After deciding what kind of house to buy (2022 Canadian Home Buying Package | Top 3 Things to Consider When Buying a Property in Canada), you should pay attention to Canadian taxes. Canada is a country of taxation, including things like consumption tax and income tax. Once you become a Canadian tax resident, the government will impose global taxation, requiring you to declare all domestic and foreign income and global assets. This article will break down some of the main tax info you need to know about!
5 tax statuses
Canada judges whether an individual is obliged to file a tax return based on their tax status, which can be roughly divided into 5 kinds:
1. Resident
Basically, everyone who has lived in the country for more than 183 days in the whole year (from January 1) and meets the following 3 residency connection conditions becomes a Canadian tax resident.
- Own a home (whether you buy or rent it).
- Have a spouse and dependent children (under the age of nineteen) living in Canada.
- Have financial or social connections, such as a driver’s license, health insurance, etc.
2. Factual resident
Even if you have been abroad for many years, you have always maintained relevant connections in Canada, such as having a residence, a spouse, etc., and you are still a resident in tax law, thus you need to declare overseas property and global income.
3. Non-resident
If you meet the following conditions, you are a non-tax resident, and only need to declare income tax within Canada, while foreign assets need not be declared:
- No significant residential connection (possessing residence, spouse, custody, etc.).
- Living abroad for many years, staying in Canada for no more than 183 days in a year.
- Non-Canadian government personnel abroad.
4. Deemed resident
If you are not a Canadian borrower, but meet the following two conditions, you are also considered a resident and need to declare tax:
- Staying in Canada for more than 183 days within a year, for example: parents who accompany their children to study, even if they do not have immigration status and do not have a house, they still need to declare taxes.
- Civil servants of the Canadian government stationed overseas (military personnel or overseas school employees, etc.).
5. Deemed non-resident
According to the Canadian tax law that came into effect on February 24, 1998, if you are a resident or deemed resident, and are also identified as a resident of another country (which requires a tax agreement with Canada), the Tie Breaker Rule will determine you as a non-tax resident, thus negating the obligation to declare foreign income or property.
Tax resident filing tax returns
Income from anywhere in the world must be paid to the Canadian government (personal income tax, etc.). If you have investment or value-preserving assets, you must also calculate the appreciation or loss of each asset based on the reasonable market value of the day, and fill in the tax return. Therefore, all properties outside Canada should be valued before immigration. If you want to transfer assets such as properties, you should do it before immigration. Otherwise, the immigrant becomes a Canadian citizen, and the government will consider all assets purchased on the day of immigration.
Are pre-immigration retirement benefits taxable?
Canada is a popular choice for retirement immigration, and many people still enjoy retirement benefits in their place of origin, such as pensions and long-term stipends, after immigrating. These retirement benefits can be roughly divided into two types: one-time withdrawal and continuous withdrawal. For the former, all pensions are withdrawn at one time before immigration. Because they are earned before coming to Canada, they are not taxed; but if you withdraw more after immigration, subsequent withdrawals are treated as income and will then be taxable. Therefore, it should be calculated clearly which option adds to a bigger total income and decided according to individual circumstances.
What is the impact of the increase or decrease of Hong Kong assets after immigration?
As long as the property is still held, no tax will be paid, and the sale will only be taxed. The transfer of the property is also regarded as a sale. For example, if the property is transferred to a child in Hong Kong, the benefit will be calculated based on the difference between the value declared on the day of immigration and the price on the day of the name change. However, there are two cases in which the tax will be levied even if the property is not sold. One is when tax statuses are changed and a tax resident becomes a non-tax resident; the other is when the individual passes away.
Unemployment and government benefits have to be taxed?
Even if you don’t owe taxes, you must file a tax return if you receive government benefits or subsidies, such as Canada Child Benefit or Canada Recovery Benefit. All money earned in Canada, whether legally or illegally, is income, and benefits are classified as income. Receiving benefits in Canada is determined by the total family income. If one of the parties who came to Canada returns to live in the country of origin, his income will still be counted. Some received benefits are also classified as income, such as Pension and Old Age Security Pension, to determine if you are eligible for more benefits. However, this portion will be subtracted from your tax return when you file it before deciding how much tax you will pay.
Canada implements a loyalty system, based on self-declaring income. Once an abnormal situation is discovered though, relevant certificates will be required, and the burden of proof rests with the public. The tax form reads Income Tax and Benefit Return. As a resident, you are obliged to pay taxes and have the right to enjoy benefits. Their medical care, education system and welfare system make Canada the most livable country in the minds of many people. Taxation in Canada is more rigorous than in Asia, and the calculation is also complicated. If you have any questions, please consult with professionals.
Canada related information:
- Canada’s lifeboat scheme | Pathway to PR for HK Residents
- Hong Kong Immigration | UK vs Canada – Which to choose?
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