Moving to Canada as an expat brings exciting opportunities, but it also introduces new responsibilities regarding taxes and social security. Understanding Canada’s tax system, social security agreements, and benefit programmes is essential for managing your finances effectively and ensuring you receive all the support you’re entitled to. This guide provides essential information to help you navigate these requirements successfully.
Understanding Canada’s Social Security Agreements
Canada has established social security agreements with numerous countries to protect the pension rights of people who have lived or worked in multiple nations. These agreements are designed to eliminate barriers that might prevent individuals from receiving the benefits they’ve earned through their contributions and residency periods.
How Social Security Agreements Help You Qualify for Pensions and Benefits
Social security agreements serve two primary purposes for expats. They allow individuals to combine periods of contribution or residency in Canada with those in another country to meet minimum eligibility criteria for benefits. Additionally, these agreements can reduce or eliminate restrictions related to citizenship requirements or the payment of pensions when living abroad.
When you don’t meet the normal contributory or residence requirements for Canadian benefits due to having lived and worked in multiple countries, these agreements can bridge the gap. The agreements work by recognising your contributions and residency periods in partner countries as if they were made in Canada, helping you qualify for benefits you might otherwise miss.
Which Canadian Benefits Are Covered by International Agreements?
The Canadian benefits included in social security agreements are specifically those paid under two major programmes: the Old Age Security (OAS) programme and the Canada Pension Plan (CPP). These are Canada’s primary retirement income security programmes, and the agreements ensure that your international mobility doesn’t jeopardise your access to these essential benefits.
Qualifying for Canadian Benefits Using Time Abroad
For CPP benefits, periods of contribution under another country’s pension legislation may be considered when determining your eligibility. This means that if you’ve contributed to a pension scheme in a country with which Canada has an agreement, those contribution periods can help you meet the minimum requirements for CPP benefits.
For OAS benefits, both periods of residency and contribution under another country’s legislation may be considered as periods of residency in Canada. The specific terms depend on the particular agreement between Canada and your country of origin or previous residence.
Using Canadian Contributions to Qualify for Foreign Pensions
These agreements work both ways. Your periods of contribution to the Canada Pension Plan or periods of residence in Canada can be considered as periods of contribution or residence under a foreign social security programme, helping you qualify for benefits from your previous country of residence.
How Benefit Payment Amounts Are Calculated Under Agreements
Whilst social security agreements help with qualification, it’s important to understand that the actual payment amounts for Canadian or foreign benefits are determined by your real contributions to the respective plans or years of residency in the specific country. The agreements don’t increase your benefit amounts; they simply help you qualify for benefits you might otherwise lose.
For Canadian benefits, your payment will be calculated based on your actual Canadian contributions or residency periods. Similarly, foreign benefits will be calculated based on your actual contributions to those systems.
- See also:Opening a Bank Account in Canada
Newcomers and the Canadian Tax System
What Is Considered a ‘Newcomer’ for Tax Purposes?
The Canada Revenue Agency (CRA) considers you a “newcomer to Canada” for the first year you are a resident of Canada for income tax purposes. This designation comes with specific rights and obligations that differ from those of long-term residents. Your newcomer status affects when you can apply for benefits, what income you must report, and how your taxes are calculated.
Role of the Canada Revenue Agency (CRA) for New Residents
The CRA is the government agency responsible for collecting taxes and administering various government payments, benefits, credits, and programmes. For newcomers, the CRA plays a crucial role in determining eligibility for benefits and ensuring proper tax compliance from the moment you establish Canadian residency.
The CRA provides extensive resources specifically designed for newcomers, including digital services, forms, guides, webinars, videos, and infographics to help you understand your tax obligations and available benefits.
Determining Your Residency Status for Taxes in Canada
Your tax obligations in Canada are determined by your residency status for tax purposes, which is separate from your immigration status.
You become a resident of Canada for income tax purposes when you establish sufficient significant residential ties in Canada. For most newcomers, this begins on the first day they live in Canada. The CRA generally considers you a tax resident if you are legally admitted as a permanent or temporary resident and establish significant ties to Canada.
Your residency status can change from year to year based on various factors, including the length and reason for your stay, temporary or permanent departures, or periods of living outside Canada. It’s essential to keep the CRA updated about any changes to your residency status to ensure proper tax treatment and benefit eligibility.
Understanding Significant Residential Ties
Significant residential ties are the primary factors the CRA considers when determining your tax residency status. These include having a home in Canada, having a spouse or common-law partner in Canada, and having dependants in Canada. Establishing any of these ties typically indicates that Canada has become your primary place of residence.
