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Income Tax

Canada - Income Tax


Paying Canadian income tax depends upon many different factors. One of these is residency and others include owning a home in the country, having relatives who live there and Canadian bank accounts.

If you are not considered to be a resident of Canada (in the country for less than 183 days each year) then you will only pay income tax on money that you have earned in Canada. If you are in the country for longer than 183 days then you are considered to be a resident of Canada and you can be taxed on money that you earn anywhere in the world.

Most people who earn money within Canada will not need to file a physical tax return as there is a ‘PAYE’ system in place for most workers. Calculating tax in Canada can appear to be complicated as there are two systems in place – provincial taxation and federal taxation. If you need to submit a tax return the two types can be calculated on the one form, unless you are living in Quebec.

There are four separate tax bands at a national level and many levels at a provincial level, although if you are in Alberta there is only one level. These two rates are combined so that only one deduction is made. As with all countries, the more you earn the more tax you pay. Tax is calculated and then each taxpayer has tax credits deducted from the amount. This includes the basic non-taxable allowance which is applicable for all tax payers. The basic amount that you are entitled to earn before the need to pay tax varies with each province and is reviewed on an annual basis. For the latest rates – which are reviewed annually – for federal and provincial taxes you should consult the website of the Canada Revenue Agency, which provides a detailed table with the latest information.

If you need to file a tax return you must ensure that the return includes all income earned worldwide. If you normally pay tax under the PAYE scheme but have received monies from the sale of property or other assets then you will need to file a tax return. In order to file a tax return in Canada you can send in the form manually or electronically. If you send in an electronic file then you must keep your paper copy for a minimum of 6 years. Those who send in paper copies are required to keep all receipts for a minimum of 6 years as these can be requested by the tax office for review at any time.

All tax returns must be submitted by the 30th April each year. If the return is submitted late you may be required to pay interest or a small fine. However, those who submit their forms electronically may be allowed extra time if delays are experienced. If you are self employed you have until 15th June to file the return. If the filing date is at a weekend or should fall on a public holiday then you have until midnight on the next working day. On the day that returns are due many tax offices stay open until that time to ensure that returns are accepted.

The Canada Revenue Agency has an online course that can be taken by any individual. The course explains how the tax system in Canada is structured as well as how to complete and send the tax return. The course takes less than two hours to complete and is provided free of charge by the Canadian government. The materials can be easily downloaded from the website.

Canada has a number of double-taxation agreements in place with other nations. This is to ensure that those who have paid tax in one country are not then charged tax in the other on the same income. You will be required to prove that tax has already been paid on qualifying income. A complete list of countries can be obtained from the website of the Finance Canada section of the government but the list includes the US, the UK and most European countries. There is also a list of the countries with which negotiations are ongoing or treaties are signed but not yet put into practice.


Useful Resources

Canada Revenue Agency
Tel: 1-800-267-6999
http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html


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