Not sure about the implications of paying tax in Canada as an Australian citizen? This article from Taxback.com can help you figure everything out.
Canada and Australia definitely have some things in common! Not least geographical size, colonial history, and populations spread across huge expanses of land.
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.
- 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 $11,635 (in 2017), so you’ll pay federal and provincial tax on anything over this amount. The Canadian Revenue Agency is a federal agency that collects taxes for most provinces and territories in Canada.
Federal tax Rates and Brackets 2017
15%: Up to $45,916
33%: $202,801 and over
The federal tax rates start at 15% on the first $45,916 of taxable income.
However the provincial tax rates depend on the province so you should check the rates wherever you intend to go.
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% 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. 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.
There are both federal and provincial forms and you must complete them as accurately as possible to avoid any underpayment.
If you’re a non-resident and more than 10% of your income was earned outside Canada, you should enter 0 in box 13 on the TD1 forms.
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 TD1s for both jobs. However if you ARE entitled to the personal tax credits (if 90% or more of your income is from Canada), then you need to make sure you only claim the credits once.
Enter ‘’0’’ in this box if you have already claimed the credits.
So if you are working two jobs then you should only claim the 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 ($11,636 in 2017).
You can file a paper return tax return anytime from February until April 30 and submit it to the Canadian 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 earned over the tax free allowance in Canada, then you may be able to claim travel expenses like weekly transit passes, so you should keep these as records.
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% of your net income or $2,237, whichever is less. The tax credit is then 15% 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 T4.
Taxback.com can help you track these 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%. 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.
If you become non-resident for tax purposes then you’ll be liable only for tax on Australian sourced income.
Australian residency is very 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 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. And you should do so by October 30.
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 for expenses and deductions
- Paperless, hassle-free process
- Online updates on any refunds
- 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.