Taxation and matters of taxes for Newcomers in Canada is one of the things that get permanent and temporary immigrants asking a lot of questions as some of the processes, if not all may appear to be too ridiculously cumbersome at first.
The comprehensive Canadian tax system is what affords the government the ability to settle the basic needs of residents such as a comprehensive health care system, good road networks, a standard educational system, and many other structures that have and will continue to serve Canadians.
Taxing in Canada is regulated by the Canada Revenue Agency (CRA). Depending on the type of tax, it may be unified all through the country or may be supervised by local authorities and so vary from province to province.
Canada’s tax rate may appear to be on the high side to newcomers, the tax demanded is still well below average when compared with tax rates from all over the world. More so, Canada is one of the few countries that boast of a quality, resident-friendly ecosystem with more than enough amenities to make life in the country smooth. Therefore, no one needs to look too far to find out how taxes in the country are being channeled.
In this article
Types of Taxes in Canada
Taxing in Canada usually falls under the umbrella of income, property, sales, and corporate tax systems.
- Income Tax: Being the most common tax system, much of the information provided in the article centers around paying income tax and how to go about filing it. Income taxing in Canada is progressive, meaning your tax increases as your income increases.
- Property Tax: If you own your property, you will be required to pay property tax. This tax is collected by your province’s local taxing system the accumulated fund from other locals is readily used to cover the distribution of water, garbage collection, snow packing, and fire protection.
- Sales Tax: This is a certain percentage that is placed on consumer goods and services. Sales tax rates differ from province to province because they are controlled by local authorities.
- Corporate Tax: This is usually collected by the federal government. Profit and non-profit organizations are all required to pay corporate tax and the rate taxed will depend on the size and type of the organization. Most provinces will also demand a certain percentage from organizations as corporate tax.
Of all these tax systems, income tax is the most common and is the basic taxation required of every resident of the country.
Processes Involved in Filing Income Tax
In your first year of stay in Canada, you are still considered a new resident after which you will no longer be regarded as a newcomer to the taxpaying processes. Nevertheless, you are required to start paying tax immediately after you have been approved to reside in Canada. This will involve, first of all, filing a tax return. Asides from its use for keeping a record of taxes paid, filing a tax return will be useful when you want to lay claim on a refund as well as when you want to apply for or receive benefits and credits.
Your income tax return is known as a T1 General. You are required to file the return just once for the whole year and will be needing an income tax package as a tool for filing. You should use the package that is meant for the province you resided in as of 31st December of the income year you are filing for.
It is important to use the package designated for your province because tax rates vary from province to province across the nation. Canada has a good structure for managing taxes for Newcomers.
You can file your Canadian tax return through any of these 3 ways:
- Mailing: Fill the IRS Form 1040 by hand and then have it mailed to the tax services office in your locality. Crosscheck that you got the address right, else, your filing may never be received or it may end up landing in the wrong directory. If you are still a non-resident, mailing is the only option you have for filing your tax returns.
- Online Filing: This will require the use of a tax preparation software that has been certified. The CRA (Canada Revenue Agency) has included on their website a list of these software packages. Some require paying a certain amount while others are free.
- Hiring a Tax Preparer: Hiring qualified personnel will save you the rigors of having to do the job yourself. Such a tax preparer will readily put you through all the processes and will carry out the actual documentation on your behalf.
If you are having your filing done online, you will have to use the NETFILE system provided by the CRA as that is the right platform for individual tax payment. The other option which is EFILE is the electronic filing system strictly meant for tax preparing companies to file the returns of their clients.
There is usually a deadline for tax filing after which you may be penalized for filing late. All taxes owed also, are to be paid before the expiry of the filing timeframe. For a long time, the deadline for filing persona income tax has remained 30th of April. Self-employed residents have up to June 15th to submit their income tax returns.
Basic Information to be Documented during Tax Filing
- Personal details and background information
- The date you became a Canadian resident
- Your spouse’s net world income
- Your world income for the year you are filing for
All of these details should be filled in as requested and should be devoid of errors.
Summary of Requirements for Income Tax Filing
Asides from the information you will provide, you will need these documents for your filing procedure to be complete:
- Social Insurance Number (SIN): This is a unique 9-digit number required to work in Canada and gain access to credits and benefits.
- T4 Document: This is a comprehensive payslip from your employer. It contains a summary of how much you were paid at work in a whole year. Employers usually issue out T4 documents in February so you still have enough time to the filing deadline after you have received the payslip. If you have multiple employees in a single year, you will need to get T4 documents from each of them.
Benefits of Filing your Income Returns
All through your stay in Canada, you are going to be enjoying lots of social amenities, and this more than enough reason to show that paying your tax is worth it. Much more than the basic amenities the government provides, you stand a chance to benefit from a tax refund when you pay your tax as expected.
You could be a beneficiary of a tax refund if the government discovers that your earnings for the filed year were extremely low. You may also get a tax refund if you were wrongly mandated to pay tax rates that are higher than expected for your income.
Filing your income returns also makes you eligible for several grants such as the Canada worker benefit or GST credit.
Canada Tax Brackets
The amount (rate) to be taxed on individuals and organizations is determined by the Canada Personal Income Tax Rate. This is the top marginal tax rate placed on taxable income by the Federal government of Canada. The average top marginal tax rate placed on income in Canada is 45.7%. Marriage or common law relationships may have impact on taxes, see how marriage affect taxes.
Asides from the federal tax rates, there is also a 15% minimum provincial tax rate expected from individuals and corporations. More often than not, newcomers find it hard to reconcile with the tax rates but with time, you will ease in into the new financial responsibilities.
Residents of Canada have more than enough to compensate for the amount of tax they pay yearly. Unlike other countries, Canadians have lesser to pay for to get professional health care, schools are usually already pre furnished by the government and except for tuition fees and other regulatory fees, a student will have no reason to pay extra fees to have access to quality education.
Frequently Asked Question About Taxation in Canada