TAX in Canada
Who is liable?
Canadian income tax liability is determined by an individual’s residence status. An individual resident in Canada is taxable on worldwide income. Non-residents are taxed on Canadian-source income only.
Residence status for tax purposes:
‘Residence’ isn’t specifically defined in the by the tax statutes, so the residence of an individual is determined by the location of the following:
dwelling places
spouse
dependants
personal property
economic interests
social ties
However, a non-resident individual who stays temporarily in Canada for 183 days or longer in a calendar year is deemed to be a resident of Canada for the entire year, unless they are determined to have non-resident status under a tax treaty. This provision applies only to an individual who would otherwise be considered a non-resident. They don’t apply to an individual who purposely takes up residence in Canada or to an existing resident who is no longer resident after moving away from Canada. These individuals may be treated as part-year residents.
In the year an individual becomes a Canadian resident, that individual is considered a part-year resident. They are subject to tax in Canada on worldwide income for the portion of the year they are resident in Canada. A part-year resident is also subject to Canadian tax on any Canadian-source income received during the non-residence period.
Federal tax rates for 2022
- 15% on the first $50,197 of taxable income, plus
- 5% on the next $50,195 of taxable income (on the portion of taxable income over 50,197 up to $100,392), plus
- 26% on the next $55,233 of taxable income (on the portion of taxable income over $100,392 up to $155,625), plus
- 29% on the next $66,083 of taxable income (on the portion of taxable income over 155,625 up to $221,708), plus
- 33% of taxable income over $221,708
Local tax information for Canada | |
Local information | Details |
Tax authority | Canada Revenue Agency (CRA) |
Website | www.canada.ca/en/revenue-agencywww.canada.ca/en/revenue-agency This link will open in a new window |
Tax year | 1 January to 31 December |
Tax return due date | 30 April |
Is joint filing possible | No |
Are tax return extensions possible | Yes – filing deadline can be extended to 15 June only for individuals (and their spouses) earning self-employment or business income |
Access to the small business tax rate would be phased away when taxable capital reaches $50 million, as opposed to $15 million.
Investment of $29.3 million over three years to develop a Trusted Employer Model that will cut red tape for the highest standard repeat employers – with excellent living conditions, protections, and compensation in high-demand industries for temporary foreign workers.
In the coming year, additional information about this program will be released;
Employment program for those with disabilities Budget 2022 recommends allocating $272,6 million over five years to the Opportunities Fund to promote the development of an employment strategy for those with impairments.
This will assist address labor market shortages by increasing the participation of people with impairments and making workplaces more accessible;
Changes to the cannabis tax framework:
Permit licensed cannabis producers to remit excise duties quarterly rather than monthly, permit the Canada Revenue Agency (CRA) to approve certain contracts for service arrangements between two licensed cannabis producers, amend penalty provisions, and exempt holders of a Health Canada issued Research Licence or Cannabis Drug Licence from the requirement to be licensed under the excise duty regime.
Canada Expansion Fund:
Establishment of the Canada Growth Fund to attract significant private sector investment and achieve national economic objectives, such as decreasing emissions, reinforcing the economy through the growth of low-carbon businesses, and assisting the restructuring of vital supply networks;
Beginning on July 1, 2022, the excise charge on low-alcohol beer will be eliminated. Excise duty on vaping items will also be eliminated.
Introduction of a federal excise tax on vaping items, encompassing both solid and liquid substances. Budget 2022 proposes to grant shops a transition period by permitting the sale of unstamped products in stock as of October 1, 2022, until January 1, 2023.
Accelerated tax write-offs:
Expanded to include air-source heat pumps for clean energy equipment investments by businesses.
Provincial and territorial tax rates for 2022
Tax for all provinces and territories (except Quebec) is calculated the same way as federal tax.
Form 428 is used to calculate your provincial or territorial tax. Provincial or territorial non-refundable tax credits are also calculated on Form 428.
