Not sure about the implications of paying tax in Canada as an Irish citizen? This article from Taxback.com can help you learn the ropes.
Keeping on top of tax legislation in a new country as well as your home country can be confusing at best. At worst you could end up with a tax bill!
If you move to Canada from Ireland during the tax year, then there are a number of things you need to consider. While it’s not going to be on the top of your agenda, it could save you a big headache.
Here are some things to be aware of.
1. Resident Vs Non-Resident
How you’re taxed in Canada largely depends on whether you are considered resident for tax purposes or not.
Residents typically pay tax on their worldwide income and non-residents do not. So for example, if you’re visiting Canada on a working holiday visa, you’ll generally be considered non-resident and won’t be taxed on any Irish income for that year.
You’re generally a non-resident for tax purposes 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.
You’re typically a resident in Canada for tax purposes if:
Canada is the place where you, in the settled routine of your life, regularly, normally or customarily live.
You have a significant residential ties in Canada and are not considered a resident in other country under a tax-treaty with Canada.
Significant residential ties include:
- A home in Canada.
- Spouse or common-law partner who is Canadian.
- Dependants who are Canadians.
Of course if you have trouble figuring this out, you can ask the team at Taxback.com or the Canadian Revenue Agency.
2. Tax Treaty
If your income is taxable in Ireland and in a country with which Ireland has a double taxation agreement, a double charge of tax is prevented by either:
- Exempting the income from tax in one of the countries, or
- Allowing credit in one country for the tax paid in the other country on the same income.
Ireland and Canada have a tax treaty with a double taxation agreement which should prevent double taxation of the same income so it’s important to avail of this.
3. Canadian tax rates
When you’re paying tax in Canada as an Irish citizen, you’ll pay both Federal and Provincial tax on your earnings.
The Federal Government collects personal income taxes on behalf of all provinces except Quebec which has its own tax system.
There is a tax-free allowance in Canada which means you can earn up to a certain amount without paying federal tax on your income. For 2016 this figure is $11,474.
Canadian tax rates are progressive, so the more you earn, the more tax you’re obliged to pay. For example, Federal tax deductions start from 15% on the first $45,282 of taxable income, with the provincial tax depending on the province of employment.
The provincial amount is applied on top of the Federal tax.
4. Personal tax credits and the 90% rule
Your eligibility for personal tax credits is calculated on a form called a TD1 which you will fill out when you start your new job in Canada.
There are federal and provincial / territorial TD1 forms which you should complete and give to your employer who should keep the completed forms with their records.
One of the biggest rules you need to worry about is the 90% rule. Basically if 90% of your income was sourced in Canada in the tax year, then you will be entitled to the personal credits. If not, then you shouldn’t claim the credits on the federal and provincial TD1 forms.
If more than 10% of your income was earned outside Canada, then you should not claim the credits and make sure you enter 0 in box 13.
Remember, as a non-resident you will not be taxed on your Irish income in Canada but the Canadian Revenue Agency require you to state the portion so they can consider whether you can avail of particular tax benefits.
5. Claiming dependents
If your spouse is in Ireland while you work in Canada, you can claim them as a dependent on your Canadian tax return if:
- Your spouse or civil partner’s income in the tax year (Jan 1-Dec 31) is less than the tax free allowance in Canada (for 2016 tax year it is $11,474) or had no income at all.
- Your spouse can obtain a document from the Irish tax office for the amount of income earned (or lack of income) in the Canadian tax year.
Remember to keep any evidence that you supported them financially while you worked in Canada (bank statements, money transfers, etc.).
6. Filling out your TD1 forms
When you start your job in Canada, you’ll need to fill out a TD1 form and this form will determine your entitlement to personal tax credits. It’s important to remember that if you’ve worked in Ireland in the same tax year (Jan-Dec), you can only claim the credits if at least 90% of your income was earned from Canadian sources.
Otherwise you should enter 0 in box 13 and tick No on the non-resident question on the TD1 form.
If you happen to work at more than one job at a time in Canada, then you must make sure you don’t claim the personal tax credits twice or you could end up with a tax bill!
In this case, if you’re entitled to claim the personal tax credits, it’s best to claim them for the job that pays the highest.
7. Filing Your Tax Return
You should file your Canadian tax return after the end of the tax year anytime from February before May 1.
You could be due a refund if you overpaid income tax, Canadian Pension Plan, or Employer Insurance.
And if you earned over the tax free allowance, then you may be able to claim on the cost of certain expenses such as your weekly/monthly transit passes, and qualifying medical expenses, etc.
Make sure you keep any receipts for expenses as records. You will need your T4 or final payslip and Social Insurance Number to file your tax return but if you lose any documents, Taxback.com can help you track them down.
Fortunately, tax refunds average around €900 for working holidaymakers in Canada!
Tax refunds from Ireland
If you go abroad during the tax year and have not used up your full tax credits for that year you may be able to claim a refund.
Remember you should claim any refunds or reliefs directly from the authorities in the country where the tax was paid, which means that you should file separate tax returns in both Ireland and Canada, to ensure you claim everything you are entitled to.
As Ireland has a double taxation agreement with Canada to ensure Irish residents don’t get taxed twice on the same income, it’s important to make sure you avail of any reliefs provided for in the treaty.
The Irish tax year runs from Jan 1 to Dec 31 so you should file your tax return after the end of the tax year and before the deadline in October.
Other common unclaimed reliefs include medical expenses, flat rate expenses, tuition fees relief and the Home Carer tax Credit.
Split Year Treatment
If you go to work and begin paying tax in Canada as an Irish citizen then you may be able to avail of a treatment known as ‘Split Year Treatment’.
Under this arrangement, if you’re resident in Ireland during the tax year that you leave and non-resident for the following tax year, you’ll be deemed non-resident for tax purposes from the date of your departure.
This means your employment income will be exempt from Irish tax from that date. To avail of this ‘Split Year Treatment’, you should be able to satisfy Revenue that you don’t intend to be resident in Ireland for the tax year following your departure.
One way to do this is to bring a copy of your contract for employment to your local Revenue office or get a statement from your employer. Revenue can then authorize your employer not to deduct tax from your income.
Your employer can also apply for this on behalf of an employee and it’s called a “PAYE Exclusion Order”. This is only the case where your employer is sending you on assignment abroad.
In this situation, even though you’ll be treated as non-resident from the date of your departure, you are still due full personal tax credits for the complete tax year and may be due a refund of tax paid.
If you return to Ireland throughout the year up to a max of 30 days, then you don’t need to worry about this effecting your exemption from Irish tax as this is considered an insignificant number of days!
Get help from a professional like Taxback.com!
- Estimate your Irish Tax Refund
- File your Irish Tax Return with a 5% discount!
- Estimate your Canadian Tax Refund
- File your Canadian Tax Refund with 5% discount thanks to Moving2Canada.
Questions? Contact your local Taxback.com office.