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New Canadians: Your Tax FAQ or Canadian Taxes 101

Welcome to Canada!

As a new Canadian, you usually become a resident for tax purposes when you arrive in Canada, which means you should keep careful records about your income before you arrive and afterward because different rules apply, and you want to make sure you pay the right amount in taxes.

Residency and the Obligation to File a Return

The criteria the Canada Revenue Agency (CRA) uses to determine whether you are a resident for tax purposes are not the same as those used for permanent residence status or Canadian citizenship.

If you have significant ties to Canada, such as family relationships, memberships in Canadian organizations or Canadian property, you may be required to file a Canadian income tax return.

The first income tax return for most new Canadians covers all income earned from the date of arrival until the end of the year.

Foreign Income

It is important to keep good records of when you arrived in Canada, because income you earned before you arrived to Canada (Foreign Income) is not subject to Canadian taxes.

Once you are a Canadian resident for tax purposes, however, you have to declare all income from anywhere in the world on your tax return.  You can avoid paying some, or all, foreign taxes if Canada has a Tax Treaty with the country that you earned income in.  You may be required to provide that country with a Certificate of Residency.  The Certificate of Residency informs the foreign government that you have file income tax returns in Canada as a Canadian resident for tax purposes.

The T1135 Foreign Income Verification Statement is needed to report foreign property (including real estate, brokerage accounts, etc.) worth over $100,000 even if you earn no income during the year.

 

T1135, Foreign Income Verification Statement

Form T1135, Foreign Income Verification Statementmust be filed by:

  • Canadian resident individuals, corporations, and certain trusts that, at any time during the year, own specified foreign property costing more than $100,000
  • certain partnerships that hold more than $100,000 of specified foreign property

What property has to be reported?

Specified foreign property is defined in subsection 233.3(1) of the Income Tax Act and includes:

  • Funds or intangible property (patents, copyrights, etc.) situated, deposited or held outside Canada
  • Tangible property situated outside Canada
  • A share of the capital stock of a non-resident corporation
  • Shares of corporations resident in Canada held outside Canada
  • An interest in a non-resident trust that was acquired for consideration
  • An interest in a partnership that holds a specified foreign property unless the partnership is required to file Form T1135
  • A property that is convertible into, exchangeable for, or confers a right to acquire a property that is specified foreign property
  • A debt owed by a non-resident, including government and corporate bonds, debentures, mortgages, and notes receivable
  • An interest in a foreign insurance policy
  • Precious metals, gold certificates, and futures contracts held outside Canada

Specified foreign property does not include:

  • Property used or held exclusively in carrying on an active business
  • Share of the capital stock or indebtedness of a foreign affiliate
  • Interest in a trust described in paragraph (a) or (b) of the definition of exempt trust in subsection 233.2(1)
  • Personal-use property
  • An interest in, or a right to acquire, any of the above-noted excluded foreign property

Filing deadline

Individuals, corporations and trusts – Form T1135 is due on the same date as the income tax return, April 30th, and June 15th for self-employed (June 17th, 2019).

Partnerships – Form T1135 is due on the same date as the partnership information return under section 229 of the Income Tax Regulations (or what would be the due date for this return if the partnership had to file one).

Additional information

Form T1135, Foreign Income Verification Statement is available in a fillable/saveable PDF format.

The Form T1135 has been redesigned to implement a two-tier information reporting structure for specified foreign property.

Part A ($100,000-$250,000) is a new simplified reporting method for taxpayers who held specified foreign property with a total cost of more than $100,000, but less than $250,000, throughout the year. This reporting method allows taxpayers to check the box for each type of property they held during the year rather than providing the details of each property.

Part B (>$250,000) is the current detailed reporting method, will continue to apply to those taxpayers who, at any time during a year, held specified foreign property with a total cost of $250,000 or more.

Individuals can file Form T1135 electronically via Netfile.

Fail To Report T1135

The CRA can reassess a taxpayer’s tax return if the taxpayer has failed to report income from a specified foreign property on their income tax return and Form T1135 was not filed on time by the taxpayer, or there is a false statement or omission on Form T1135 for that particular tax year.

There are significant penalties that may be applicable for failure to file Form T1135 by the reporting deadline, or for making a false statement or omission with respect to the required information.

 

Canadian Income

Income from Canadian sources is taxable in Canada, whether it is earned by a resident or a non-resident.

If you had Canadian income during the year before you arrived in Canada, you have to declare it on your income tax return. You may already have paid Canadian income tax, because non-residents often have income tax withheld from their Canadian income, but if you file your income tax return, you may get some of that money back.

The amount of income tax you have to pay on your Canadian and foreign income while a Canadian resident depends on the total income, your deductions and your family situation.

Once you complete your income tax return, you can see whether you have to pay an additional amount or get a refund. You have to submit your return before the end of April the year following the year you earned the income.  If you operate your own business (self-employed) or if you earn any self-employed income, you have until June 15 to file the return, but all payments of income tax are due April 30. After this date, the government starts charging you interest on the unpaid balance.

If April 30 or June 15 fall on a weekend, the due date becomes the Monday, for example, June 15th 2019 is a Saturday, so the filing deadline for self-employed Canadians is June 17th, 2019.

Classes of Residents

You may become a resident for tax purposes in Canada if:

  • You are a permanent resident or have applied for permanent resident status
  • You have “approval-in-principle” to stay in Canada from Immigration and Citizenship Canada
  • You are a Canadian citizen
  • You are a protected person.

Most residents have to declare all income from any source, worldwide, but protected persons have a special exemption. If you have been granted protected person status by the Refugee Board of Canada or Immigration and Citizenship Canada, and if you receive funds from a charitable organization, you don’t have to declare the amounts as income as long as they are not pay from employment.

Your obligation to file an income tax return and pay any amounts due on time are balanced by benefits you may receive. When you file your tax return, you become eligible for tax rebates, benefit payments and tax refunds.

This might all seem complicated, but there are tax software programs to help you with all of your tax filing needs.  TurboTax is Canada’s most used tax preparation software because of the ease in using the products and offers assistance to either file the return for you, to assist you as you prepare it on your own, or you can do it completely on your own because the product is that good, and easy to follow.  You do not need to be a Canadian Tax Expert to file with Turbo Tax.