Provincial and territorial tax rates (combined chart)
Provinces and territories | Rates |
Newfoundland and Labrador | 8.7% on the portion of your taxable income that is $39,147 or less, plus 14.5% on the portion of your taxable income that is more than $39,147 but not more than $78,294, plus 15.8% on the portion of your taxable income that is more than $78,294 but not more than $139,780, plus 17.8% on the portion of your taxable income that is more than $139,780 but not more than $195,693, plus 19.8% on the portion of your taxable income that is more than $195,693 but not more than $250,000, plus 20.8% on the portion of your taxable income that is more than $250,000 but not more than $500,000, plus 21.3% on the portion of your taxable income that is more than $500,000 but not more than $1,000,000, plus 21.8% on the portion of your taxable income that is more than $1,000,000 |
Prince Edward Island | 9.8% on the portion of your taxable income that is $31,984 or less, plus 13.8% on the portion of your taxable income that is more than $31,984 but not more than $63,969, plus 16.7% on the portion of your taxable income that is more than $63,969 |
Nova Scotia | 8.79% on the portion of your taxable income that is $29,590 or less, plus 14.95% on the portion of your taxable income that is more than $29,590 but not more than $59,180, plus 16.67% on the portion of your taxable income that is more than $59,180 but not more than $93,000, plus 17.5% on the portion of your taxable income that is more than $93,000 but not more than $150,000, plus 21% on the portion of your taxable income that is more than $150,000 |
New Brunswick | 9.4% on the portion of your taxable income that is $44,887 or less, plus 14.82% on the portion of your taxable income that is more than $44,887 but not more than $89,775, plus 16.52% on the portion of your taxable income that is more than $89,775 but not more than $145,955, plus 17.84% on the portion of your taxable income that is more than $145,955 but not more than $166,280, plus 20.3% on the portion of your taxable income that is more than $166,280 |
Quebec | Go to Income tax rates (Revenu Québec Web site). |
Ontario | 5.05% on the portion of your taxable income that is $46,226 or less, plus 9.15% on the portion of your taxable income that is more than $46,226 but not more than $92,454, plus 11.16% on the portion of your taxable income that is more than $92,454 but not more than $150,000, plus 12.16% on the portion of your taxable income that is more than $150,000 but not more than $220,000, plus 13.16% on the portion of your taxable income that is more than $220,000 |
Manitoba | 10.8% on the portion of your taxable income that is $34,431 or less, plus 12.75% on the portion of your taxable income that is more than $34,431 but not more than $74,416, plus 17.4% on the portion of your taxable income that is more than $74,416 |
Saskatchewan | 10.5% on the portion of your taxable income that is $46,773 or less, plus 12.5% on the portion of your taxable income that is more than $46,773 but not more than $133,638, plus 14.5% on the portion of your taxable income that is more than $133,638 |
Alberta | 10% on the portion of your taxable income that is $131,220 or less, plus 12% on the portion of your taxable income that is more than $131,220 but not more than $157,464, plus 13% on the portion of your taxable income that is more than $157,464 but not more than $209,952, plus 14% on the portion of your taxable income that is more than $209,952 but not more than $314,928, plus 15% on the portion of your taxable income that is more than $314,928 |
British Columbia | 5.06% on the portion of your taxable income that is $43,070 or less, plus 7.7% on the portion of your taxable income that is more than $43,070 but not more than $86,141, plus 10.5% on the portion of your taxable income that is more than $86,141 but not more than $98,901, plus 12.29% on the portion of your taxable income that is more than $98,901 but not more than $120,094, plus 14.7% on the portion of your taxable income that is more than $120,094 but not more than $162,832, plus 16.8% on the portion of your taxable income that is more than $162,832 but not more than $227,091, plus 20.5% on the portion of your taxable income that is more than $227,091 |
Yukon | 6.4% on the portion of your taxable income that is $50,197 or less, plus 9% on the portion of your taxable income that is more than $50,197 but not more than $100,392, plus 10.9% on the portion of your taxable income that is more than $100,392 but not more than $155,625, plus 12.8% on the portion of your taxable income that is more than $155,625 but not more than $500,000, plus 15% on the portion of your taxable income that is more than $500,000 |
Northwest Territories | 5.9% on the portion of your taxable income that is $45,462 or less, plus 8.6% on the portion of your taxable income that is more than $45,462 but not more than $90,927, plus 12.2% on the portion of your taxable income that is more than $90,927 but not more than $147,826, plus 14.05% on the portion of your taxable income that is more than $147,826 |
Nunavut | 4% on the portion of your taxable income that is $47,862 or less, plus 7% on the portion of your taxable income that is more than $47,862 but not more than $95,724, plus 9% on the portion of your taxable income that is more than $95,724 but not more than $155,625, plus 11.5% on the portion of your taxable income that is more than $155,625 |
Income Subject to taxation
Employment income includes salary, wages, director’s fees, and the majority of benefits gained from employment. Low-interest loans, the use of company-owned vehicles, subsidized or free personal living expenditures, and stock option incentives are examples of taxable benefits.
