This article was kindly prepared by Gerry O’Connor, a financial expert living in Ontario with a wealth of experience in the Canada tax system. This document is designed as a general guideline to provide new arrivals with a general introduction to the Canadian taxation system. It also provides a number of tips about navigating the Canada tax system for new arrivals, and to prepare them for filing their first personal income Canada tax return.
This document is not designed to provide general or individual advice for Canada tax. If you have a question in relation to any of the taxation matters discussed, or their application to your particular circumstances, or any other taxation matters not discussed here, you should consult a professionally-qualified taxation professional. The author assumes no liability, directly or indirectly, for the accuracy or completeness of any information provided herein.
Canada tax system: what you need to know
Do you have to file a return?
In 2019, you must file a return for 2018 if any of the following situations apply:
- You have to pay tax in Canada for 2018.
- CRA sent you a request to file a return.
- You were a deemed resident of Canada at any time in the year, and you disposed of capital property in 2018 (for example, if you sold real estate or shares) or you realized a taxable capital gain (for example, if a mutual fund or trust attributed amounts to you).
- You have to contribute to the Canada Pension Plan. This can apply if, for 2018, the total of your net self-employment income and pensionable employment income is more than $3,500.
- You are paying employment insurance premiums on self-employment and other eligible earnings.
Even if none of these requirements apply, you may want to file a return if any of the following situations apply:
- You want to claim a refund.
- You want to apply for the GST/HST credit. For example, you may be eligible if you turn 19 before April 2019, and you are a deemed resident of Canada.
If the above conditions apply, you file a 2018 Federal Income Tax and Benefit Return (called a T1 General Return) with the Canada Revenue Agency (“CRA”) on, or before April 30, 2019.
The purpose of this document is to provide a general overview of the some of the key taxation matters that apply generally to new arrivals and, in addition, identify important steps that can be taken now in order to prepare and assemble key taxation documents.
Canada Revenue Agency (“CRA”) Website
CRA provides an excellent website designed for individuals who are filing an Income Tax and Benefit Return (“T1”) for the first time. This learning unit is designed to follow Paul and his friends as he prepares to file his first Canada tax return and answers Paul’s questions and advises him on how to get help with any Canada tax-related questions he may have.
The CRA program takes approximately 60 to 90 minutes to complete and is provided free of charge. It:
- Teaches you how to complete a simple Canada tax return;
- Teaches you about the Canada tax system and your role in it; and
- Contains exercises and quizzes to test what you have learned.
The CRA program includes the following materials:
- Module 1: Basics of Taxation
- Module 2: The Canada tax-filing process
- Module 3: Roles and responsibilities
- Module 4: How to complete a basic income tax for Canada and benefit return
Filing your Income Tax Canada Return
When you are ready to file your T1 return, several options are available to assist you.
- You can purchase a Canada tax preparation software package provided by a number of reputable software vendors, enter your data and then submit a printed return to CRA. Because this is your first year to file an income Canada tax return, you are ineligible to NETFILE your return on the internet. In your first year, you must file a printed copy of your return with Canada tax slips attached. Keep your receipts (e.g. rent, medical expenses) in case CRA asks you to submit them to substantiate your claim. OR
- You can engage the services of a professional Canada tax preparation service that will gather your Canada tax forms and receipts and prepare your return for you, for a fee (typically $50-75).
- The income tax return for a new arrival is generally very simple and easy to do by you so the use of a tax preparation service is not necessary.
- The tax slip (e.g. T4; T4A etc.) which you receive from your employer after January 1, 2019 contains a number of numbered boxes with a dollar amount in each box. Simply enter this dollar amount into the corresponding tax slip and box number in the tax slip data entry window. The software automatically calculates both your Federal and Provincial income taxes payable or any income Canada tax refund that is due to you.
- For most new arrivals, your Taxable Income is low in your first year. As a general guideline, you will receive a refund of all or a portion of the taxes deducted from your pay in 2018. Taxes payable and refund eligibility is pro-rated from the date you entered Canada.
- TURBOTAX does all the calculations for you.
