Firstly, welcome to Canada and beautiful British Columbia! Each Canadian immigrant, also known as a newcomer, has unique challenges to overcome before they permanently relocate and reside in Canada. Some of these new challenges can be confusing, especially if it’s your first time navigating the complexities and subtle nuances associated with filing your income tax return. One of these challenges is understanding how personal taxes work in Canada and your responsibilities each year.
This ultimate tax guide will walk you through the basics, including:
- If you do or do not need to file a tax return
- The different taxes you will pay
- Information you need to file your taxes
- How to file a personal tax return each year
A resident of Canada for Income Tax Purposes
Newcomers become residents of Canada for income tax purposes when they establish significant residential ties in Canada. Significant residential ties generally include having a home in any Canadian province, a spouse or common-law partner who lives in Canada, and dependents that reside in Canada. Newcomers with residential ties are generally classified as being in one of three groups: those who applied for or received permanent resident (PR) status; those who are protected persons, including refugees; and approval-in principle where permanent resident eligibility requirements have been met, but a final decision is pending.
The key takeaway is that newcomers who reside in Canada are required to file an income tax return, even if they only live in Canada for part of the tax year. This is true for their first Canadian tax return and for each year going forward.
Canadian Income and Employment Taxes
Canada, and its provinces and territories, require residents and all Canadian citizens to pay federal and provincial income taxes and employment taxes that include the Canada Pension Plan (CPP) and Employment Insurance (EI).
An employed newcomer will have their payroll taxes deducted from their paychecks, and their employer will then remit the taxes to the federal government on their behalf. The CPP tax rate for 2023 is 5.70%, and the EI rate is 1.63%. Taxpayers are only required to pay CPP tax on the first $66,000 earned and on the first $61,500 for EI.
Newcomers must also pay provincial or territorial, and federal income tax. Their employer must also withhold these taxes from their paycheck and remit to the government on their behalf. Below are the 2022 income tax rates for British Columbia and the Federal Government.
2022 British Columbia and Federal Government Income Tax Rates
|British Columbia||Federal Government|
|2022 Taxable Income||Income Tax %||2022 Taxable Income||Income Tax %|
|over $45,654 up to $91,310||7.70%|
|over $91,310 up to $104,835||10.50%||first $50,197||15%|
|over $104,835 up to $127,299||12.29%||over $50,197 up to $100,392||20.50%|
|Over $127,299 up to $172,602||14.70%||over $100,392 up to $155,625||26%|
|over $172,602 up to $240,716||16.80%||over $155,625 up to 221,708||29%|
|over $240,716||20.50%||over $221,708||33%|
Personal Income Tax Return
Newcomers will need certain information to complete their income tax returns. Below is the generally required information:
- The date when the newcomer became a resident of Canada for tax purposes
- The Social Insurance Number (SIN) of their spouse or common-law partner
- Income earned while not a resident of Canada
- Worldwide income while a resident of Canada
- Spouse or common-law partner’s worldwide income; income earned inside and outside Canada
Benefits and Credits
Newcomers who are residents of Canada may be entitled to receive benefits and credits and should apply for these as soon as possible. These may include the Canadian child benefit, Goods and services (GST) sales tax credit, and provincial and territorial benefits and credits.
Once newcomers have applied for benefits and credits, they don’t need to apply each year going forward. However, they must file their income tax and benefit returns each year to continue to receive their current benefits and credits.
Seek Tax Advice, set yourself up for a successful life in Canada
Canada welcomed over 1.3 million newcomers who permanently settled in Canada between 2016 to 2021, and this number is projected to reach 500,000 a year by 2025. The Greater Vancouver area is a destination of choice for newcomers, each requiring help with their taxes.
We recommend reaching out to an accountant that can help set up your future in Canada and make your new beginning a smooth transition. Have any questions? Feel free to contact our team.
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