Newcomers to Canada: The Tax Laws and Regulations You Need to Know
April 26, 2022 | Written by: Sohail Afzal
When you move to a new country, there are always many new things to learn. The tax laws and regulations can be especially confusing, especially if you’re not familiar with the system. That’s why it’s important to consult with an accounting firm or tax expert who can help you get up to speed. In this article, we will look at a few of the most important tax laws and regulations newcomers to Canada should know about.
Levels of Government
If you are new to Canada, the first thing you should know is that there are two levels of government: federal and provincial. Each level of government has its own set of tax laws and regulations. The federal government is responsible for taxes such as income tax and GST (goods and services tax). The provincial government is responsible for taxes such as PST (provincial sales tax) or HST (harmonized sales tax).
Another important factor to consider is your residency status. If you are a Canadian citizen, you will be taxed differently than if you are a permanent resident or temporary resident. Each category has different tax rules and regulations. For example, as a Canadian citizen, you may be eligible for certain tax credits or deductions that permanent residents are not.
All individuals who earn income in Canada are required to pay income tax. Income tax is calculated based on your taxable income. This is the sum total amount of money you earned during the year, minus any deductions or exemptions. Your taxable income will determine what tax bracket you fall into and how much tax you owe. The federal government uses a progressive taxation system, which means that higher-income earners pay a higher tax rate.
There are several different types of income that are taxed in Canada, including:
- employment income
- self-employment income
- interest and dividends
- capital gains
- rental income
Each type of income is taxed differently. For example, employment income is usually taxed at a lower rate than self-employment income. Interest and dividends are typically taxed at a lower rate than employment or self-employment income. Capital gains are only taxable when you sell an asset for more than you paid for it. Rental income is taxable, but you may be able to deduct certain expenses, such as repairs or maintenance costs.
Another important tax to be aware of is the GST/HST. The GST is a federal tax that applies to most goods and services in Canada. The HST is a combination of the GST and provincial sales tax (PST). It applies to certain provinces, such as Ontario, Nova Scotia, and New Brunswick. If you are selling goods or services in Canada, you will need to charge GST/HST on your invoices.
As a general rule, you must charge GST/HST if you are:
- selling taxable goods or services in Canada
- providing taxable supplies in Canada
- importing taxable goods into Canada
If you are registered for GST/HST, you can claim back the GST/HST you paid on business expenses. You will also need to file regular GST/HST returns.
Provincial sales tax (PST) is a provincial tax that applies to certain goods and services in certain provinces, such as British Columbia, Saskatchewan, and Manitoba. If you are selling taxable goods or services in one of these provinces, you will need to charge PST on your invoices.
As a general rule, you must charge PST if you are:
- selling taxable goods or services in the province
- providing taxable supplies in the province
- importing taxable goods into the province
If you are registered for PST, you can claim back the PST you paid on business expenses. You will also need to file regular PST returns.
Consequences of Not Paying Taxes
You may be subject to interest and penalties if you do not pay your taxes. In severe cases, you may even be criminally charged. It is important to file your tax return on time and pay any taxes. If you are having difficulty paying your taxes, options are available to help you. You can contact the Canada Revenue Agency (CRA) to arrange a payment plan.
Everybody Pays Taxes
You will need to pay taxes on any income you earn in Canada as a general rule. This includes money from your job, investments, pensions, and other sources. The amount of tax you owe will depend on your marginal tax rate. This is the highest rate of tax that you will pay on any additional income you earn. Your marginal tax rate will depend on the province or territory you live in and your total income.
Deductions You Can Benefit From
There are a few deductions and credits that you may be eligible for as a newcomer to Canada. For example, the federal government offers a new immigrant tax credit of up to $750. This credit is available to permanent residents who have been living in Canada for less than five years. The credit helps offset some of the costs of moving to Canada, such as travel expenses and medical exams.
There are also deductions available for tuition, moving expenses, and child care. Be sure to speak with your accounting firm or tax expert to see what you may be eligible for.
Filing Your Taxes
It’s important to file your taxes every year, even if you don’t think you owe any tax. If you don’t file your taxes on time, you may be charged interest and penalties. The Canada Revenue Agency (CRA) usually begins processing tax returns in February and issues refunds by the end of April. You can file your taxes online or by mail.
If you are new to Canada, it’s a good idea to get help from an accounting firm or tax expert when filing your taxes for the first time. They will be able to help you determine which deductions and credits you are eligible for and make sure you are complying with all the relevant tax laws and regulations. With their help, you can be sure you are getting the most out of your Canadian tax return. Contact us for more information and we’ll get back to you with an effective and bespoke solution.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.