Secondary ties that may also be relevant include personal property such as cars and furniture, social ties like club memberships, economic ties such as bank accounts and credit cards, holding a Canadian driver’s licence, possessing a Canadian passport, and having provincial or territorial health insurance coverage.
When and How to Get Help with Residency Status (Forms NR74/NR73)
If you’re uncertain about your residency status for tax purposes, the CRA provides formal mechanisms to help you determine your status. You can complete Form NR74 if you’re entering Canada or Form NR73 if you’re leaving Canada to request an official determination from the CRA.
These forms require detailed information about your residential ties, the circumstances of your move, and your intentions regarding your stay in Canada. The CRA will review your situation and provide a written determination of your residency status, which can provide certainty for tax planning and benefit applications.
Your Tax Obligations in Canada as an Expat
Understanding your tax obligations as an expat in Canada involves navigating both Canadian tax law and potential obligations to other countries. The Canadian tax system has specific rules for new residents that affect what income you must report and when.
Filing Your First Tax Return as a Newcomer to Canada
You must file your first Canadian income tax return by April 30 of the year following your move to Canada. If you or your spouse are self-employed, the deadline extends to June 15. Quebec residents must also file a provincial tax return with Revenu Québec in addition to the federal return.
Your first tax return serves several important purposes beyond simply calculating taxes owed. It formally establishes your date of entry to confirm your residency status change, allows you to report both Canadian and foreign income earned after your arrival, and enables you to claim foreign tax credits to avoid double taxation on the same income.
This return also provides an opportunity to report foreign income earned before your arrival in Canada. Whilst this income isn’t taxable in Canada, it’s considered for calculating various Canadian tax credits and benefits, making accurate reporting important for maximising your benefits.
What Income You Must Report as a New Tax Resident
As a tax resident of Canada, you’re legally required to pay tax based on your worldwide income and personal situation. This includes all income earned from the day you establish Canadian tax residency, regardless of where in the world that income originates.
You must report Canadian income such as employment earnings, business income, investment income, and rental income. Additionally, you must report foreign income received after becoming a Canadian resident, including foreign employment income, business income, rental income, investment income, and pension payments.
Your employer typically deducts taxes directly from your Canadian employment income, but you’re responsible for ensuring all income is properly reported and any additional taxes are paid when you file your return.
How Canada Taxes Worldwide Income and What’s Exempt
Once you become a Canadian tax resident, Canada taxes your worldwide income from the day you establish residency. This means income from foreign sources received after your arrival in Canada is subject to Canadian tax, even if it’s also taxed in the country where it was earned.
However, foreign income earned before becoming a Canadian tax resident is not subject to Canadian tax. This distinction is based on when you earned the income, not when you received it. For example, if you earned employment income in your home country before moving to Canada but received the payment after arriving, that income wouldn’t be taxable in Canada.
The timing of when you establish tax residency is therefore crucial for determining your tax obligations. Careful planning around your move date and the timing of income receipts can have significant tax implications.
Using Tax Treaties to Avoid Double Taxation
Canada has tax treaties with many countries designed to avoid double taxation and prevent tax evasion. These treaties use “tie-breaker” criteria to determine your country of residence for tax purposes when you have significant residential ties in both Canada and another country.
When double taxation does occur, treaties or Canadian tax laws often allow for a foreign tax credit to reduce Canadian tax on the same income. This credit system ensures you don’t pay tax twice on the same income, though the relief may not always be complete due to differences in tax rates or timing between countries.
Double taxation might not always be completely avoided, particularly due to timing mismatches between when different countries recognise income or if foreign income exemptions aren’t recognised by Canadian tax rules. Understanding your specific treaty provisions can help optimise your tax position.
Applying for Canadian Benefits and Credits as an Expat
Canada offers various benefits and credits to residents, and as a newcomer, you may be eligible for several programmes even before filing your first tax return. Understanding when and how to apply can provide valuable financial support during your transition to Canadian life.
When You Can Apply for Government Benefits
You can apply for benefits and credits as soon as you arrive in Canada if you meet the eligibility criteria, even before filing your first tax return. This early eligibility can provide important financial support during your initial settlement period when you may have significant expenses and limited Canadian income.
To receive most payments, you generally need to be a resident of Canada for income tax purposes. For some payments, you also need a valid immigration status. The combination of these requirements means that establishing your residency status quickly and maintaining valid immigration documents is crucial for benefit access.
Some benefits have specific waiting periods. For example, temporary residents can start receiving the Canada Child Benefit after living in Canada for 19 months, provided they maintain valid status and meet other eligibility criteria throughout this period.
