Tax breaks for newcomers in Canada

To read more chapters, click below:

Chapter 2: Are you required to file an income tax return?

Chpater 3: Taxes for new Canadians: Step-by-step guide for filing your taxes

Chapter 4: 20 popular Canadian tax deductions and credits in 2023

Chapter 5: How to apply for GST/ HST credit in Canada?

Chapter 6: All you should know about Canada Child Benefit (CCB)

Moving to Canada might seem to be an easy decision considering the vast opportunities it offers. But the one thing that most people tend to forget is the taxation system. Gaining insight into the functioning of income tax in this context can enable you to utilize tax advantages, which encompass potential financial benefits through government payments. Continue reading to delve into the specifics.

If you're new to Canada, you could qualify for benefit and credit payments. To access these potential benefits and credits, it's necessary to annually complete and submit an income tax and benefit return. This process ensures you receive any entitled benefits and credits, fulfill any owed Canadian taxes, or obtain a tax refund.

Points to remember –

• Irrespective of your income, there is a significance of filing your Personal income tax return in Canada. Regardless of the income status, filing of income tax return enables you to request tax benefits and qualify for payments.
• Recent immigrants also have the opportunity to get certain financial benefits before submitting their initial income tax return.
• Typical benefits related to tax that the newcomers may obtain encompass the GST/HST credit, the Canada child benefit (CBB), and the climate action incentive payment (CAIP).

Basics for first time tax filers in Canada

Income tax refers to a government-imposed financial levy on an individual's or entity's earnings, profits, or other forms of financial gain. It is typically calculated as a percentage of the income earned, with the rate varying depending on the specific income level and applicable tax laws. The revenue generated from income taxes is used to fund public services, infrastructure, social programs, and other government expenditures.

Just like most other countries in the world, a part of the income goes to the government as part of income tax. The percentage of tax that you might pay in Canada would depend on certain factors like –

• Your place of residence
• Your income amount
• Your deductions, credits, and expenditures (items you've paid for that might make you eligible for a reduction in income tax).

For people in employment, your employer will typically deduct your income tax from your salaries and will deposit it with the CRA on your behalf. The amount which is deducted and deposited on your behalf can then be set off against your actual income tax liability when you file your income tax return. 

However, if you're self-employed, you might need to handle your income tax payments independently.

Each year, a significant portion of Canadians is required to settle their income tax obligations with the CRA. This process can be complex and might involve completing documentation that outlines your specific tax situation. In this case, we recommend you hire a tax consultant to advise you and file your income tax return. You can contact Taxccount to deal with this and make the compliance easier for you.

Once the return is filed, the CRA will evaluate your tax return, ascertain the appropriate tax liability for the year, and issue either a tax bill or a refund, based on the taxes already paid or withheld.

But…… should I really file income tax return in Canada?

If you are a resident in Canada and want to receive any benefits or credits, then it is mandatory for you to file income tax returns regularly. Even with minimal or no income, we advise you to file your taxes to access potential benefits and credits you might qualify for, including –

• Goods and Services Tax (GST) / Harmonized Sales Tax (HST) credit
• Canada Workers Benefit
• Canada Child Benefit (CCB)
• Certain provincial benefits are determined by your income tax returns.

Canadian residents pay income tax to both the federal government and their respective province or territory. However, unless you reside in Quebec, you need to fill a single tax return. The CRA handles all the matters concerning to other provinces in Canada.

How do I file a tax return in Canada?

You have multiple options for submitting your tax return:

• traditional paper filing
• electronically filing using authorized tax software.

We believe that a simple method is utilizing the "My Account" feature on the CRA's website. Alternatively, if you favor paper filing of your income tax return, you can request the package online from the CRA website or by contacting the CRA at 1-855-330-3305.

Understanding the 90% rule for newcomers to Canada

The "90% rule" for newcomers in Canada refers to the requirement that to be eligible for certain tax benefits and credits, a person must have been a resident of Canada for at least 90% of the tax year. This rule ensures that individuals who have been in the country for the majority of the year can access these benefits and credits. It's important to understand and meet this rule's criteria when applying for tax-related benefits as a newcomer in Canada.

If you’re in Canada only for the part of a year, the associated figure is adjusted to match the proportion of the year you spent as a resident. However, if 90% of your income during the period when you weren't a resident of Canada is derived from Canadian sources, you can claim the complete Basic Personal Amount, along with other nonrefundable tax credits.