T4 Canada TAX SLIP
If you were employed in 2018, early in 2019 your employer will mail you a T4 tax slip to the last address you provided to the employer. The employer is obligated to mail T4 tax slips prior to March 1, 2019. The T4 tax slip reports your employment earnings earned during the 2018 calendar year plus all statutory deductions taken from your earnings (e.g. income tax; Canada Pension Plan deductions; employment insurance premiums; union dues etc.). Concurrently, the employer reports the same information to CRA.
Canada TAX TIP #1: YOUR MAILING ADDRESS
In respect of any company or organization in which you were employed during 2018, provide the company’s Payroll Manager with written notification of your current address or the address that you will be living during the period January 1, 2018 – April 30, 2018. If you are not sure where you will be living during that period, provide an address where you are sure your T4 tax slips can be safely delivered and collected. This is important because you will need your T4 slip(s) in order to submit an accurate T1. More important, you may be entitled to a Canada tax refund and/or a refund of contributions paid so taking steps to ensure that the Canada tax slips are safely delivered to you can generate income for you.
INDIVIDUAL TAXATION RETURN (“T1”)
You are obligated to file a T1 with Canada Revenue Agency on, or before, April 30. CRA will then match the information you report with the information provided by employers. Note that if there is a discrepancy, CRA will contact you.
Canada TAX TIP #2: EARLY FILING
Once you receive all of your 2018 tax slips, if you determine that you are eligible for a tax refund, you can submit your T1 immediately and receive an earlier refund, rather than waiting until April 30.
Canada TAX TIP #3: RENT RECEIPTS
Rent paid during 2018 is tax deductible in Ontario and Manitoba only. If you lived in these provinces during 2018 and paid rent, make sure to obtain a tax receipt from your landlord. This receipt should clearly state the full address of the rental location; the rental period and the amount paid. The receipt should also specify the landlord’s full mailing address if different from the rental location. You must deduct any amount paid for meals, if included in your rent. If the landlord mails the receipt, make sure you provide a current address for delivery and collection.
When filing your paper income tax return, do not send any rent documents. Keep all your documents in case CRA asks to see them at a later date.
Canada TAX TIP #4: MEDICAL EXPENSES
In order to claim medical expenses, your total net expenses (i.e. medical expenses not reimbursed by your insurance company) must be more than 3% of your net income or $2,052, whichever is less.
The following is a list of the more common medical expenses that you can claim, provided you were not reimbursed for them. If your employer or a private insurance or drug plan paid a percentage of the expenses, you can claim the remaining portion that you paid. Many Irish-born people are allergic to gluten. In order to claim for a gluten allergy, you must provide CRA with appropriate certification. You can claim the excess cost of gluten-free products over regular products.
- Payments to a medical doctor, dentist, nurse, or certain other medical professionals, or to a public or licensed private hospital;
- Payments for prescription medicines and drugs;
- Dental services (including x-rays, fillings, extractions, oral surgery, dentures, and tooth straightening);
- Prescription eyeglasses, prescription contact lenses, laser eye surgery;
- Ambulance charges to or from hospital;
- Premiums paid to private or non-government health services plans (other than those paid by an employer);
- Artificial limbs, aids, and other devices and equipment (including artificial eyes and limbs, iron lung, a rocking bed for poliomyelitis victims, wheelchairs, crutches, spinal braces, a brace for a limb, ileostomy or colostomy pads, a truss for a hernia, laryngeal speaking aids, hearing aids, pacemakers, an artificial kidney machine, and certain prescription medical devices;
- Repairs to and replacement batteries for the above;
- Laboratory tests;
- Hospital services (including anesthesia, oxygen masks/tents, vaccines, and x-rays);
- Amounts paid for attendant care, or care in an establishment, provided no one claimed the disability amount for the person receiving the care;
- Cost of diabetic testing supplies;
- Incremental cost of gluten-free food (compared to the cost of non-gluten-free food) if required due to celiac disease; and
- Reasonable travel expenses (such as meals and accommodation), if medical treatment was not available locally.
The following restrictions apply to medical expense claims:
- Medical expenses must fall within a 12-month claim period that ends in 2018 (the current tax year). You can carry forward unclaimed medical expenses only if they occur within a 12-month claim period that ends in the tax year in which you claim them.
- You cannot claim medical expenses incurred after the end of the tax year (for example, early in 2019). The claim period must end in the 2018 tax year.
When filing your paper income tax return, do not send any medical expense documents. Keep all your documents in case CRA asks to see them at a later date.