As a newcomer to Canada, it is important to understand how the Canadian tax system works and what the obligations are from their first days in the country. In Canada, many of your individual tax obligations are based on your residency status, which is largely based on interpretation by the Canada Revenue Agency (CRA).
When Residency Begins
In Canada, residency is often determined by the CRA based on when you established significant residential ties in Canada. Residential ties can consist of a number of factors including if you’ve establishing a home or permanent residence, if your spouse or dependants have moved to Canada live with you, or if you have personal property such as a car or furniture in Canada. There are no strict rules; only the CRA can determine your residency status. Having social memberships, a driver’s licence, health cards and bank accounts based in Canada would all further support your residential ties.
Newcomers to Canada include protected persons, individuals who have applied for or received permanent residency status from Citizenship and Immigration Canada, or individuals who have received approval in principle to stay in Canada. As a newcomer, you also need to obtain a Social Insurance Number (SIN), which you can get from Service Canada so you can file your tax return.
Your First Year Tax Obligations
Once you are considered a resident of Canada for tax and benefit purposes, you must report your worldwide income from all sources earned after you became a resident to the CRA on your T1 personal income tax filing. You must file a tax return if you have to pay tax or want to claim a refund. Even if you did not receive income during the year, you should file a return so that CRA can determine if you are eligible for any benefits. These benefits can include the Good and Services Tax/Harmonized Sales Tax (GST/HST) credit, the Canada Child benefit, and payments from certain related provincial or territorial programs.
If you are not sure about the exact date when you officially became a resident of Canada, the CRA offers a Form NR74 called Determination of Residency Status (Entering Canada), which you can complete and submit. The CRA then issues a decision to determine when it considers that you became a resident of Canada. When that is completed, CRA gives you the date when you are considered a resident for tax and benefit purposes. That date would be the starting date you would use for filing your income tax return.
In some cases, any income you have earned from outside of Canada may be exempt from tax in Canada due to a tax treaty with your previous country. You must still report the income on your tax return. You can deduct the exempt part on line 256 of your tax return.
