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Canadian Taxes - Basics FAQ
Frequently asked basic questions for the situation of an IEC participant
The information on this website is for informational purposes only and should not be considered legal advice. This website contains information tailored specifically to the tax situation of a temporary worker under an International Experience Canada Visa (Working Holiday, Young Professionals, International Co-op Internship)
The Canadian tax year is the same as the calendar year and runs from January 1st – December 31st.
The Canadian Social Insurance Number (SIN) is a personal 9-digit number that is used for tax purposes and which you need to work and get paid.
You apply for the SIN number at the Service Canada office as soon as you arrive in Canada and after you activated the work permit.
All temporary SIN numbers start with a “9”. It will be valid as long as the work permit. If you apply for another work permit after the last one expired, you must extend the SIN number by visiting the Service Canada location again.
You have to file taxes if any of the following applies to you.
- You have to pay tax for the year
- You want to claim a refund
- You want to claim the Canada workers benefit (CWB) or you received CWB advance payments in the year
- You want to claim the GST⁄HST credit
- The CRA sent you a request to file a return
- You were self employed and your total income for the tax year was over $3,500
The entire list >> here << on the official government homepage
No. If you didn’t earn any form of income in Canada in the tax year, you don’t have to file a Canadian tax return. For example you arrived in Canada in December but started working in the next tax year.
To file a Canadian tax return you need all T4 from your employers.
The T4 Statement of Remuneration is a summary of the tax year where all earnings and deductions are reported to the CRA. The T4 will be sent to you automatically by your employers by the end of February of the following year. A copy also goes to the CRA.
The employers are required by law to issue you a T4 by the end of February, even if you only worked there for a few days. In most cases, the T4 are sent by post. You can also ask the employer to send this to you by email.
If you don’t receive the T4 by the end of March (including post time), send the employer a reminder.
If you have access to your “My Account” at the CRA (Canada Revenue Agency), you can print out the T4 from there. Be aware, you can only register for the My Account after you filed a tax return in Canada. So this option only becomes available after your first tax return in Canada.
If you received government benefits from Service Canada is will be a T4E.
You also need those T slips to file a tax return.
- The Working Holiday Visa is an open work permit, so you are allowed to work for any employer in any relationship no matter as employee or self-employed (except, of course, in the jobs excluded on the work permit).
- With the Young Professional Visa, you are tied to a specific employer in Canada and you are not allowed to have a part-time job, even if it is a freelancer job.
A few more important info pieces >> here <<
Employers in Canada are responsible for deducting CPP and EI and remit them to the CRA. Those contributions are automatically deducted from your wages. Since these are mandatory contributions, you will not get them refunded on your tax return. Only a possible overpayment if the employer has deducted too much.
CPP = Canada Pension Plan
All Canadian employees over the age of 18 who are earning at least $ 3,500 per year are required to pay into CPP. It does not matter whether you are a Canadian citizen or you only work in Canada with a temporary work permit.
You can find the CPP deductions in your T4 in box 16.
- 2020 = 5.25% of the gross income, to a max. of $2,898.00
- 2021 = 5.45% of the gross income, to a max. of $3,166.45
- 2022 = 5.70% of the gross income, to a max. of $3,499.80
EI = Employment Insurance
Mandatory contributions to help you in case you lose your job to no fault of your own. If you accumulated a certain amount of hours you can claim employment insurance benefits until you find another job. More info on the EI benefits >> here <<.
You can find the EI deductions in your T4 in box 18.
- 2020 = 1.58% of the gross income, to a max. of $856.36
- 2021 = 1.58% of the gross income, to a max. of $889.54
- 2022 = 1.58% of the gross income, to a max. of $952.74
For past years: The CRA accepts tax returns for past tax years at any time during the year.
If you are expecting a tax refund, you have up to 10 years to file your tax return and get your money back. The CRA is in no rush to pay you the money they owe you.
For the current year: You have to wait until February of the following year for the current tax year. E.g. the software for the tax year 2021 will not be activated until mid-February 2022. By this time you will also receive the T4 from every employer. You can only submit your tax return with this T4.
You mean, if you want to come back to Canada to visit? It depends. There will be no problems at all if you haven’t filed a tax return.
But if you filed a tax return and decided not to pay the amount owing, you can read >> here << what the CRA can do.
The official deadline for the tax return is
- April 30th for employees (personal tax returns)
- June 15 for self employed (business tax returns)
There are no penalties if you file your taxes after the deadline if you expect a tax refund. That means if you expect a tax refund, you have up to 10 years to get your money back from the CRA. So it’s never too late to file your tax return. The CRA accepts past year tax returns throughout the year.
But if you file late and owe taxes, the CRA will start charging you compound daily interest as of May 1.
The late-filing penalty is 5% of your balance owing, plus an additional 1% for each full month you file after the due date, to a maximum of 12 months.
This question can not be answered on a general basis. Every tax situation is different. Depending on how long you have been in Canada, how much you have earned and how much tax you have paid, a partial or even all of the tax may be refunded.
The three most important deciding factors in the tax return are:
- time spent in Canada
- filing the tax return as a ‘resident’ or ‘non-resident’
- foreign income before or after Canada
This means that whether or not you get a tax refund depends on a few factors, such as length of stay and ties to Canada. Another big factor in the amount of tax refund is your income BEFORE or AFTER staying in Canada.
Important! The foreign income before / after the stay in Canada is not taxed in Canada, it is only used to calculate the amount of non-refundable tax credits in the tax return.
If you owe taxes because not enough were deducted from the pay cheques, then there are a few options to pay amounts owing.