Employer contributions to certain employer-sponsored retirement savings plans, such as registered Canadian pension plans and deferred profit-sharing plans, are among the few non-taxable benefits.
Self-employment income – In general, the accrual method of accounting is used to determine a person’s income from a business or property.
A partnership’s income is distributed among the members in accordance with the partnership agreement or, in the absence of an agreement, the applicable partnership law. Deductions and credits are also passed through to the partners. Special regulations restrict the amount of business or property losses that a limited partner of a limited partnership may claim.
In general, unused business losses may be deducted against taxable income received in the three years preceding the year of loss or the twenty years following the year of loss.
Directors’ fees
– A Canadian resident is taxed on directors’ fees earned from Canada or a foreign country as work income. In general, tax treaties signed by Canada do not permit Canadian residents to be excused from paying tax on director’s fees received from a foreign (non-resident) firm or to get other preferential tax treatment.
For non-residents, director compensation is deemed earned where the director’s services are delivered. Therefore, any fees for services given at a particular board meeting in Canada are subject to tax in Canada. If a charge is associated with services given both in and outside of Canada, it may be possible to prorate the price based on the number of days the director spent in the country. However, there are no clear allocation guidelines specified.
Under certain tax treaties, directors’ fees are treated similarly to normal job compensation. The directors’ fees are exempt if the conditions exempting a non-resident from Canadian taxes on compensation from regular employment are met.
Investment income
An individual may report interest income on investments held for less than 12 months using the cash basis (when received), the receivable basis (when due), or the accrual basis (as generated over the year). Whatever approach is chosen, it must be consistently used to an investment. However, for the majority of investments held for more than a year, accrued interest must be reported annually. The bonus or premium paid upon maturity of some instruments, including Treasury bills, strip bonds, and other discounted liabilities, must be recorded as interest income.
Dividends received by Canadian residents from tax-paying Canadian firms are accorded a specific tax treatment to reflect the corporate taxes already paid on the accumulated income utilized as the dividend distribution’s source.
Under certain tax treaties, directors’ fees are considered similar to compensation from regular employment. If the conditions exempting a non-resident from Canadian taxes on compensation from regular employment are met, the directors’ fees are exempt.
Investment income – Interest income may be reported by an individual using the cash basis (when received), the receivable basis (when due) or the accrual basis (as earned during the year) on investments if the investment is held for less than 12 months. Whichever method is selected, it must be applied to an investment consistently. However, for most investments held for a period of more than 12 months, accrued interest must be included in income annually. The bonus or premium paid on the maturity of certain investments, such as treasury bills, strip bonds or other discounted obligations, must be reported as interest income.
Dividends received by individual’s resident in Canada from taxable Canadian corporations are given special treatment to recognize corporate taxes already paid on the accumulated income used as the source for the dividend distribution.
Income from royalties and rentals is taxed as regular income. Allowable depreciation is normally limited to the net income computed prior to subtracting depreciation when calculating a loss from the rental of real estate or other property. Therefore, an individual’s claimed depreciation cannot produce or aggravate a rental loss.
Non-residents with sources of income from Canada other than employment or company income are typically subject to a 25 percent withholding tax on their gross income. Examples of taxable income include rental income, royalties, dividends, income from trusts, and pensions. The payer must deduct and remit the correct amount of tax, as well as file the necessary returns. Withholding taxes are normally final taxes for the recipient, and tax returns are not necessary for income subject to withholding. Non-residents receiving real estate rentals or timber royalties may choose to file a tax return and be taxed in Canada at the same rates as Canadian residents on the net rental or timber royalties income. Non-residents who receive certain pension and benefit income may decide to be taxed at the same incremental tax rates as Canadian residents, as opposed to the withholding tax rate.
The majority of interest payments made at arm’s length to non-residents are exempt from Canadian withholding tax.
Most types of passive income received to non-residents are subject to withholding taxes of 15 percent or less as a result of Canada’s double tax treaties.
In 2020, all Canadian residents aged 18 or older may contribute up to CAD6,000 to a tax-free savings account (TFSA). Contributions are not eligible for a tax deduction, but investment earnings are not taxable.
Other sources of income – Other amounts that must be included in income are payments from Canadian Registered Retirement Savings Plans and superannuation or pension plans.
