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

To read more chapters, click below:

Chapter 1: Tax breaks for newcomers in Canada

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

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)

If you are a newcomer in Canada and are filing your taxes for the first time, it can be a daunting and overwhelming experience. But when you have the right information, the process gets easier. This chapter has all the information that you need as a new Canadian to file your taxes.

In Canada, individuals are responsible for remitting personal income tax, which is levied by both the federal and provincial/territorial governments. This entails the payment of two distinct forms of income tax: federal income tax and provincial/territorial income tax. The exact kind of income tax you owe is determined by the province or territory where you reside on December 31st of the previous year.

The oversight of tax regulations for the federal, territorial, and the majority of provincial governments in Canada is managed by the Canada Revenue Agency (CRA). It's crucial to be aware that Quebec operates differently in this regard. In Quebec, Revenu Quebec has the responsibility of administering its own provincial income tax system, distinct from the rest of the provinces and territories. This distinct approach in Quebec is due to its unique jurisdiction over certain areas, including taxation. Therefore, while the CRA is the central authority for much of Canada, Quebec has an independent agency overseeing its provincial income tax matters.

What is income tax and when to file it?

Let’s start with the basics of understanding what is a tax return and when are tax returns due in Canada.

An income tax return furnishes a comprehensive overview of your earnings and deductions over the preceding calendar year, encompassing the period from January 1 to December 31. It encompasses federal, provincial, and territorial taxes that you've paid or owe. This process also aids in ascertaining whether you qualify for a reimbursement from the government, representing a portion or the entirety of the tax amount deducted from your earnings during that year.

The requirement for filing an income tax return is determined by your residency status in Canada.  If you are a Canadian resident, it's recommended to file a tax return in the following situations –

• You've obtained income from different sources, whether they are within Canada or overseas.
• You need to address tax obligations with the government or seek a refund or benefits.
• You plan to apply for the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit or applicable provincial credits.
• The Canada Revenue Agency (CRA) has asked for your tax return submission.
• You have either received government tax benefits or generated income from selling capital assets.

When should I file my tax return in Canada?

If you live in Canada, you know that apart from summer, winter, spring, and fall, there is a fifth season – the tax season and it is one of the most important ones. In Canada, individuals, with the exception of those who are self-employed, are required to submit their income tax returns for a particular calendar year by April 30th of the subsequent year. This means that by April 30th of each year, individuals need to provide the government with a comprehensive report of their income, deductions, and other relevant financial information for the previous calendar year. This information is used by the government to calculate the amount of taxes owed or to determine if the individual is eligible for any tax benefits or refunds. Filing by the deadline is crucial to avoid potential penalties or interest charges for late submissions. It is important to note that a penalty is applicable for failing to meet the deadline for filing your returns.

Deadlines that you need to remember –

• The deadline for filing personal income tax is April 30. This means that for the 2023 tax year, you need to have your filing completed by April 30, 2024.
• If you or your spouse/common-law partner have self-employment income, the deadline is extended to June 15.
• If you owe taxes, the payment deadline remains April 30, regardless of whether you file your taxes by June 15.
• If either April 30 or June 15 falls on a weekend (Saturday or Sunday), the deadline moves to the following Monday.

Tax Filing for Newcomers –

If you're a newcomer, your initial tax return is typically expected on the deadline corresponding to the year you become a tax resident. For instance, if you arrived in Canada in July 2023, your first tax return would be due by April 30, 2024. However, it's feasible to apply for specific benefits and credits even prior to this deadline.

Filing tax on foreign income

For individuals living in Canada, any income earned outside the nation after your arrival is classified as "foreign income" and must be reported on your tax return in Canadian currency. If you have paid foreign taxes on income earned outside of Canada and this income has been reported on your Canadian tax return, you might qualify for the Federal Foreign Tax Credit. To avail of this credit, it's necessary to reveal the foreign income you earned, including details about your gains, losses, and profits.  When reporting foreign income on a Canadian tax return, make sure to –

• Specify the country where the funds come from.
• Disclose the entire income amount (i.e., the amount before any deductions for foreign taxes).

