Understanding Canadian tax return for newcomers: How to prepare and submit your taxes

How does tax work in Canada?

Canada’s tax system funds essential services like healthcare, education, public transportation, and more, contributing to the high quality of life you’ll find here. It’s based on a progressive income tax model, which means the more you earn, the higher the percentage of tax you’ll pay. This approach aims to ensure fairness across all income levels.

In Canada, taxes are collected at different levels: federal, provincial/territorial, and in some cases, municipal, and are collected by the CRA.

• Learn more about how much income tax you will pay.

What is the Canada Revenue Agency (CRA)

The Canada Revenue Agency (CRA) plays a crucial role in the Canadian tax system. It is responsible for enforcing tax laws for the Government of Canada and for most provinces and territories. The CRA is the organization responsible for the collection of income tax, GST/HST, and other federal taxes. Its website also offers useful resources to help you understand your tax obligations, file your tax returns and access benefits you may be eligible for, so as a newcomer, we suggest that you familiarize yourself with it.

What are the different types of taxes in Canada?

While in Canada, you will need to consider the following taxes:

• Income Tax: This one is based on the money you earn from employment, business activities and investments. When filing your taxes, you will need to include this information for both federal and provincial/territorial tax returns. As Quebec has its own tax agency (Revenu Québec), residents of the province will need to submit a separate tax return document.

Tip: File your tax return even if you didn’t earn income in your first year, as this can help you qualify for certain benefits and credits, like the GST/HST credit, which can offer financial relief.

• Sales Taxes (GST, HST, PST): Sales taxes are applied to most goods and services purchased. The federal government charges the Goods and Services Tax (GST), while provinces may charge a Provincial Sales Tax (PST) or combine both into a Harmonized Sales Tax (HST). 

Tip: Keep in mind that some essential goods and services might be exempt or zero-rated for GST/HST, which can save you money. (ex: some basic groceries like milk, bread, and vegetables or some medical devices like wheelchairs or hearing aids)

• Payroll Taxes: These include contributions to the Canada Pension Plan (CPP) (or Quebec Pension Plan if you live in Quebec) and Employment Insurance (EI). These contributions provide retirement, disability benefits, and unemployment insurance and are deducted from your paycheck. 

Tip: If you’re self-employed, remember to set aside money for these contributions, as you’ll need to pay both the employee and employer portions.

• Property Tax: When you own property, you pay property taxes to your local municipality. These taxes are based on the assessed value of your property and fund local services like schools, roads, and public safety.  

Tip: If you decide to buy a new home in Canada, research property tax rates in different municipalities beforehand, as rates can vary significantly.

Read more: Get answers to your most common questions about navigating the Canadian tax season as a newcomer here.

Your residency status will determine your tax

Your tax obligations are typically determined by your residency status, so you need to know if you’re a resident or non-resident for tax filing purposes. When you’re sure of your status, you will be aware of your tax responsibilities.

There are a number of factors involved in determining your status, including your residential ties with Canada, length of stay, or the purpose of your stay.

What are considered residential ties?

• A home in Canada, 
• A spouse or common-law partner in Canada, 
• Dependants in Canada,
• Properties like a car or furniture can also be considered as residential ties, 
• So can social ties like a membership to recreational or religious organizations,
• A Canadian bank account, 
• A local driver’s license, or
• Local health insurance.

If you’re a permanent resident, residing in Canada, well that would likely mean you are a resident for tax purposes.

Deemed Tax Residency in Canada

You are likely to be considered a deemed tax resident in Canada if you have been in Canada for 183 days within the tax year. This is known as the 183-day rule.

Temporary Residents and Tax Residency

If you’re on a working holiday or studying in Canada, you may be classified as a ‘non-resident for tax purposes’ if you have been in Canada for less than 183-days in the preceeding tax year. This might be the case for students that arrived in August for the school year, or IEC participants who arrived later in the year.

Regarding the tax residency of international students, the CRA says:

“Most international students who study or carry out research in Canada establish residential ties with Canada, are considered residents of Canada for income tax purposes and may need to file a Canadian tax return.

Your residency status determines your income tax obligations to Canada. Note that your residency status can be different from your immigration status.” (Emphasis is ours.)

If you’re uncertain whether you are a tax resident in Canada, you can ask the CRA for its opinion by completing form NR74 Determining Tax Residency (Entering Canada) or seek advice from a qualified accountant. If you seek an opinion, be prepared to wait some time (so submit it early to avoid missing your tax filing deadlines).

If you are an American living in Canada or considering a move? You may have tax obligations in both countries! Learn all about Canadian tax considerations for Americans here. We also have guides on the U.S.-Canada Tax Treaty, and your obligations for reporting on foreign accounts.

Do permanent residents pay taxes in Canada?

Quite obviously, yes. PR holders have tax obligations similar to those of Canadian Citizens. As simple as that. Here is a recap of the taxes to consider:

• Income tax on worldwide income: Report income to the CRA from employment, business, investments, and rental properties, both within Canada AND abroad. 
• Sales tax,

• Property Taxes,

• Canada Pension Plan and Employment Insurance,

Do temporary residents pay tax in Canada?

If you are a temporary resident, (also known as non-residents) you too will be required to pay taxes in Canada. But how can you know if you are considered a temporary resident? 

