Taxes for New Canadians: Step-by-Step Guide to Filing Your Tax Return

To read more chapters, click below:

Chapter 1: Who is required to file an income tax return?

Chapter 3: Difference between refundable and non-refundable tax credits

Chapter 4: Non-refundable tax credits

We hope Canada welcomed you with open arms! Now that you have made this country your home and have slowly settled in, it is time to understand the taxation system. You might be paying income tax in the country that you were previously living. But things in Canada work differently and it is good to make yourself aware of all the changes so that you can file your taxes on time.

Here’s what you need to know –

1. The oversight of Canada's taxation system falls under the jurisdiction of the Canada Revenue Agency (CRA), and the due date for tax filing is April 30.
2. It's advisable to submit a tax return even in the absence of income, as this practice grants you access to crucial information and potential benefits.
3. To streamline the process of tax filing, utilize the tax checklist to ensure that all your information is consolidated in a single location. This approach facilitates both a swift and precise tax filing process.

When do I have to file my taxes in Canada?

Here are some deadlines that you should keep in mind in terms of filing your taxes in Canada.

• Personal Income Tax Deadline

The cutoff date for filing personal taxes is April 30. For the tax year 2023, the filing must be completed by April 30, 2024.

• Self-Employment Tax Deadline

If you or your spouse or common-law partner derive income from self-employment, your filing deadline extends to June 15.

• Taxes Owed Deadline

In the case of owing income tax to the government, the payment must still be settled by April 30, even if you defer filing until June 15.

• Weekend Blackout

If April 30 or June 15 falls on a Saturday or Sunday, the deadline automatically shifts to the ensuing Monday.

• Newcomer Tax Filing Date

Newcomers to Canada should file their taxes for the first time in alignment with the filing deadline for the year they attain resident status for tax purposes. For example, if you migrated to Canada in July 2023, your initial tax return would be due by April 30, 2024. In certain cases, you might be eligible to apply for benefits and credits prior to that date.

Note: Filing your return after the due date may incur penalties and interest on any outstanding amounts owed.

Advantages of filing income tax return in Canada

Filing income tax in Canada offers several advantages, contributing to both individual financial well-being and the functioning of the national economy. Here are some key benefits –

• Access to Benefits and Credits: Filing income tax ensures that you are eligible for various federal and provincial benefit programs, such as the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit, Canada Child Benefit (CCB), Canada Workers Benefit (CWB), and other tax credits. These programs provide financial assistance to individuals and families based on their income and circumstances.
• Tax Refunds: If you've overpaid your taxes through deductions or withholdings, filing a tax return allows you to claim a refund for the excess amount. This can provide a welcome financial boost.
• Legal Obligation: Filing income tax is a legal requirement in Canada. By fulfilling this obligation, you demonstrate your commitment to adhering to the country's tax laws and contribute to the proper functioning of the tax system.
• RRSP Contributions and TFSA Limits: Filing your tax return is crucial for accurately tracking your Registered Retirement Savings Plan (RRSP) contribution limits and Tax-Free Savings Account (TFSA) contribution room. This information helps you make informed decisions about retirement savings and investments.
• Maintaining Good Financial Records: Filing taxes requires organizing your financial information, such as income, expenses, and deductions. This practice promotes good financial record-keeping, which can be valuable for budgeting, financial planning, and future decision-making.
• Credit History and Financial Transactions: Proof of income tax filing is often required for various financial transactions, such as applying for loans, mortgages, or rental agreements. Regularly filing taxes can help establish a strong credit history and facilitate these transactions.
• Supporting Public Services: The tax revenue collected from individuals and businesses forms the backbone of funding for public services and government programs, including healthcare, education, infrastructure, and social services. Filing taxes supports the provision of these essential services.
• Avoiding Penalties: Filing taxes by the deadline (usually April 30 for most individuals) helps you avoid penalties and interest charges imposed by the Canada Revenue Agency (CRA) for late or non-filing.
• Financial Planning: Filing taxes provides a comprehensive overview of your financial situation, which is essential for effective financial planning and making informed decisions about investments, retirement, and other financial goals.

• Peace of Mind: Completing your tax return on time and accurately can provide peace of mind, knowing that you've fulfilled your financial responsibilities and are in compliance with the law.

Overall, filing income tax in Canada is a crucial aspect of personal finance management, ensuring you maximize benefits, avoid penalties, and contribute to the broader economic well-being of the country.

Impact of residency on taxes

Residency status has a significant impact on taxes in Canada, as it determines how your worldwide income is treated, which tax credits you are eligible for, and the obligations you have to the Canadian tax system. Here's a closer look at the impact of residency on taxes in Canada –

