Best advice for newcomers filing their tax for the first time in Canada

Navigating the complexities of tax filing can seem daunting for those new to the process, particularly with the myriad of regulations that must be adhered to. However, armed with the correct information, completing your tax filings on time and accurately becomes significantly more straightforward. This article aims to cover the essential prerequisites and offer valuable tips for first-time tax filers in Canada, ensuring a smooth and compliant experience.

Why file tax return in Canada?

In Canada, the requirement to file an income tax return is primarily based on an individual's connection to the country, such as owning or leasing property, having a Canadian driver's license or bank account, or residing with a spouse or dependents. This establishes their tax obligations.

To qualify for various government benefits and credits, it's essential for residents to submit their tax returns on schedule, even in the absence of income within the year. This also applies to spouses or common-law partners without income.

For newcomers or those planning to move to Canada, it's crucial to recognize the importance of timely tax return submissions. This holds true even if you were only in Canada for part of the year. The obligation to file a return applies if you've earned income through work, investments, or other means during your time in Canada, and owe taxes. Filing a tax return also opens up the possibility of claiming certain benefits and credits, such as the Canada Child Benefit or the GST/HST credit.

What is deadline for tax returns in Canada?

The annual deadline to file tax returns in Canada is April 30. If this date falls on a weekend, the deadline is extended to the next business day. For individuals or their spouses or common-law partners who run their own business, the deadline extends to June 15. However, it's important to remember that any taxes owed must be paid by April 30, regardless of the extended filing deadline for self-employed individuals.

Tax guidance for newcomers or cross-border employees from the USA

Navigating the tax landscape can be particularly challenging for those who are new to Canada or are working across the U.S.-Canada border, given the distinct differences between the tax systems of the two nations.

The complexity of tax matters for individuals in Canada is often compounded by the requirements of the U.S. tax system, which taxes individuals based on citizenship rather than where they live or work. This means U.S. citizen must file a tax return with the IRS annually, regardless of their country of residence or employment. On the other hand, Canada determines tax obligations based on residency.

Darren Coleman, a senior portfolio manager at Raymond James in Toronto, highlights that American citizens living in Canada need to navigate the tax requirements of both countries, a situation simplified by the U.S.-Canada tax treaty. This treaty aims to alleviate the burden of double taxation for people earning income in these countries.

Coleman advises that Americans in Canada who need to file taxes in both the U.S. and Canada should consider using a single tax professional or service that specializes in cross-border taxation. This approach helps in managing the complexities of filing taxes in two countries.

The U.S.-Canada tax treaty is specifically designed to prevent double taxation, ensuring that Americans earning income in Canada are not taxed again by the U.S. on the same income. To take advantage of the treaty's benefits, U.S. citizens living in Canada must accurately complete and submit their U.S. 1040 tax return by the deadline, which for the 2023 tax year is April 18th, with extensions available for those who require more time.

Tax Obligations for Americans in Canada: Residency, Investments, and Reporting

For individuals residing or employed in Canada, it's a requirement to contribute taxes on any income generated within the nation, encompassing returns from investments in Canadian assets such as stocks, mutual funds, and other investment vehicles.

Mr. Coleman points out that for American expatriates, the task of reporting income from Canadian investments can be notably burdensome and expensive. This is due to the classification by the U.S. Internal Revenue Service (IRS) of some Canadian investment products, like mutual funds and ETFs, as Passive Foreign Investment Companies (PFICs), which introduces a layer of complexity and detailed reporting requirements for U.S. taxpayers.

Owning Canadian mutual funds might not directly lead to additional tax liabilities for Americans; however, the requisite reporting can substantially elevate the cost associated with preparing tax returns in Canada.

For those who split their time between Canada and another country, the approach to taxation depends heavily on their residency status, which is influenced by several criteria. Individuals unsure about where they stand in terms of residency should seek guidance from the Canada Revenue Agency (CRA) to understand their specific tax obligations.

In scenarios where Americans work in Canada but live across the border, they might qualify for exemptions from Canadian tax deductions at source by their employers. Moreover, having residences in more than one country could result in being classified as a dual resident, affecting how one's taxes are filed.

Tax advice for newcomers from Philippines

The influx of individuals from the Philippines to Canada in search of employment and enhanced opportunities has led to a growing Filipino community within the country. For those Filipinos newly arrived in Canada, navigating the local tax system can present challenges due to its distinct differences from the tax system in the Philippines. New arrivals might not be immediately aware of specific tax credits available for charitable donations or educational expenses, and they may need to familiarize themselves with the Canadian payroll tax system as they enter the workforce.

There is a recognized need for improved tax education among new immigrants in Canada. In response, collaborations have been established between the Philippine embassy, the Canada Revenue Agency (CRA), and other organizations to provide essential tax information to newcomers.

A common oversight among new residents is the misconception that one must be employed to file a tax return. However, submitting a tax return is crucial for accessing various Canadian benefits, including those related to the Goods and Services Tax/Harmonized Sales Tax (GST/HST), provincial tax rebates, educational expenses, and allowances for dependents. This is a notable departure from the tax policies in the Philippines, which do not offer a comparable child tax benefit.

Additionally, the Canadian tax system introduces several unique elements such as taxes on capital gains, real estate, and employment insurance contributions, which are vital for newcomers to understand. It is advisable for new residents from the Philippines to actively seek out tax guidance through available resources, which include attending informational seminars offered free of charge, exploring official government websites, and consulting professional tax preparation services.

Given the increasing number of Filipinos making Canada their new home, particularly among young professionals and international students generating income in Canada, gaining a thorough understanding of Canada's tax system is essential for successful integration and financial management.

Tax obligations for newcomers from India

Canada ranks highly as a favored destination for professionals from India, with Indians forming the largest demographic of immigrants. The transition for Indians is often facilitated by their proficiency in English and adept social abilities. However, a significant hurdle for many is acclimatizing to the Canadian tax system. As a resident of Canada, individuals are required to report income earned globally, including earnings from India or elsewhere.

For those newly arrived in Canada and navigating the tax filing process for the first time, seeking assistance from a tax expert is highly recommended. This approach not only aids in accurately identifying all sources of income but also enables individuals to leverage various deductions and credits that they may be eligible for.

Moreover, it's observed that Indian newcomers frequently encounter issues when preparing their taxes, such as postponing the search for professional tax guidance to the eleventh hour and not keeping detailed records of their employment income, investments, and deductible expenses.

Hence, irrespective of whether one is adjusting to tax filing as a new Canadian citizen or as an immigrant from another nation, it is crucial to consult with tax professionals. This ensures that errors are minimized during the tax filing process and that individuals fully benefit from the available tax advantages.