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Canada – Taxation

Canada is a country with a well-developed taxation system that is essential to the government’s ability to fund public services, infrastructure projects, and social programs. The taxation system is complex and involves several taxes that individuals and businesses must pay. In this article, we will examine how the taxation system works in Canada, double taxation agreements, the main taxes that expats need to be aware of, special tax breaks for expats, how to file a tax return in Canada as an expat, and tax exit procedures for anyone leaving Canada to move abroad.

The Taxation System in Canada

The Canada Revenue Agency (CRA) is responsible for administering the taxation system in Canada. The taxation system involves both federal and provincial/territorial taxes. The federal government levies taxes on personal and corporate income, while provincial and territorial governments levy taxes on personal income, sales, and property. The tax system in Canada is progressive, meaning that those with higher incomes pay a higher percentage of their income in taxes.

Personal Income Tax

Personal income tax is the largest source of revenue for the federal government in Canada. The federal government and provincial/territorial governments each have their own tax rates, and the rates vary depending on the level of income earned. In general, the more income earned, the higher the tax rate. The federal government collects taxes on behalf of most provinces and territories, and the combined federal and provincial/territorial tax rate is applied to taxable income.

Corporate Income Tax

Corporate income tax is a tax on the income earned by corporations. The federal government and provincial/territorial governments each have their own tax rates, and the rates vary depending on the level of income earned. The federal government collects taxes on behalf of most provinces and territories, and the combined federal and provincial/territorial tax rate is applied to taxable income.


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Sales Tax

Sales tax is a tax on goods and services sold in Canada. The rate of sales tax varies depending on the province or territory. Some provinces and territories have harmonized their sales tax with the federal Goods and Services Tax (GST), creating a Harmonized Sales Tax (HST).

Property Tax

Property tax is a tax on real estate. Property owners are required to pay property tax to their local government. The amount of property tax owed is based on the assessed value of the property.

Double Taxation Agreements

Canada has signed double taxation agreements with many countries. These agreements aim to avoid double taxation of income earned in one country by a resident of another country. The agreements generally provide rules for determining which country has the right to tax the income and the tax rate that should be applied. The agreements also provide mechanisms for resolving disputes between the two countries.

Main Taxes in Canada

As an expat in Canada, you will be subject to several taxes. The main taxes that expats need to be aware of include:

Personal Income Tax

As an expat in Canada, you will be required to pay personal income tax on your worldwide income if you are a resident of Canada. If you are not a resident of Canada, you will only be required to pay tax on income earned in Canada. The tax rates vary depending on the level of income earned and the province or territory in which you live.

Goods and Services Tax (GST)

The GST is a federal tax on goods and services sold in Canada. Most goods and services are subject to the tax, with a few exceptions. As an expat in Canada, you will be required to pay GST on goods and services you purchase in Canada.

Provincial Sales Tax (PST)

Some provinces and territories in Canada have their own sales tax, known as the Provincial Sales Tax (PST). The tax rate varies depending on the province or territory in which you live. As an expat in Canada, you will be required to pay PST on goods and services you purchase in provinces or territories that have a PST.

Property Tax

If you own property in Canada, you will be required to pay property tax to the local government. The amount of property tax owed is based on the assessed value of the property.

Special Tax Breaks for Expats

As an expat in Canada, there are several special tax breaks that you may be eligible for, including:

Foreign Tax Credit

If you pay taxes in another country on income earned in that country, you may be eligible for a Foreign Tax Credit in Canada. The credit is designed to avoid double taxation of income earned in another country.

Non-Resident Tax Exemptions

If you are a non-resident of Canada and you earn income in Canada, you may be eligible for non-resident tax exemptions. These exemptions vary depending on the type of income earned.

How and when to file a tax return in Canada as an expat

As an expat in Canada, you are required to file a tax return if you have income from Canadian sources, even if you are not a resident of Canada. The deadline for filing your tax return is April 30th for individuals and June 15th for self-employed individuals. However, any taxes owed are due by April 30th.

To file your tax return, you will need to gather all your income documents, such as T4 slips for employment income, T5 slips for investment income, and receipts for any tax deductions or credits. You can file your tax return online using the CRA’s My Account portal or by paper.

Tax Exit Procedures for Canada

If you are leaving Canada to move abroad, you must inform the CRA of your departure. You will need to file a departure tax return, which is due by April 30th of the year following your departure. The departure tax return will cover your income up until the day you leave Canada.

The departure tax return is used to determine if you owe any taxes before leaving Canada. If you have any tax liabilities, you will need to pay them before leaving Canada. You may also be required to pay a departure tax on certain property that you own in Canada, such as shares of a Canadian corporation or Canadian real estate.

In addition to filing a departure tax return, you should also inform your financial institutions, such as banks and investment companies, of your departure. This will ensure that they are aware of your new residency status and can adjust any taxes or fees accordingly.

The taxation system in Canada is complex and involves several taxes that individuals and businesses must pay. As an expat in Canada, you will be subject to several taxes, including personal income tax, GST, PST, and property tax. However, there are also special tax breaks that you may be eligible for, such as the Foreign Tax Credit and non-resident tax exemptions. It is important to understand your tax obligations in Canada and to file your tax return on time. If you are leaving Canada to move abroad, you must inform the CRA and file a departure tax return to ensure that you have met all your tax obligations before leaving the country.


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