Not sure about the implications of paying tax in Canada as an Australian citizen? Check out this article from our trusted partner Taxback.com!
Canada and Australia definitely have some things in common: a pair of resource-rich former British colonies spread across continental-scale expanses of land, with low population densities.
However there are also many differences to consider, including how you pay your taxes.
Here is some useful info from Taxback.com to help you take the stress out of these differences.
1. Residency Status
It’s really helpful to know when you become a resident for tax purposes in Canada. When you first arrive, you’ll be considered a non-resident for tax purposes but this can change based on a few factors and it will affect how much tax you pay.
Non-residents only pay tax on income from Canadian sources and resident pay tax on their worldwide income.
So, how do you know if you’re a resident or non-resident?
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/or you lived outside Canada throughout the tax year, OR
- You stayed in Canada for less than 183 days in the tax year.
For example, if you go to Canada on a working holiday for the year, you’ll be considered a non-resident for tax purposes.
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, OR
- 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.
So, for example if you’re living in Canada for a couple of years and buy an apartment, you’ll probably be considered a resident for tax purposes.
2. Tax treaty for paying tax in Canada as an Australian
Luckily for Australian citizens moving to Canada, there is a convention for the avoidance of double taxation. So this means if you happen to be treated as a resident both in Canada and Australia, this should help you avoid being taxed twice on the same income.
Also, if you leave Australia during the tax year you may be due some tax back and can apply for a refund by filing an Australian tax return.
3. How you’re taxed in Canada
Canadian tax rates are progressive, so the more you earn, the more you’ll pay. In Canada, you pay both federal and provincial taxes so the rates can also depend on where you live.
The personal tax free allowance is $12,069 (in 2019), so you’ll pay federal and provincial tax on anything over this amount. The Canada Revenue Agency is a federal agency that collects taxes for most provinces and territories in Canada.
4. The 90% income rule
Even if you’re a non-resident in Canada, you still need to declare your worldwide income even though non-residents are only taxed on their Canadian sourced income. Declaring the portion of the worldwide income earned outside of Canada does not mean you are being taxed on that income in Canada
This is because if you don’t earn 90 percent of your income for that tax year in Canada, you cannot claim the personal tax credits.
The Canadian tax year runs from January 1 to December 1.
If you incorrectly claim the credits, you could end up with a tax bill owing to the Canada Revenue Agency. And while it may not be at the forefront of your mind while you survey the majesty of the Rockies or dig into some poutine, it could save you a big headache if you get this right!
5. The TD1 forms
This brings us to our next tip: The TD1 forms. These are tax forms you’ll need to fill in when you start your new job in Canada and are used by the authorities to calculate how much tax you should pay.
If you’re a non-resident and more than 10 percent of your world income was earned outside Canada, you should enter 0 in box 13 on the TD1 forms and tick the box ‘No’ as a non-resident.
6. More than one job
If you decide to work in more than one job at a time while you’re in Canada, then you’ll be asked to complete a TD1 form for each job you have. However, if you are entitled to the personal tax credits (if 90 percent or more of your world income is from Canada), then you need to make sure you only claim the tax credits once.
Enter ‘’0’’ in line13 on the 1st page of your TD1 if you have already claimed the credits. Don’t forget to tick the box shown below as well.
So if you are working two jobs, then you should only claim the tax credits for one of these jobs. In most cases it’s more beneficial to claim them for the highest paid job.
7. Filing your Canadian Tax Return
In Canada you should file a tax return after the end of the tax year and before the deadline if you earn over the personal tax free allowance ($12,069 in 2019).
You can file a paper return tax return anytime from February until June 1, 2020 and submit it to the Canada Revenue Agency.
Non-resident tax returns can only be submitted on paper and you must file a return if:
- You have to pay tax during the year.
- You received working income tax benefit advance payments.
- You disposed of capital property (for example, if you sold real estate, your principal residence, or shares), or you realized a taxable capital gain (for example, if a mutual fund or trust attributed income to you).
However, even if it’s not obligatory, you should file a tax return if:
- You want to claim a refund.
- You want to claim the working income tax benefit.
- You want to carry forward or transfer the unused part of your tuition, education, and textbook amounts
If you need help with your taxes, you can also use a tax preparer like Taxback.com.
The team will be able to tell you if you’re due tax back for any reason including:
- Overpaid pension plan
- Overpaid employer insurance
- Work expenses
- Overpaid income taxes
- Had medical expenses
If you study in Canada you can claim eligible expenses as credit. You must have taken the course within the tax year you are applying for.
After paying, you must have received a T2202, Tuition and Enrolment Certificate from the educational institution and you can use this form to calculate your eligible tuition fee credit. In order to qualify, your eligible expenses must be more than $100.
You must claim your tuition amount first on your own return, even if someone else paid your fees.
However, you may transfer up to a maximum of $5,000 of your 2019 unused tuition amount to your spouse or common-law partner or to your or your spouse’s or common-law partner’s parent or grandparent.
In order to claim or transfer your tuition fee for the future tax year you must file your tax return for the tax year you paid the tuition fee.
If you have qualifying medical expenses you paid for yourself or a spouse, you should keep receipts for these.
The total eligible medical expenses should be reduced by 3 percent of your net income or $2,352, whichever is less. The tax credit is then 15 percent of the amount remaining.
Examples of qualifying medical expenses include:
- Doctor, consultants, nurses fees
- Premiums paid to private health insurance
- Costs related to purchase of gluten-free food for coeliac
To file your Canadian tax return you’ll need your social insurance number and final cumulative payslip or your T4 document.
Taxback.com can help you track these documents down if you lose them!
9. Your Australian tax situation
Residents of Australia are taxed on their worldwide income at a maximum rate of 47 percent.
However, there are allowances (foreign income tax credit) for those who have to pay tax on income in another country (for those with Double Taxation Agreement – Canada and Australia have one), and this amount can be offset against the Australian income tax owed on the foreign income earned.
In Australia an individual taxpayer should lodge either а Resident or а Non-Resident income tax return depending on their residential status for tax purposes. If a Resident tax return is being lodged, it should contain the taxpayer’s worldwide income where the individual taxpayer is entitled to tax credits for the tax paid in the other tax country/ies for the period in question.
If a Non-Resident tax return is being lodged, then the taxpayer should NOT declare any foreign sourced income, he/she is taxed only on the Australian income.
Australian residency is dependent on your personal circumstances, so it can be helpful to get professional advice on your specific situation.
There are specific things to consider if you are moving away for a while, including:
- Superannuation: You should speak to your superannuation consultant regarding benefits you have built up, and explore options of rolling over existing benefits or cash in policies, only if you plan on moving permanently abroad, otherwise there is no point to move to the SA and then move it back after 1-2 years.
Family home: If you decide to rent the family home there will be tax implications, so make sure you consult a professional first!
The tax year in Australia is July 1 to June 30 each year, so if you have an income of more than $18,200, you’re expected to pay taxes and file a return if applicable. You should do so by October 31.
10. Using a tax agent
Taxes can get really confusing when you move to a new country, especially if you’re still resident in your home country, so using a tax agent like Taxback.com can save you a bit of a headache.
At Taxback.com our team of certified tax accountants can prepare and file both your Canadian and Australia tax returns and check if you’re due any tax back.
The benefits of using Taxback.com are:
- Peace of mind and tax compliance
- Maximize any refunds due with expenses and deductions
- Paperless, hassle-free process
- Taxupdates via your tax tracker
- 24/7 Live Chat Help
- ISO certified tax accountants
Get an estimate of your refund or help with your taxes by visiting Taxback.com now.