Welcome to Canada!
As a new Canadian, you usually become a resident for tax purposes when you arrive, which means you should keep careful records of your income before you arrived 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 newcomers to Canada covers all income earned from the date of arrival until the end of the year.
Foreign Income
It is important to practice good record keeping when you arrive in Canada, because income you earned before you arrived (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 Statement, must 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, but if you owe the CRA money, that amount is due on April 30th. Unless these dates fall on a weekend, then your deadline is the following opened business day.
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).
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.
Important to note: When you file your first Canadian tax return, you will not be able to file using the Netfile Service, but will be able to print and mail it in instead. After the first tax return has been received by the CRA, individuals can then file Form T1135 electronically via Netfile along with their yearly tax return.
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 following open business day.
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 various tax software programs to help you with all of your tax filing needs. TurboTax Canada is the most used tax preparation software as it is easy to use, additionally it offers assistance to either file the return for you, or to assist you as you prepare it on your own, or you can do it completely on your own. Let’s get you started, click here.