Tax for work-permit holders in Canada

There might be a case that you work in Canada but are not a Canadian resident. Even in such cases, you have to pay income tax. However, the specific amount and procedure may differ. For instance, nonresident seasonal agricultural workers from other countries are only required to pay income tax on their Canadian earnings. If you possess a work permit in Canada, it's recommended to examine the CRA guidelines relevant to your circumstances.

‘Welcome to Canada’ tax benefits

"Welcome to Canada" tax benefits includes the financial advantages and credits available to newcomers who have recently arrived in Canada. These benefits are designed to help ease the transition and support newcomers in their initial period of settling in the country. This often include various deductions, tax credits, and subsidies that can assist newcomers with their financial needs during the early stages of their residency in Canada. These benefits aim to provide additional assistance to newcomers as they adapt to their new life and surroundings in Canada.

Tax incentives are legitimate strategies to reduce your tax liability or obtain additional funds. Newcomers to Canada can take advantage of these opportunities by filing an income tax return as soon as they become eligible to do so. In certain cases, you have the option of getting tax benefits on your initial arrival in Canada, even before you have submitted your tax return. As a newcomer in Canada, there are three specific tax benefits that you should know of.

1. GST/ HST Credit

The GST/HST tax credit serves as a repayment for the sales tax you've paid on your purchases of goods and services. If you fulfill the eligibility requirements, the government determines the credit amount based on your family's net income and the number of dependent children you have.

When you become a resident, it's necessary to submit the RC151 GST/HST Credit Application Form. If you qualify, payments are disbursed every quarter. To continue receiving these payments, both you and your spouse (if applicable) must ensure on-time submission of your tax returns each year.

2. Canada Child Benefit

The CCB is a tax-free financial assistance program provided by the Canadian government to help eligible families with the costs of raising children. It is designed to provide financial support for the upbringing of children under the age of 18. The CCB takes into account various factors such as family income, the number of children in the household, and their ages.

Eligible families receive monthly payments from the government, and the amount of the benefit is determined based on the family's adjusted net income. The CCB aims to alleviate the financial burden associated with child-rearing expenses and assist families in providing a healthy and supportive environment for their children.

To avail these benefits, you must apply through Form RC66, the Canada Child Benefits Application, and RC66SCH, the Status in Canada/Statement of Income form. Additionally, both you and your spouse (if applicable) need to submit your tax returns punctually each year to maintain eligibility for receiving these payments.

3. Climate Action Incentive Payment (CIAP)

The CIAP is a program in Canada that provides financial assistance to residents of provinces that do not have their own carbon pricing system. The payment is intended to help offset the costs associated with the federal carbon pricing program, which aims to reduce greenhouse gas emissions and combat climate change.

Under this program, eligible individuals and families receive a direct payment from the government as part of their income tax return process. The payment amount varies based on factors such as family size and location, but it is designed to provide extra support to households facing higher costs due to carbon pricing initiatives. The Climate Action Incentive Payment is one of the ways Canada is working to encourage energy efficiency and transition to more sustainable practices while also helping citizens manage associated expenses.

Newcomers who have not yet completed a tax return can make an application by sending in form RC66 (for those with children) or RC151 (for those without). The CRA provides an online guide explaining the functioning of CAIP.

4 pro tips for first time tax filers in Canada

Now that you have read so far, we will give you some tips to help you manage it all. Whether you are studying for your degree, working part time in Canada, or are about to get retired, the one thing common is that everyone needs to pay taxes. If you are filing taxes for the first time in Canada, it can be quite a struggle and an overwhelming experience. We are here to help you.

Follow these 4 pro tips for first time tax filers in Canada.

1. Start organizing the information!

Yes, don’t wait for the last date to gather the information. Have all the relevant information including T4 statement from the employer, all other income statements, and tax slips with you. Make sure that you possess receipts, charitable donation slips, and any other documents you deem necessary for accurately reporting your income and making claims for deductions.

The Canada Revenue Agency (CRA) recommends retaining your tax records and paperwork for a period of six years after filing, in the event that your return undergoes a review process. It is a good idea that you sign up for CRA My Account. It will be the one place where you will be able to access numerous slips and essential details from your tax history that could be required when filing your return.

Given below is a list of documents that you should gather at the time of tax filing.

