Canada – The Great White North
Are you looking for somewhere to make a fresh start? Look no further than Canada. With world-class healthcare, a robust economy, a diverse population, stunning natural surrounds and more, it’s hardly surprising so many Aussies are relocating to Canada. What’s more, this pristine country is clean, the locals are friendly and it offers a truly enviable quality of life.
Before making the move, however, there are a few things you need to know. In this article, we’ll cover everything from Canada’s:
- Tax residency laws
- Taxation rates
- Filing your tax return
- Superannuation requirements
- The Australian-Canadian tax treaty
- Other taxes you should be aware of, and more.
Armed with this information, we think you’ll find the move an enjoyable and stress-free experience.
Who is a resident of Canada?
Your liability to pay tax in Canada largely depends on your residency status. To understand your tax obligations, you have to know exactly which residency category you fall under. Your residency status is determined by factoring in your personal and professional circumstances (i.e. whether you have residential ties in Canada, etc.).
Your residency entering Canada as an expat
If you’ve relocated to Canada, the following conditions determine your tax residency:
- If you’ve left a country (like Australia) to relocate to Canada and have developed significant residential ties there within the tax year, you are considered an immigrant
- If you have residential ties in a country Canada shares a tax treaty with and are classed as a resident of the said country but are also a “factual” Canadian resident (due to residential ties), you are classed as a non-resident of Canada
- If you haven’t established significant ties to be deemed a factual Canadian resident, but have resided there for 183 days or more during the tax year, you may be classed as a “deemed Canadian resident”
Do I have to lodge an Australian tax return?
This chiefly depends on your residency status, and then upon where your income is sourced. If you are an Australian resident for tax purposes, or a non-resident earning income sourced in Australia, you are required to submit an Australian tax return. Not only does your residency status determine the need to lodge an Australian tax return, but it also guides exactly what you have to report and, ultimately, how much you will pay. To learn more about whether you need to lodge an Australian tax return take a look at another article that we wrote a little while back – Do I need to lodge a tax return while living overseas?
A non-resident is obliged to declare all income sourced in Australia; however, overseas-sourced income is not included in this declaration. Despite this, non-residents are not entitled to the tax-free threshold. Whereas, an Australian resident for tax purposes has to declare their worldwide income.
If you are an Australian resident for tax purposes, you may be able to claim a Foreign Income Tax Offset benefit (FITO). This entitlement will reduce your income tax by the tax you have already paid in Canada.
Does Canada tax me on my worldwide income?
Yes. If you are still deemed an Australian resident, you will be taxed on all the income you earn, inside and outside of Canada. The current maximum rate is 47% (includes Medicare) of your earnings. Having said that, you can take advantage of certain allowances offered (i.e. foreign income tax credits). And, thanks to the Australian-Canadian tax treaty, your foreign tax credits can be used to offset the Australian income tax you’re required to pay.
What happens if I’m a non-resident?
In this case, you are only expected to pay tax on the income you earn in Australia. This may include income from work, investments, royalties, shares and more.
What are Canada’s personal income tax rates?
Canada has a progressive taxation system. This means the more income you earn, the higher tax bracket you are in. As you have to pay federal and provincial taxes in Canada, rates can significantly differ depending on where you live.
Is there a tax-free allowance?
Yes, there is – currently, it’s set at $12,069. So, anything you earn over this amount is subject to federal and provincial taxes.
What are Canada’s federal tax rates?
Below are Canada’s current tax rates:
$12,069 – $46,605 – 15%
$46,606 – $95,259 – 20.5%
$95,260 – $147,667 – 25%
$147,668 – $210,371 – 29%
$210,372 or more – 33%
What about provincial tax rates?
As indicated above, federal tax rates begin at 15% on income of $46,605. However, provincial tax rates are a little more complex. These vary widely from province to province. To determine your provincial tax rate, we recommend contacting your local council.
How am I taxed as a non-resident?
As a non-resident, you are only taxed on income earned in Canada. Despite this, you are still expected to declare your worldwide income. But although you have to declare this income, you will not be taxed on it.
What is the 90% income rule?
This taxation rule refers to whether or not you are eligible to claim income tax credits. If you do not earn 90% of your taxable income in Canada, you cannot claim any personal tax credits. If you attempt to claim these credits, you may receive a bill from the Canadian Revenue Agency (CRA).
Is there an Australian-Canadian tax treaty?
Yes. Canada is one of the many countries with which Australia shares a tax treaty. For expats who have moved to Canada, this tax treaty ensures you avoid double taxation. So, if you are considered a dual resident of both Australia and Canada, you will not be taxed again on the same income source.
In addition, if you leave Australia for Canada during the tax year, you may be eligible to receive a tax refund. To claim it, simply file an Australian tax return.
What is the Canadian tax year?
Unlike Australia, the Canadian tax year directly corresponds with the calendar year. That is, it begins on January 1st and ends on December 31st.
When are tax returns due?
Along with understanding the tax year for Canada, there are several dates throughout the Canadian tax year that you should keep in mind. These include:
March 15th, June 15th, September 15th and December 15th – If you are paying your tax return in instalments, payments are due on the above days.