Forms to Use for Benefit Applications (RC151, RC66, RC66SCH)
The CRA provides specific forms for newcomers to apply for benefits and credits. Form RC151 is used to apply for the GST/HST Credit and Canada Carbon Rebate. These programmes provide quarterly payments to help offset the cost of goods and services tax and support Canada’s climate action incentive.
For families with children, Form RC66 (along with RC66SCH if applicable) is used to apply for the Canada Child Benefit. This tax-free monthly payment helps eligible families with the cost of raising children under 18 years of age. The benefit amount depends on factors including your family income, number of children, and their ages.
Completing these forms accurately and submitting them promptly after your arrival can ensure you don’t miss any payments for which you’re eligible. The applications require detailed information about your family situation, income, and immigration status.
Required Documents and Information for Newcomers
When applying for benefits, the CRA may request various pieces of information to verify your eligibility and calculate your payment amounts. This typically includes details about your marital status, your date of entry into Canada, your immigration status, and proof of birth for any children included in your application.
The CRA also requires income information for you and your spouse or common-law partner from all sources. This includes income earned in Canada and abroad for up to two years before arriving in Canada. Having organised records of your foreign income before applying can streamline the application process.
Immigration documents, such as your permanent resident card, work permit, or study permit, may be required to verify your status and eligibility for specific programmes. Keeping certified copies of these documents readily available can help avoid delays in processing your applications.
How to Maintain Benefit and Credit Payments
To continue receiving benefit and credit payments, you generally need to file your tax returns on time each year, even if you owe no tax or have no income to report. This annual filing requirement ensures the CRA has current information about your situation to calculate your ongoing benefit entitlement.
You must also update the CRA about changes to your situation that could affect your benefits. This includes changes such as a child leaving your care, you leaving Canada temporarily or permanently, or the expiry of a temporary resident permit. For the Canada Child Benefit specifically, you or your spouse must maintain continuous legal status in Canada.
Failing to report changes or file returns on time can result in benefit overpayments that you’ll need to repay, or underpayments that can only be corrected retroactively. Staying current with your obligations protects both your immediate financial situation and your long-term benefit eligibility.
Reporting Your Spouse’s Income for Benefit Eligibility
Many Canadian benefits are calculated based on family income, which includes your spouse’s or common-law partner’s income even if they don’t live in Canada or aren’t Canadian residents. If your spouse was a non-resident for part of the year, you must report their income from all sources that wasn’t reported on a Canadian tax return.
This requirement can significantly affect benefit calculations, particularly for income-tested benefits like the Canada Child Benefit. Accurate reporting of your spouse’s foreign income ensures you receive the correct benefit amount and avoid potential overpayments that would need to be repaid later.
Preparing for Your First Tax Year in Canada
Your first tax year in Canada sets the foundation for your ongoing tax compliance and benefit eligibility. Proper preparation can help you avoid costly mistakes and ensure you take advantage of all available tax benefits and credits.
Why You Should Consult an International Tax Expert
Given the complexity of international tax issues for newcomers, consulting an international tax expert as soon as possible after your arrival is highly recommended. These professionals can identify potential risks and help implement appropriate strategies to optimise your tax position whilst ensuring compliance with both Canadian and foreign tax obligations.
An international tax expert can help you understand how your specific situation interacts with Canadian tax law, identify opportunities for tax savings, and ensure you meet all reporting requirements. The cost of professional advice is often far less than the potential penalties for non-compliance or missed opportunities for tax optimisation.
Early consultation is particularly important because some tax planning strategies must be implemented before certain deadlines or events occur. Waiting until you’re preparing your first tax return may limit your options for tax-efficient planning.
Taking Inventory of Foreign Assets and Their Entry Value
One of the most important steps for newcomers is taking a detailed inventory of all goods and assets owned on your arrival date and determining their fair market value at that time. This “entry value” serves several crucial purposes in your ongoing Canadian tax obligations.
The entry value is essential for calculating Canadian capital gains tax if you later sell foreign property as a Canadian resident. Without proper documentation of entry values, the CRA may assume a zero cost basis, resulting in unnecessarily high tax on any future sales.
This inventory should include real estate, investment accounts, business interests, valuable personal property, and any other assets that might appreciate in value. Professional appraisals may be necessary for significant assets to establish defensible values for tax purposes.
Foreign Property Reporting Requirements (T1134, T1135)
Canadian residents must report certain foreign property holdings annually, and the thresholds and requirements can be complex for newcomers. Form T1135 must be filed if you own specified foreign property with a total cost of more than CAD $100,000 at any time during the year.
Form T1134 is required if you have an interest in foreign entities such as corporations, trusts, or partnerships. The filing requirements and penalties for non-compliance can be severe, with penalties reaching thousands of dollars for each unreported entity or property.