• If you are a visitor in Canada, either for tourism, family visiting or for certain business activities without entering the Canadian labor market (if you are considered a digital nomad, for example)
• If you are a student,
• If you are a temporary worker under certain working visas such as IEC, a Post-Graduation Work Permit (PGWP) or Spousal or Common-law Partner Open Work Permit, 

The tax obligations for temporary residents differ a little from those of permanent residents, especially regarding income taxes. You will need to pay tax on income earned within Canada. You will also be required to declare your global income but you don’t have to pay taxes on income earned outside the country if Canada has a tax treaty to prevent double income with the country you earned income in. These are known as double taxation treaties, and Canada has these agreements to avoid double taxation with 94 countries. 

It may seem surprising that visitors are also required to pay taxes in Canada. That is only if the following criteria apply to them:

• If they stayed in Canada for more than 183 days,
• If they earned income from sources within Canada like business income or from renting property,   
• If they gained capital from selling certain types of property like real estate or investment.

When is the deadline for filing taxes in Canada?

The deadline for filing your personal income tax return is generally around April 30 of each year. If April 30 falls on a weekend or a public holiday, the CRA usually extends the deadline to the next business day.

For self-employed workers and their spouses or common-law partners, the deadline to file is June 15. However, if you owe taxes, the payment must still be made by April 30 to avoid interest charges.

Make sure to do this on time and avoid late-filling penalties

What documents do I need to file my taxes in Canada?

Make sure you submit the following documents if they apply to you when filing your taxes:

• Social Insurance Number (SIN): If you’re working in Canada, you should have a Social Insurance Number (SIN). When completing your Canadian tax return, enter your SIN on the first line of the “Information about you” area of the “Identification” section on page 1.
• T4: This one shows the income you earned from employment and the taxes withheld by your employer. If you’ve had multiple employers, you should have a T4 slip from each one.
• T5: If you’ve earned interest, dividends, or certain other types of income from investments, you’ll receive a T5 slip from the financial institution or company.
• Other Income Slips: Depending on your situation, you might have other income slips, such as T3 (trust income), T5007 (social assistance payments), or T4A (pension or other income).
• RRSP Contribution Receipts: Contributions to a Registered Retirement Savings Plan (RRSP) can help you reduce your taxable income. Have your RRSP contribution receipts available.
• Tuition and Education Receipts: If you or members of your household that you are legally responsible for, attended a post-secondary institution, you will need to submit certificates showing the tuition paid and months of attendance.
• Medical Expenses: Submit receipts for medical expenses not covered by insurance as they can sometimes be claimed. (medications, dental treatments, medical devices, etc.)
  
• Rent or Property Tax Receipts: Depending on your province or territory, you may be eligible for credits based on rent or property taxes paid. Keep these receipts
• Moving Expenses: If you moved to Canada or within Canada to work, run a business, or study, keep your moving expense receipts. Some expenses can be claimed under certain conditions.
• Immigration Documentation: If you’re a newcomer to Canada in the tax year, documents relating to your immigration status and date of arrival can be important.
  
• Charitable Donations Receipts: Receipts for donations made to registered charities in Canada can earn you a tax credit.

Pro tip: You will find your income tax in box 22 of your T4 slip, CPP contributions in box 16, and EI in box 18.

In Canada you will only get a refund if you have overpaid any of these taxes. This can happen if your employer’s payroll overpays on taxes through the year — you then ‘settle up’ with the government when you file your taxes and they calculate how much you underpaid or overpaid in taxes through the previous year.

Deductions, credits, and expenses on your Canadian tax return

There’s a whole raft of deductions, credits, and expenses that workers in Canada may avail of come tax season.

You may be eligible to claim expenses, including:

• Medical (e.g. doctors’ visits, prescriptions, surgery)
• Travel (e.g. monthly transit passes)
• Business (e.g. rent, supplies, travel, professional fees)

Deductions can reduce your assessable income, and therefore your tax liability. Check out this complete set of Canada’s tax deductions, credits, and expenses.

And, if you have your own business, there are certain expenses you can deduct so keep your receipts!

When can you apply for a Canadian tax refund?

The Canadian tax year runs from January 1 to December 31 (so, that’s the entire calendar year), and the filing deadline for the current year is April 30. For example for the 2023 tax year you have to file before April 30, 2024, to avoid potential penalties and interest.

However, in case your result is a tax refund, you have up to 10 years to file. If you worked in Canada in 2023, you can apply for your refund from February 2024. If you worked in Canada anytime from 2014-2023, you can also apply for your tax refund before May 2024.

How to submit your Canadian tax return

Non-residents are required to file their Canadian tax return by mail. Residents may choose either mail or an online method of filing their return.

Full details on how to submit your Canadian tax return.

Get help filing your Canadian tax return

Many workers in Canada go for the DIY (do-it-yourself) method of filing their tax return. Others, however, choose to get some help, typically from a qualified accountant or other dedicated tax professional.

Though an accountant or professional would charge a fee, the benefits of retaining such a person or organisation for help with filing your tax return are obvious. You can save time and potentially avoid stress, plus this person may be able to maximise your refund or, if you owe, point out efficient ways to minimise the amount owing.