February 9th – E-filing is opened for Canadian residents and non-residents
February 29th – This is the final day you can submit the T4, T4A and T5 forms to your employers or to the CRA
April 22nd – This is last day to set up direct debit tax payments to avoid interest fees
April 30th – The deadline to submit your income tax return and pay any outstanding balance to the CRA
June 15th – Deadline for self-employed people to submit their income tax return. If you have any outstanding balance, however, it must be paid to the CRA on or before April 30th
Do I file individually or with my spouse?
Even if you’re married, you have to file your return individually. Canadian tax law prohibits married couples from filing a joint tax return.
Do I have to pay social security in Canada?
Yes, you do. Much like Australia, Canada has a compulsory social security program. Enacted in 1966, the Canadian Pension Plan (CPP) provides employees with a comprehensive range of retirement, disability and survivor benefits. Almost every employee working outside of Quebec is required to contribute funds to the CPP. There is a similar social security plan in place for employees working within the Quebec region.
Do I and/or my employer have to contribute to a pension fund?
Yes. In Canada, it’s mandatory for employees and employers to contribute equally to pension accounts. If you’re self-employed, however, you must make the entire contribution. The amount you and your employer place in the pension account depends on how much you earn.
Currently, the contribution amount is set at 10.2% of your earnings, for salaries between $3,500 and $57,400. This cap makes the maximum contribution amount for employees and employers $2,749. For self-employed people, this amount is capped at $5,498.
Are my non-Canadian assets subject to tax?
As mentioned previously, Canadian residents (i.e. residents for tax purposes) are taxed on their worldwide income. Income and capital gains from foreign properties, assets and shares are taxed in a similar way. To offset these charges, however, foreign tax credits are available.
What is classed as “foreign assets”?
If you own foreign assets at any point during the tax year, you must report it to the CRA. Foreign property includes any stocks, shares, bank accounts and real estate held overseas. Whether you’re a Canadian resident or non-resident, you are only obliged to declare foreign assets valued at or over $100,000.
How do I report foreign assets?
When completing your Canadian tax return, fill in Form T1135 – Foreign Income Verification Statement. In this form, you provide information on your foreign property, such as: generated income, location and maximum cost over the year.
Are there any other taxes I should be aware of?
Yes. In addition to income tax and social security contributions, there are other taxes you may be liable to pay.
Goods and services tax (GST)
GST is a 5% tax which applies to the vast majority of goods and services rendered in Canada.
Harmonised sales tax (HST)
Several Canadian provinces have combined the GST with their own additional tax (an additional 5%), to create the HST. This tax applies to the same goods and services covered by the GST.
Provincial sales tax
British Columbia, Manitoba and Saskatchewan add a PST of 8% to personal property, software and selected services.
Inheritance & gift tax
Canada has no inheritance or gift tax rules. However, before someone dies, they are required to dispose of all capital property before death. This leads to capital gains being subjected to income tax. And, every province has probate fees for the probation of a will.
Property taxes
This tax is determined based on the property’s estimated market value. Most provinces subject landowners to a general property tax based on these estimates.
Luxury & excise tax
Excise duties are applied (at varying rates) to alcohol and tobacco products. This tax is also placed on car air-conditioners, fuel-inefficient cars, diesel fuel and selected insurance products.
Are you ready to start a new life in majestic Canada? For comprehensive Australian tax advice relating to your potential move to Canada, call or email our friendly team at Expat Tax Services today.
References: http://taxsummaries.pwc.com/ID/Canada-Individual-Other-taxes
https://www.internationalcitizens.com/moving-abroad/to/immigrating-canada-guide.php
https://community.ato.gov.au/t5/Investment-property/Australian-resident-working-in-Canada/td-p/14662
https://www.taxback.com/blog/key-dates-canada/
https://turbotax.intuit.ca/tips/how-savvy-canadian-couples-file-taxes-451
https://turbotax.intuit.ca/tips/declaring-foreign-property-on-your-tax-return-6217
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Comments 2
You should make retirees aware that the double taxation agreement between Australia and Canada does not apply to Australian pension payments where you were taxed on the money going in and not taxed on the money coming out as a pension payment … the double taxation agreement only allows you to claim the Australian tax you paid in Australian in that tax year – which would be nil … therefore if you are a retiree living in Canada and are considered a resident for tax purposes, you will be taxed again on any pension payment received from a pension scheme mentioned above … double taxation
Author
Hi PJ,
Thanks for your message. Yes that’s true, it is in effect double taxation. I’ve always seen it a failing of Australian policy makers and negotiators of our treaties as this issue isn’t just limited to the Canadian treaty. In fact, most of Australia’s tax treaties pass the taxing right on superannuation to the country of residence. So if the person is resides in a country that taxes foreign pensions, Australian superannuation (that’s otherwise tax-free in Australia) becomes fully taxable in the other country.
So it’s very important that expats and their advisors not just consider short term tax issues, but long term issues such as where to build retirement funds, when to retire, and importantly, where to retire to. Focusing just on short term tax and financial issues, can be costly if longer term planning is not considered!
Thanks for your comment.
Shane