These forms typically become relevant in your second year of Canadian tax residency, but planning for these requirements from your arrival helps ensure you maintain the necessary records and don’t face penalties for non-compliance.
Listing Foreign and Canadian Income for the Immigration Year
Working with a tax consultant, you should compile a complete list of both your foreign and Canadian income for your immigration year. This includes income earned before and after establishing Canadian tax residency, as the treatment differs significantly between these periods.
Canadian income earned after your arrival is fully taxable in Canada, whilst foreign income earned before your arrival isn’t taxable in Canada but may still need to be reported for benefit calculation purposes. Foreign income earned after your arrival is taxable in Canada but may be eligible for foreign tax credits to avoid double taxation.
Accurate record-keeping and categorisation of income by source and timing ensures your first tax return is prepared correctly and provides the foundation for ongoing compliance in subsequent years.
Important Tax Deadlines and What to Include in Your First Return
Your first Canadian tax return is due by April 30 of the year following your move to Canada, with the deadline extending to June 15 if you or your spouse are self-employed. Quebec residents must file both federal and provincial returns.
Your first return must include your date of entry to confirm your residency status change, all Canadian and foreign income earned after your arrival, foreign tax credits to avoid double taxation where applicable, and foreign income earned before arrival for benefit calculation purposes.
This return also provides an opportunity to claim various deductions and credits that can reduce your tax liability and increase your benefit entitlements. Proper preparation ensures you don’t miss valuable tax benefits in your first year.
Deductions and Credits for Newcomers
Understanding the difference between deductions and credits, and knowing which expenses you can claim, can significantly reduce your tax burden and increase your benefit payments as a newcomer to Canada.
Common Deductible Expenses for Expats in Canada
Newcomers can claim various expenses as deductions or credits when filing their Canadian tax returns. Medical expenses are often significant for newcomers who may not have immediate access to provincial health coverage or who need to establish care with new healthcare providers.
Education expenses, including tuition fees for Canadian educational institutions and sometimes foreign institutions, can provide valuable tax credits. If you’re upgrading your credentials or learning new skills to improve your employment prospects in Canada, these expenses may be deductible.
Child care expenses can be deducted if you’re paying for care to enable you to work, attend school, or conduct research. Moving expenses related to your immigration to Canada may also be deductible if you meet specific criteria related to the distance moved and your employment or business situation.
Understanding the Difference Between Deductions and Credits
Deductions reduce your taxable income before tax is calculated, whilst credits directly reduce the amount of tax you owe. This distinction is important because the value of a deduction depends on your marginal tax rate, whilst credits provide a more predictable reduction in taxes owed.
For example, if you’re in a 30% tax bracket, a CAD $1,000 deduction saves you CAD $300 in taxes. A CAD $1,000 credit, however, reduces your taxes by the full CAD $1,000 (subject to any limitations on the credit).
Understanding this difference helps you prioritise your tax planning strategies and understand the relative value of different tax benefits available to newcomers.
Getting and Using Your Social Insurance Number (SIN)
Your Social Insurance Number is essential for working in Canada and accessing government benefits and services. Understanding how to obtain and properly use your SIN is crucial for newcomers.
Why You Need a SIN in Canada
If you are a Canadian citizen, permanent resident, or temporary resident, you need a SIN to work in Canada legally or to receive benefits and services from government programmes. Your SIN is used to track your contributions to programmes like Employment Insurance and the Canada Pension Plan, and to ensure you receive proper credit for your work history.
Employers use your SIN to remit taxes and contributions on your behalf, and government agencies use it to determine your eligibility for various benefits and credits. Without a valid SIN, you cannot legally work in Canada or access most government services.
Your SIN also serves as a key identifier for your tax records, ensuring that your income, deductions, and credits are properly tracked and applied to your account with the Canada Revenue Agency.
Who Can Apply for a SIN and How
Children aged 12 years or older can apply for their own SIN. For younger children or adults who cannot apply themselves, parents, legal guardians, or legal representatives can apply on their behalf.
The application process requires specific documentation to prove your identity and status in Canada. Canadian citizens need documents such as a birth certificate or citizenship certificate, whilst permanent residents need their confirmation of permanent residence or permanent resident card.
Temporary residents need their immigration document that authorises them to work in Canada, such as a work permit or study permit that specifically allows employment. The application can typically be completed at Service Canada centres, and processing times vary depending on your location and documentation.
How to Access Your SIN Through My Service Canada Account
Employees can view and print their SIN information through their My Service Canada Account (MSCA), which provides secure online access to various government services. This online access eliminates the need to carry physical SIN documents and provides a convenient way to verify your information.