• Worldwide Income Reporting: Canadian residents are required to report their worldwide income on their Canadian tax return. This includes income earned both within and outside of Canada. Non-residents, on the other hand, are typically only required to report income earned from Canadian sources.
• Tax Credits and Benefits: Residency status affects your eligibility for various tax credits and benefit programs. For example, Canadian residents are eligible for benefits like the Canada Child Benefit (CCB), the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit, and the Canada Workers Benefit (CWB), which are based on your income and family situation.
• Tax Treaty Considerations: Canada has tax treaties with many countries to prevent double taxation. Residency status can influence how these treaties apply to your situation. If you are a resident of Canada, you may be eligible for foreign tax credits to offset taxes paid to other countries.
• Reporting Foreign Income and Assets: Canadian residents are required to report foreign income and assets above certain thresholds on their tax return. This includes foreign bank accounts, investments, and real estate. Non-residents generally do not have these reporting obligations.
• Tax Filing Deadlines: The tax filing deadlines can differ based on your residency status. For example, the general tax filing deadline for most individuals is April 30. However, if you or your spouse or common-law partner have self-employment income, the deadline is extended to June 15. It's important to adhere to the correct deadline based on your residency.
• Available Deductions and Credits: Certain deductions and credits may only be available to Canadian residents. For instance, the deduction for RRSP contributions, tuition credits, and other tax incentives may be influenced by your residency status.
• Capital Gains and Principal Residence Exemption: Residency status can impact how capital gains are treated, especially when it comes to the Principal Residence Exemption. Canadian residents can claim this exemption for the sale of their primary residence, but non-residents may not be eligible.
• Old Age Security (OAS) and Guaranteed Income Supplement (GIS): Residency status can affect your eligibility for Old Age Security (OAS) and Guaranteed Income Supplement (GIS). Non-residents may face limitations or different rules when receiving these benefits.

Filing taxes for the first time – complete guide

As a recent immigrant to Canada, you have two options for filing your taxes independently –

• Online Method: You can choose to have a certified tax preparer file your tax return online on your behalf. Alternatively, you can opt for the NETFILE approach, where you personally prepare your return using certified tax software and submit it electronically.
• Mail Method: Another option is to print your initial income tax return and send it through mail to the Canada Revenue Agency (CRA).

Information needed to file your tax return

When you are filing your taxes certain basic information like your name, address, email id, income from previous years etc. would be required. Certain other information that you might need handy while filing your taxes is –

• Ensure that you have obtained and received your Social Insurance Number (SIN), which serves as your identification for income tax and benefit purposes.
• If you are presently employed in Canada, you will be provided with a slip from each employer you worked for during the tax year. This slip, known as a T4 – Statement of Remuneration Paid, should be issued by your employer by the end of February.
• In the case of recent immigration to Canada, you will need to incorporate details about the income you earned before your arrival
• If you received income from employment outside of Canada following your relocation, you will need to have those earnings on hand as well.
• In the event that you possess foreign assets exceeding $100,000, it's imperative to declare them on Form T1135 within your tax return.
• When you have dependents such as a spouse, children, or elderly parents, you are required to furnish all relevant particulars about them as well.
• The tax credits and deductions accessible to you are contingent upon your unique tax circumstances. For instance, if you've incurred child care expenses, you might qualify to claim them on your return. Similarly, medical expenses for yourself, your spouse, or your children could also be claimed, but it's crucial to retain official receipts.
• Should you be bringing assets into Canada, comprehensive information and the market value on the day of your arrival must be included. Any future capital gains or losses upon their sale will be determined based on this value.
• For residents of Québec, it's mandatory to submit a tax return to Revenu Québec. (Québec is the singular province in Canada that necessitates the filing of two tax returns.)

4 Steps for filing your return in Canada

1. Collect the information

Collect all the documents mentioned in the above section and keep them ready.

2. Decide your preferred method

Decide on your preferred method for filing taxes and make necessary preparations. If you plan to submit your tax return by mail, request a paper filing package from the Canada Revenue Agency (CRA). If you are inclined to hire an accountant, seek recommendations for professionals within your community. Additionally, as a newcomer, you might qualify for free tax assistance; the CRA provides details on locating a free tax clinic if needed.

3. Fill out all the required forms

Progress through your tax return by completing the forms systematically. If you're utilizing paper forms, ensure you review your calculations for accuracy. In the case of online filing or assistance from an accountant, verify that all your income, deductions, credits, and expenses have been accurately included.

4. Send it before the deadline

Submit your tax return within the designated timeframe. After the Canada Revenue Agency (CRA) has reviewed your return, you will receive a Notice of Assessment. This document details their findings and provides crucial insights into your tax status, indicating whether you have a tax liability or are eligible for a refund. Keep your documents safely as you might require them for future reference.

Declaring foreign property and income

• Declaring foreign property

As a resident of Canada, it is a requirement to disclose any foreign property you possess with an adjusted cost base exceeding $100,000 at any point within the calendar year. This encompasses a wide range of assets, such as bank accounts, stocks, bonds, and real estate held abroad. To fulfil this obligation, you are expected to complete Form T1135, which is the Foreign Income Verification Statement.

The purpose of this reporting is to ensure transparency and accurate assessment of your financial holdings beyond the Canadian borders. By identifying and declaring foreign assets through Form T1135, the Canadian tax authorities can monitor potential sources of income, investments, or holdings that might influence your overall tax liability. This procedure contributes to maintaining the integrity of the tax system and ensuring that individuals fulfill their tax obligations comprehensively, even when their financial interests extend internationally.

• Declaring foreign income

Income that you earned prior to your arrival in Canada remains outside the scope of Canadian taxation. Nonetheless, once you become a Canadian resident for tax purposes, you are required to disclose all income from any source across the globe on your tax return.

When reporting foreign income on a Canadian tax return –

• Specify the origin country of the funds
• Declare the complete amount of the income, i.e., the amount prior to any foreign taxes being withheld.

In certain instances, income acquired from a country other than Canada might be eligible for tax exemption in Canada due to a tax treaty. However, it's imperative to include this income on your tax return even if it's exempt. The portion that's exempt can be deducted on line 25600 of the tax form.