Benefits of filing tax return in Canada

Filing taxes in Canada has various benefits. Some of the main ones include –

• Potential refunds

Filing a tax return allows you to claim tax credits, deductions, and benefits you might be eligible for. This can lead to receiving a tax refund, which is a reimbursement of excess taxes withheld from your income.

• Proof of income

Your tax return functions as an authoritative documentation of your income, holding importance for various situations. For instance, it can be necessary when applying for loans, mortgages, or rental agreements. These entities often request your tax return as evidence of your financial stability and ability to meet financial commitments. The comprehensive overview of your income provided in your tax return offers assurance to lenders, landlords, and other parties that you have a reliable source of funds, which in turn can facilitate smoother transactions and negotiations.

• Carryover of deductions and credits

Some tax deductions and credits can be carried forward to future years if not fully utilized in the current year. By filing your tax return, you ensure these carryover amounts are properly accounted for in the future.

• Access to government benefits

Many government benefits and credits are based on your reported income. By filing your tax return, you can qualify for benefits such as the Canada Child Benefit, Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit, and various provincial credits.

• Building credit history

If you're a newcomer to Canada, having a history of filing tax returns can contribute to building a positive credit history, which is important for various financial transactions.

• Contribution to retirement savings

By filing a tax return, you can contribute to tax-advantaged savings accounts like the Registered Retirement Savings Plan (RRSP) and receive tax deductions for those contributions. This helps you save for retirement while reducing your tax liability.

• Compliance with tax laws

Filing your tax return ensures that you are compliant with Canadian tax laws. Failure to file can result in penalties and interest charges.

• Support for financial planning

Filing a tax return provides insight into your financial situation, helping you plan for the future, set financial goals, and make informed decisions about investments and savings.

• Documentation for immigration and citizenship

If you're in the process of immigration or applying for citizenship, having a history of filing tax returns can provide evidence of your financial stability and integration into Canadian society.

• Claiming business expenses

If you're self-employed or have business-related income, filing a tax return allows you to claim legitimate business expenses, which can reduce your taxable income.

Impact of residency on income tax returns in Canada

Residency status has a significant impact on income tax returns in Canada. The Canadian tax system is based on the principle of "residency-based taxation," which means that your tax obligations are determined by your residency status for tax purposes. This is how residency status impacts income tax filings in Canada.

1. Taxable Income and Reporting:

• Resident: If you are recognized as a tax resident of Canada, you are required to report your worldwide income on your Canadian tax return. This encompasses earnings from both within and outside of Canada.
• Non-Resident: If you are classified as a non-resident, typically you need to disclose only the income earned within Canada on your Canadian tax return.

2. Deductions and Credits

• Resident: Residents can claim various deductions, credits, and benefits available under the Canadian tax system, such as the Canada Child Benefit, GST/HST credit, and medical expense deductions.
• Non-Resident: Non-residents may have limited access to deductions and credits. Some credits, like the basic personal amount, might still be available to certain non-residents.

3. Tax Rates

• Resident: Residents are subject to the progressive Canadian tax rates that apply to their taxable income, which can vary depending on the province or territory.
• Non-Resident: Distinct withholding tax rates are applicable to different categories of Canadian-source income, such as dividends, interest, and rental income, for non-residents.

4. Tax Treaties

Canada has tax treaties with many countries to avoid double taxation and provide specific rules for determining residency and taxing rights for various types of income. These treaties can affect how income is taxed and reported.

5. Departure Tax

When an individual ceases to be a resident of Canada, they may be subject to a "departure tax" on certain types of property appreciation, such as real estate and investments, at the time of departure.

6. Newcomers and Emigrants

Newcomers to Canada might have specific tax obligations in their first year of residency, and emigrants might have tax implications related to their departure.