Slips required for tax filing –

• Employment income (T4)
• Employment Insurance Benefits (T4E)
• Tuition/ Education Receipts (T2202A)
• Canada Child Benefit (RC66)
• Social Assistance Payments (T5007)
• Worker’s Compensation Benefits (T5007)
• Mutual Funds (T3 or T5, and if sold T5008)
• Dividends received (T5)
• Interests Payment Received (T5)
• Old Age Security and CPP Benefits (T4A – OAS, T4AP)
• Other Pensions and Annuities (T4A)

Receipts required for tax filing –

• Medical expenses
• Childcare expenses
• Adoption expenses
• Interest paid on student loans
• Moving expenses
• RRSP contribution receipts
• Political contributions
• Charitable donations
• Professional or union dues
• Employment expenses such as – tools costs for tradespersons and apprentice mechanics
• Child, spouse, or common law partner support payments
• Office-in-home expenses

Some of the other documents that you might require are –

• Disability Tax Credit Certificate
• Notice of Assessment/ Reassessment
• Canada Revenue Agency Correspondence
• Declaration of Conditions of Employment (T2200)
• Rental income
• Automobile/ travel logbook and expenses related to vehicle
• Volunteer firefighters and search and rescue certifications
• Sale/ deemed sale of stocks, bonds, or real estate
• Business, farm, or fishing expenses

2. Create CRA My Account

Believe us, It is really easy to create an account on the CRA website. It would make all things tax related easy for you. You can track your refund, check your benefit and credit payment, view or change your return, and view your TFSA and RRSP contributions on a single platform.

Here’s how CRA My Account can prove to be beneficial for you –

• Access to personal information

My Account provides secure access to your personal tax information, including past tax returns, assessments, and notices of assessment. This allows you to review your tax history and ensure the accuracy of your records.

• Convenient online services

Through My Account, you can perform various tax-related tasks online, such as filing your tax return electronically, updating your personal information, and managing direct deposit information for refunds.

• Slips and documents retrieval

My Account allows you to access and download various tax slips, such as T4, T5, and RRSP contribution slips. This is especially useful during tax season when you need these documents to complete your tax return accurately.

• Correspondence and communication

The platform provides a secure channel for receiving and responding to communications from the CRA. You can view your notices of assessment, messages, and other important correspondence.

• Benefit and credit information

My Account provides information about government benefits and credits you may be eligible for, such as the Canada Child Benefit (CCB) and the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit.

• Payment and balance information

You can view your tax account balance, recent payments, and installments through My Account. This helps you keep track of your tax obligations and any outstanding amounts.

• Quick and secure

My Account offers a secure way to access your tax information and perform various tasks online without needing to visit a physical CRA office or mail documents. It saves time and reduces paperwork.

• Mobile friendly

CRA has a mobile app version of My Account, making it convenient to access your tax information and perform tasks using your smartphone or tablet.

• Faster processing

When you use My Account to file your tax return electronically, the processing time is generally faster compared to paper filing.

• Environmental impact

Using My Account reduces the need for paper forms and documents, contributing to an eco-friendlier approach to managing your tax affairs.

It's important to note that while CRA My Account offers many benefits, it's essential to use it securely. Protect your login credentials and only access your account from trusted devices and networks to ensure the privacy and security of your personal tax information.

3. File your tax return accurately

When utilizing NETFILE to submit your return, it's crucial to ensure the accuracy of your information. If any personal details like your name, date of birth, or SIN don't correspond with the CRA's records, your tax filing will be declined. Prior to submission, carefully review all details and confirm that your name aligns precisely with your Social Insurance Number document.

Maintaining high levels of accuracy is also essential due to potential penalties and interest charges. If information is omitted or inaccurately stated on your return, you could incur a penalty of either $100 or 50% of the amount of understated tax or overstated credit, whichever is higher.

Attempting to deceive on your tax return is never recommended, as the repercussions could extend beyond mere fines and penalties, potentially leading to more serious consequences.

4. Easily file your tax by the deadline

If you don’t follow the deadline to pay your tax, you might have to pay a penalty as well as interest on any balances you owe to the CRA. It also has the potential to postpone the disbursement of certain tax benefits you’re entitled to.

• The standard deadline for filing personal income tax for individuals is April 30th, unless there are specific situations leading to an extension.
• If you're self-employed or have self-employed earnings, your tax filing deadline is June 15th. However, if you owe a balance, it must be paid by April 30th, unless exceptional circumstances result in a government-mandated extension.
• When filing taxes for your incorporated business, determine the deadline based on your business's fiscal year-end. For most businesses, with a fiscal year-end of December 31st, the filing deadline would be June 30th, with taxes due within 3 months. An exception applies if your net income exceeds $500K, in which case taxes are due within 2 months of your fiscal year-end.