As a newcomer to Canada, you’ve probably got a lot going on—figuring out your finances, housing, and employment. But along with adjusting to Canada’s awesome, friendly culture, one thing that’s important to learn about right away is income tax—even if you don’t have a job yet.
Why does this matter? Understanding how income tax works here can help you access tax breaks, including payments from the government that could benefit you financially. Read on for the details.
Oh, yeah—and welcome to Canada!
- It’s important to file a tax return each year, even if you don’t have any income, so that you can apply for tax benefits and be eligible for payments.
- New immigrants can apply for some financial benefits even before they file their first tax return.
- Common tax benefits newcomers might receive include the GST/HST credit, the Canada child benefit (CBB), and the climate action incentive payment (CAIP).
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First time filing taxes? Here are the basics.
In Canada, we pay a percentage of our income to the government. This is called « income tax, » and the money raised goes to pay for things like schools, health care, and roads. The specific percentage you pay depends on a number of factors, including:
- where you live
- how much money you make
- your deductions, credits, and expenses (things you have paid for that may qualify you for a reduction in income tax).
If you have a job, your employer probably deducts income tax from your paycheque and sends it directly to the government. If you are self-employed, you might have to make income tax payments yourself.
Every year, most Canadians have to file their taxes. This means completing paperwork that outlines your personal tax situation (called a « tax return ») and sending it to the Canada Revenue Agency (the CRA, for short). They will review your tax return, calculate how much tax you should pay for the year, and send either a bill or a refund, depending on how much tax you’ve paid or had deducted in advance.
Canadians pay income tax to the federal government as well as to the province or territory they live in. But don’t worry—unless you live in Quebec, you have to complete only one tax return. The CRA manages everything on behalf of the other provinces.
Even if you don’t earn any money and aren’t required to file a tax return, there could be a benefit in doing so. By filing your taxes, you might be able to access government benefits and financial help. This info can be useful for new immigrants in Canada.
What is the 90% rule for newcomers to Canada?
Federal non-refundable tax credits are credits that lower the amount of tax you have to pay. (And who wants to pay more tax than they have to?) For instance, the Basic Personal Amount is how much money a person can earn without paying income tax. For 2023, that amount is $15,000 for federal taxes.
If you’ve lived in Canada for only part of the year, that amount is adjusted to match the percentage of the year you were a resident. However, if 90% of your income in the part of the year you were not a resident of Canada is from Canadian sources, you can claim the full Basic Personal Amount (as well as other nonrefundable tax credits).
Tax for work-permit holders in Canada
What if you work in Canada but aren’t a resident? You’re not exempt from paying income tax! Work-permit holders in Canada do have to pay income tax, too. But how much and how it works varies. For example, seasonal agricultural workers from other countries who are nonresidents for tax purposes have to pay income tax only on their Canadian income. If you hold a permit to work in Canada, it’s a good idea to review the CRA guidelines that apply to your situation.
What is the « welcome to Canada » tax benefit?
First, there are a few items to understand when reviewing your income tax benefits as a newcomer or an international student. You may have heard of the « welcome to Canada » package or tax benefit, but this isn’t an official thing. You see, Canadians are a friendly lot and want to roll out the red carpet for you. So it’s important to understand that the « welcome to Canada » tax benefit is actually a range of benefits (vs. a specific package) newcomers can receive when they first move to Canada.
Here’s more on the perks that can fall under this tax welcome mat.
What are some tax breaks and how do new immigrants get them?
Tax breaks are legal ways to lower your taxes or get extra money. The CRA calls them deductions, credits, and expenses. New immigrants can access these breaks by filing an income tax return as soon as they are eligible to do so. In some cases (see below), you can apply for benefits when you first get to Canada, before you have filed a tax return.
As a newcomer to Canada, here are three specific tax benefits you’ll want to know about.
1. GST/HST credit
The GST/HST tax credit is a rebate on sales tax that you’ve paid for the purchase of goods and services. If eligible, the government calculates the amount of the credit based on your family’s net income, plus the number of dependent children.
When you become a resident, you have to file the RC151 GST/HST Credit Application Form. If eligible, you will receive payments every three months, and both you and your spouse (if you have one) must file your tax returns on time each year to continue receiving these payments.
2. Canada child benefit
The Canada child benefit (CCB) is a tax-free monthly payment made to eligible families to help them with the cost of raising children under 18. The CCB might include the child disability benefit and any related provincial and territorial programs; either way you must apply for it. One of the requirements is that you are a Canadian resident for tax purposes.
To access these benefits, you’ll need to apply using Form RC66, Canada Child Benefits Application and RC66SCH, Status in Canada/Statement of Income, and both you and your spouse (if you have one) must file your tax returns on time each year to continue getting these payments.
3. Climate action incentive payment (CAIP)
The CAIP is a payment you might be able to receive to offset the cost of federal pollution pricing. Eligibility depends on the province you live in. When you file your tax return, your application is automatically considered. Newcomers who haven’t yet filed a tax return can apply by mailing in form RC66 (if you have children) or RC151 (if you do not). The CRA has an online guide on how the CAIP works.
Find ways to save on your taxes as our resident tax expert, Emily, shares three tax breaks for new Canadian residents.
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