Information required for filing your taxes in Canada

When filing your taxes, one of the prerequisites is to furnish essential details such as your complete name, address, email address, and all income earned during the preceding year. The other things that you need to provide include –

• Ensure that you have completed the process of applying for and obtaining your Social Insurance Number (SIN). This serves as an identification for income tax-related matters as well as for accessing various benefits.
• If you are currently working in Canada, each employer you have worked for during the tax year will issue a T4 slip to you. The T4, also known as the Statement of Remuneration Paid, should be provided by your employer by the end of February.
• If you've recently come to Canada, it's important to furnish details about the income
• you earned before arriving in the country.
• If you acquired income from foreign employment subsequent to your relocation, you should also have those figures on hand.
• For foreign assets exceeding $100,000, you are required to disclose them on Form T1135 within your tax return.
• When dealing with your dependents, whether they are your spouse, children, or elderly parents, it's essential to provide all the relevant information about them.
• The potential tax credits and deductions available to you are contingent on your specific tax situation. For example, if you've incurred expenses for childcare, you may be eligible to include them in your tax return. Likewise, if you've paid medical expenses for yourself, your spouse, or your children, you might be able to claim those costs (remember to retain all official receipts).
• If you are bringing assets into Canada, you must provide details, including their market value on the day of your entry. This valuation will be utilized to calculate your capital gains or losses if you decide to sell these assets at a later date.
• For residents of Québec, an additional tax return must be submitted to Revenu Québec. (Québec is the only province in Canada where filing two tax returns is required.)

Canada Tax Checklist

Stay organized and get a head start on tax season with our consolidated Canada tax checklist.

Personal information

• Social insurance number (SIN)
• Date of birth
• Information about spouse/ common-law partner
• Information about dependents
• Spouse and/ or child net income amounts
• Total amount of installment payments made to the CRA
• Last year’s tax return
• Tuition transfer amount from child or spouse
• Notice of assessment from last year’s return
• Other CRA correspondence

Income

• Employment income (T4)
• Self-employed business income (T2125, T5013, T4A)
• Interest, dividends, mutual funds (T3, T5, T5008)
• Rental income and expenses (T776)
• Old Age Security and CPP benefits (T4A-OAS, T4A-P)
• Pension and annuity income (T4A)
• RRSP and RIF income (T4RSP, T4RIF)
• Employment insurance benefits (T4E)
• COVID-19 benefits received (T4A) Social assistance payments (T5007)
• Workers' compensation benefits (T5007)
• Other income not reported on a slip (e.g. tips)
• RL-1 Employment and other income (QC only)

Receipts

• RRSP contributions
• Employment expenses (T2200 signed by employer)
• Work-from-home expenses due to COVID-19 (T2200S)
• Tool expenses
• Union dues not included on your T4 slip
• Exams for professional certification
• Teacher's school supplies
• Childcare expenses
• Support payments paid or received
• Adoption expenses
• Disability tax credit for self or dependents
• Medical expenses
• Personal attendant/facility care expenses
• Charitable donations
• Northern residents’ deduction
• Digital News subscription expenses
• Political contributions
• Moving expenses
• Home accessibility expenses
• Home Buyers' Amount
• Tuition expenses
• Student loan interest amounts
• Tax-exempt scholarships

Other information

• Sale of principle residence
• Sale or deemed sale of stocks, bonds, or real estate
• RRSP deduction limit and unused amounts
• Tuition carry forward amounts
• Loss carry forward amounts
• Other carry forward amounts (donations etc.)

Steps for filing tax return in Canada

Filing taxes might seem a cumbersome task, but you can easily do it online. Just follow these steps.

1. Collect all the information and documents outlined in the preceding section.
2. Decide on the method you wish to use for filing your taxes and make the necessary preparations. In case you choose to file your tax return through traditional mail, you can acquire a paper filing package from the CRA.
3. Progress through your tax return, methodically completing the forms one step at a time. If you're using the paper method, take care to review your calculations for accuracy. If you're utilizing online platforms or employing an accountant, ensure that all your income, deductions, credits, and expenses have been accurately included.
4. Submit your tax return before the due date. After the CRA has completed the processing of your return, you'll obtain a Notice of Assessment. This document outlines their findings and provides crucial details regarding your tax status, including whether you have a tax liability or are eligible for a refund. Safeguard this document in a secure place, as you'll require it for future reference.

We know this can sometimes be tiresome and complex for you, that’s why we recommend you deal with a tax consultant to deal with this matter. You can contact Taxccount for the same.