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Overview of Tax Issues for Expats in Canada

Submitted: October 2014

The Canadian tax year runs from 1 January to 31 December.

Tax Residence

If you are working in Canada for less than 183 days you will be considered non-resident, and you will be taxable on Canadian source income only. If you stay longer than 183 days you will be considered resident for the whole of that tax year, and you will be liable for tax on your worldwide earnings. For more details see: Taxation - Employment Taxation for Expats in Canada. Tax treaties also have a definition of residence which can override the definition above with regard to certain kinds of income. For more details see: Taxation – Tax Treaty Considerations for Expats in Canada.

 

Employment & Business Taxes

Income tax is deducted by your employer the same way as it is in a country with a Pay As You Earn system. The marginal (highest) federal tax rate is 29%. In addition they will also deduct provincial taxes which vary depending on the province. You will generally have to fill in a tax return after the end of the year to calculate the final amount of tax payable. If you are self-employed you will pay income tax based on the profits of your business after deduction of costs. For more details see: Taxation - Employment Taxation for Expats in Canada.

If you come to Canada to set up in business and start a company (corporation), you will be liable to corporation income tax on the profits from your trade or business. The general rate of corporation income tax is 38%. There are also additional provincial taxes, generally of between 10% and 16%. However these rates are generally considerably reduced by a complex system of reductions. Corporations must complete a registration process, which can be done under either federal or provincial legislation. They must also register with the tax authority. Corporations must pay advance corporate and provincial taxes monthly. After the end of the year a tax return must be filed within six months of the end of its tax year-end. For more details see: Taxation - Business Taxation for Expats in Canada.

 

Other Taxes

For residents in Canada, investment income in the form of dividends, interest, royalty and rental income is taxed as ordinary income. For dividends there is a system to take in to account tax paid at the corporate level in order to avoid double taxation. Capital gains are also taxed as personal income but only 50% of the gain is taxable.

For non-residents, interest, and dividend income is subject to a 25% withholding tax. Rental income is also subject to a 25% withholding tax, but this can be calculated on a gross or net basis, according to the taxpayer’s wishes. Capital gains are taxed as ordinary income in the same way as it is for residents (see above). For more details see: Taxation - Investment Taxation for Expats in Canada.

 

Tax Treaties

Canada has signed tax treaties with more than 90 countries worldwide. Any withholding taxes payable in Canada on dividends, interest or royalties paid to persons in other countries with tax treaties in place (or non-residents in Canada) can be significantly reduced. The treaties also mean that the amount of withholding tax charged by the originating country on money flowing into Canada is reduced. The amount that can be charged under a treaty can often be reduced to between 10% and 15%. For more details see: Taxation – Tax Treaty Considerations for Expats in Canada.

 

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