer. Saving you around 4- 5% compared to bigger banks.
Before you do, make sure you check whether the Canadian government can accept third-party payments and what kind of information they need to see on the transfer. They may require a certain reference or other specific information to be included. Otherwise, if you have a friend or family member with a Canadian bank account, you can easily transfer the money to their account with TransferWise to reduce the costs of an international transfer.
For added convenience, TransferWise also has a borderless multi-currency account that comes with a debit card. The borderless account is a multi-country, multi-currency account that supports 28 different currencies at once, including the Canadian dollar.
Paying taxes can feel like a massive chore. Tax laws are always changing and the penalties can be detrimental to your wallet, especially if you’re living abroad. Don’t make it harder on yourself. TransferWise will help you save on fees and hidden costs when paying for taxes internationally and can help keep cash in your pocket, no matter where you are.
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