Tax filing season can be complicated, and even more so if you're new to Canada.
And, if you happen to be a newcomer to the country, chances are you're wondering how to pay taxes in Canada while avoiding big tax mistakes.
To get all the details, Narcity reached out to Gerry Vittoratos, a national tax specialist at UFile, to find out about the biggest mistakes that newcomers might make when filing taxes for the first time in Canada.
Here are some common mistakes newcomers should avoid when filing taxes in Canada for the first time.
Not establishing the date of arrival in Canada
If a newcomer is filing taxes for the first time, they'll have to know their date of arrival in Canada.
"This date is required on their first tax return," says Vittoratos.
However, as Vittoratos points out, "This date is not necessarily the date they physically arrived in Canada, but rather when they established significant residential ties."
In other words, if you come to Canada as a visitor, you aren't considered a resident. But assuming you arrive with the intention of living here and immediately begin establishing residential ties, such as by renting or buying a home, then you will generally be considered to have become a resident of Canada for tax purposes on the date you entered Canada.
Other significant residential ties include having a spouse, common-law partner or dependants in Canada.
Some secondary residential ties that may be relevant when determining residency include a Canadian driver's licence or passport, Canadian bank accounts or credit cards and health insurance with a Canadian province or territory, among others.
Not declaring income earned before moving
If you earned income in Canada in the part of the year before becoming a resident — such as from owning a business in Canada, from selling Canadian property or from a Canadian scholarship or grant — you must still report it on your tax filing.
In addition, Vittoratos notes, if you hope to claim federal non-refundable tax credits on any of the Canadian-source income you earned before arriving, you must be able to prove that your Canadian income made up 90% or more of your net world income for that part of the year.
That means you would have to report the income you earned outside of Canada for that portion of the year as well.
"Although they won't be taxed on this income in Canada, it has to be declared in order to determine if they can claim non-refundable tax credits for this portion of the year," explains Vittoratos.
Not declaring income they continue to earn abroad
Newcomers to Canada should be aware that they must report the entire worldwide income they earn after establishing residential ties in Canada, not just the portion that they earn in Canada, says Vittoratos.
"This means that any income they gain from the native country [after becoming a resident of Canada] will be taxed in Canada, even if it is not gained in Canada," he says.
"They also need to apply for a SIN in order to be able to file a tax return in Canada," he adds.
He recommends having a proper archiving system for tax documents in order to properly declare everything.
Not claiming the foreign tax credit
As mentioned above, any foreign income that a newcomer might continue to receive after becoming a resident of Canada must be reported on their Canadian taxes.
However, Canada has tax treaties with several countries, meaning that you may be able to avoid being double-taxed if the country where you earned outside income has an agreement with Canada.
If the country where you earned income doesn't have a tax treaty with Canada and you have to pay taxes on it to both countries, you may be able to claim the foreign tax credit in Canada, according to Vittoratos.
If you're a bit nervous about filing taxes for the first time in Canada, Vittoratos says that "the CRA publishes a great guide to help newcomers file their first tax return, T4055, which explains everything a newcomer would need to produce their tax return."
The CRA also recently offered some tax tips for newcomers to Canada that might come in handy!
Best of luck out there, all!
These Are The Most Common Tax Mistakes Newcomers To Canada Make, According To An Expert
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