The options >> here <<
Yes, as a regular employee you can claim certain expenses towards the taxes. More to this topic in an extra post >> here << on this same homepage.
Determining tax residency is not an easy task. If you want to knock yourself out with the “Income Tax Folio” >> here you go <<. I will try to explain it as simple as possible.
The following facts have a positive effect on the classification as “resident”, the more you have, the better the chances are.
- Family (spouse and children) joins you in Canada,
- Own/rent a home with a rental agreement (no flat share or roommate),
- Length of stay (longer than 183 days in Canada in the tax year),
- Canadian health insurance from a province,
- Canadian driver’s license,
- Canadian bank account,
- Canadian SIM card or mobile phone contract
The two strongest ties to Canada, and therefore also the most important ones (“significant residential ties”), are family members (spouse and children) and owning/renting a home in Canada. All other items in the list are “secondary residential ties” and you need to have many of them to qualify as “resident”.
Another stronger tie, in my opinion, is a health care card from a province. Canadian health insurance is hard to get because you must meet certain residency requirements. Therefore it will have a very positive effect on the residency determination.
Here are a few examples of “non-resident”:
- If you have none of the above ties to Canada at all.
- If the family members (spouse and / or children) stayed in your home country.
- If you still have a home in your home country. You are automatically non-resident in Canada because home ownership is the most important factor and negates all other factors.
- If you were in Canada for less than 183 days in the tax year and only stayed in hostels or camped in a car.
- If you were in Canada for more than 183 days in the tax year, but only worked briefly in several provinces and slept in hostels, staff accommodation or in the car. So a typical backpacker on a road trip.
- If you just do a paid internship in Canada for a few months.
- If you only come to work on a farm for a few months.
- If you only come for a few months to work as an Au pair with a family.
- If you have both entered and left the country in the tax year, e.g. entry in April 2021 and exited in August 2021.
Important! In order to file the tax return as a non-resident, you have to use other tax packages/forms and you cannot submit the tax return online or via a software.
The 90% rule is always used for tax returns as a non-resident and has an impact on whether taxes are refunded or whether taxes have to be paid back.
Short explanation without much confusion:
As a taxpayer you have non-refundable credits that you can claim against taxes. The majority (actually pretty much all) Canadian employers always consider the full annual non-refundable tax credits in their pay slips because they are not familiar with the tax rules of non-residents. That means they deduct less taxes.
The 90% rule states: In order to be able to claim those non-refundable tax credits as a non-resident, the Canadian income must be more than 90% of the total world income in the tax year. World Income = All Canada earnings + all overseas earnings.
- If the ratio is over 90%, the full non-refundable tax credits can be claimed. The result is usually a tax refund.
- If the ratio is below 90%, the non-refundable tax credits cannot be claimed, and usually you owe taxes because too little taxes have been deducted.
It depends on how you file your tax return.
- Online tax returns take about 8-10 days.
- By post as resident: Up to 8 weeks
- By post as non-resident: Up to 16 weeks
If you are still in Canada you can file the taxes yourself with a software like www.simpletax.ca which opens around mid/end February. Around that time you will receive your T4 from your employer which you need for the tax return.
If you entered Canada during the tax year:
Did you own/rent a home, possibly bought a car, changed your drivers licence into the Canadian one? If yes, you have established residential ties and are considered a tax resident from the date of entry to Canada. This means if you entered Canada in the tax year, you can file as a part year resident. Simpletax.ca is free to use.
So…… let’s go.
Register at www.simpletax.ca
In this simple and userfriendly interface make sure you answer all the questions correctly, like the question if you became a resident for tax purposes in the taxation year. You must answer “yes” and then enter the entry date…
Then it asks you to report your income from the time before you entered Canada. Enter that if it applies to you. You need to enter the amount in Canadian Dollars, so you need to convert foreign income to Canadian Dollars by taking the yearly average exchange rate from the Bank of Canada
>> Bank of Canada rates here <<.
Important: This income from BEFORE you entered Canada will NOT be taxed in Canada, the software will just use it for a formula to calculate your tax credits… I know a lot of people do not do this step and end up creating false tax returns and claim credits they are not entitled to. This could lead to penalties. The purpose of this step is a very important one. If you omit this step, the software calculates the taxes and considers you a full year tax resident. Then calculates the full amount of non-refundable tax credits which is wrong.
If you had income before you came to Canada, the non-refundable tax credits need to be prorated for the time you spent in Canada. That’s why the software asks for your entry date. The software will pro rate automatically, you do not have to do anything.
Example: The federal non-refundable tax credit for the tax year 2021 is $13,808
If you entered Canada on October 1, 2021, this credit will be prorated:
($13,808 : 365 days) x 92 days spent in Canada = $3,480.37 as non-refundable tax credit.
Do you see the difference to the full tax credit?
Depending on the taxes you already paid from the wages, you might get a refund or owe taxes back.
The same applies to the provincial tax credits. They will be pro-rated by the software as well.
If online filing is not possible (which happens often as a first time filer), you can just print out the tax return PDF from the Simpletax software and send it via post.
If you are a ‘non resident’ or have already left Canada, you cannot use an online software, you have to send the tax return by post.
You can use taxback services which charge a fee. This way you can be sure the tax return is filed properly.
Canadataxback can help you with the tax return. I use a special commercial tax software that is only programmed for tax preparers. This software can capture all possible tax situations. Entry dates, exit dates, non residents and foreign addresses.
I have been helping German Work and Travellers with their tax returns since 2014. Starting 2022 I will expand the taxback service to all IEC participants.
My fee is 5% from the calculated refund, min. $20, max. $60 per tax return. No other Internet taxback service can beat this price.