Not sure about the implications of paying tax in Canada as a British citizen? This article from Taxback.com can help you learn the ropes.
Tax is confusing at the best of times and at worst you end up with a bill from the taxman! When you go to live and work in a new country, new tax legislation can make things even more difficult.
If you’re going to Canada to work, knowing a few basics about your tax obligations could save you a lot of stress.
We know paying tax isn’t fun… so tax preparation agent Taxback.com is here to help you file your tax returns and get any refunds due.
The more you know the better. So here are some tips from the experts to help you figure out what to do when paying tax in Canada as a British citizen.
1. Residency status
Your residency status is one of the biggest deciding factors when it comes to how you’ll pay tax in Canada.
Residents pay tax on their worldwide income, so this means that if you’re a resident in Canada and earn income from the UK, all of this income will be treated as taxable income.
Non-residents only pay tax on income from Canadian sources.
If you go to Canada on a working holiday you’ll typically be considered a non-resident for tax purposes and only pay tax on income you earn in Canada.
However, you should note that while you won’t be taxed on your worldwide income, you still need to report income from any other countries on your Canadian tax return.
If you’re not 100% sure which status you fall into here are some key determining factors.
You’re generally considered a resident if:
- Canada is the place where you live in the settled routine of your life and regularly, normally or customarily reside.
- You have significant residential ties (spouse, dependents, own a home) in Canada and are not considered a resident in any other country under a tax treaty with Canada.
You’re generally considered a non-resident if:
- You normally, customarily or routinely reside in another country and are not considered a resident of Canada.
- Or you don’t have significant residential ties in Canada and you lived outside Canada throughout the tax year.
- Or you stayed in Canada for less than 183 days in the tax year.
If you’re still not sure about your status, then you can ask Taxback.com or the Canadian Revenue Agency, for added assistance when paying tax in Canada as a British citizen.
2. Tax treaty
The UK has a double taxation treaty with Canada, so if you work in the UK and Canada and you’re a treated as a resident, the treaty should prevent double taxation so you’re not taxed twice on the same income.
So on your Canadian tax return, you can claim for any foreign tax paid.
3. Canadian taxes
Canadian tax rates are progressive, so the more you earn, the more you’ll pay. The personal tax free allowance is $11,474 so you’ll pay tax on anything over this amount.
Canada has both federal and provincial taxes. The federal tax rates start at 15% on the first $45,916 of taxable income and provincial tax rates depend on the province where you work.
4. The 90% Rule
We mentioned previously that even if you’re a non-resident and not taxed on your worldwide income, it’s still important to report any non-Canadian income because of the 90% rule.
This rule basically means that if you earned more than 10% of your income outside Canada, you cannot avail of the personal tax credits. It’s important to remember this because you don’t want to end up with a bill from the taxman at the end of the year!
You should keep this rule in mind when paying tax in Canada as a British citizen and filling out your TD1 forms.
5. Personal Tax Credits and TD1 Forms
When you start a job in Canada, you’ll be asked to fill in the TD1 Forms. There are both federal and provincial forms and how you complete them will help calculate what tax you pay.
If more than 10% of your income was earned outside Canada, enter 0 in box 13 to make sure you don’t claim the tax credits.
6. More Than One Job
If you have more than one job in Canada at the same time, then you cannot claim the personal tax credits twice.
For example, say Mark is paying tax in Canada as a British citizen. He is in Canada from May to September, and works in a café two days per week and a call centre for three days per week. Over 90% of his income is from Canada that tax year and he will be asked to complete TD1 forms for both jobs.
As 90% of his income is from Canada he is entitled to the personal tax credits. However he shouldn’t claim them for both jobs. The call centre jobs pays the most so he claims the personal tax credits on for this job.
7. Filing Your Tax return
The Canadian tax year runs from Jan 1 until December 31 and you can file your tax return anytime from February to April 30.
It’s important to file an accurate Canadian tax return because you could be due a refund if:
- You’ve overpaid tax
- Paid for pension plan
- Overpaid employer insurance
- Had work expenses
If you earned over the tax free allowance, you may be able to claim on the cost of certain expenses such as your weekly/monthly transit passes and qualifying medical expenses. You should keep valid receipts and records of these.
To file your tax return you’ll need your final cumulative payslip and social insurance number which you can get from your employer. This states your income and tax deducted for the year.
If you lose any of these documents, then Taxback.com can help chase them up for you!
8. Tax in the UK
UK tax residents have to declare their worldwide income in the UK. Please note this does not mean that you will not be able to claim a UK tax refund, just that the method of reviewing your tax position is a little more complicated.
Also UK residents who have their permanent home (‘domicile’) outside the UK may not need to declare foreign income in the UK.
If you go abroad during the tax year and have not used up your full tax credits for that year in the UK, then you may also be able to claim a refund.
It’s important to claim any reliefs and expenses directly from the authority where the tax was paid, so in this case you should file a tax return both in the UK and Canada, to make sure you maximize any refunds due and ensure compliance.
You could be due a refund in the UK if:
- You’re due a flat rate deduction
- You worked part of the year
- You were made redundant
- You were on the wrong tax code
- You had work related expenses
The UK tax year is from April 6 to April 5 and if you have to submit self-assessment tax return the deadline is until October 31 after the end of the tax year for paper returns, or January 31 for online.
If you are confused about what you can claim or your situation is complicated, Taxback.com can help prepare and file your UK tax return for you.
9. Split Year treatment
You are either a UK resident or non-UK resident for a full tax year.
However, if during a year you either start to live or work abroad or come from abroad to live or work in the UK the tax year will be split into two parts if your circumstances meet specific criteria:
- A UK part for which you are charged to UK tax as a UK resident
- An overseas part for which, for most purposes, you are charged to UK tax as a non-UK resident.
Still confused? Need help paying tax in Canada as a British citizen?
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