Pension income that qualifies can be shared between spouses for tax reporting reasons. Under this proposal, if couples have taxable income in separate tax rates, the higher rate taxpayer’s income may be shifted to the lower rate taxpayer in order to decrease the overall tax burden.
Employer-provided stock options are taxed
Individuals are not taxed when stock options are granted by an employer. In general, when the employee exercises the options, there are tax ramifications.
The employee may be eligible for a deduction equal to fifty percent of the taxable benefit (twenty-five percent for Quebec tax and fifty percent if the public corporation has a substantial presence in Quebec) if the option price is at least equal to the fair market value of the shares on the date of grant, if the shares are prescribed shares, and if certain other conditions are met. This deduction results in the benefit being taxed at the rates applicable to taxable capital gains. The 2019 Federal Budget proposes limiting the 50% stock option deduction to an annual limitation of CAD200,000 at the time of issuance, depending on the fair market value of the underlying shares, except for options granted by “start-ups and quickly developing Canadian firms” beginning on 1 January 2020. The Department of Finance indicated that the implementation of the proposed rules will be delayed, with a new implementation date to be published at a later time.
The rules governing stock options in Canada are applicable to both shares and units of mutual fund trusts.
If the employee is a Canadian resident at the time of the sale, the gain is subject to the normal capital gains laws. If the employee ceases to be a Canadian resident before selling the shares, he or she is subject to the deemed disposition regulations upon departure.
Investing profits and losses
50% of the year’s capital gains are included in taxable income, to the extent that the amount exceeds 50% of the year’s capital losses. This covers profits on real estate and personal property, regardless of whether they were used in a trade or business, as well as gains on shares held for personal investment.
To assess the nature of the gain or loss from the sale of depreciable property, certain requirements apply.
A person who leaves Canadian residency is generally considered to have disposed of all assets, including taxable Canadian property, with the exception of real property located in Canada, capital property or inventory used in the course of carrying on a business in Canada, and certain pension rights.
as well as unexercised employee stock options, at fair market value as of the date of termination of residency.
The rule of deemed disposition is popularly known as “departure tax.”
The following particular tax rules and exclusions apply to the calculation of capital gains or losses and the general considered disposition rule for individuals entering or leaving Canada:
- The departure tax provision is amended for individuals who were not Canadian residents for more than 60 months in the prior 120-month period. The deemed disposition rule does not apply to property owned by such an individual when he or she became a resident, or property inherited since that time.
non-residents who return to Canada after emigrating may elect to reverse the tax consequences of considered disposal of assets still held, regardless of the length of time they were non-residents.
emigrating taxpayers who are subject to the deemed disposition regulations may post a bond in lieu of paying the departure tax by the due date for the year of departure. A person is not obliged to provide security for departure tax equivalent to or less than the taxes payable on the first $100,000 CAD of capital gains resulting from presumed disposal. - non-residents who return to Canada after emigrating may elect to reverse the tax effects of the deemed dispositions of the assets that are still held regardless of how long they were non-residents.
- emigrating taxpayers who are subject to the deemed disposition rules may post security for the departure tax instead of paying such tax by the balance-due date for the year of departure. An individual is not required to provide security for an amount of departure tax that is equal to or less than the taxes payable on the first CAD100,000 of capital gains resulting from the deemed dispositions.
Tax payment and filing processes
Residents are subject to income taxation by the federal government, as well as the provinces and territories. However, only Quebec collects its own individual income tax and requires residents to file a separate form. Due to the fact that the federal government collects the tax on behalf of all other provinces and territories, just one combined return is required.
ndividuals pay income tax to one of the provinces or territories based on their place of residence on the final day of the year. Each province and territory determines its tax liability by applying its progressive tax rate to its taxable income. A second calculation of taxable income, analogous to the federal calculation, is necessary. However, some goods may be treated differently.
To ensure that taxpayers with high incomes pay a minimal amount of tax, an alternative minimum tax applies.
Individuals must pay the higher of the standard tax rate or the minimum tax rate. The excess amount may be carried forward for seven years if the minimum tax exceeds the regular tax. The amount that can be carried forward can be used to lower regular tax to the extent that regular tax exceeds minimum tax.
Individuals are required to file tax returns if they owe tax or if the tax authorities specifically request it. In addition, due to the exemption provisions for capital gains, all persons with capital gains or losses must file income tax returns, regardless of whether tax is payable for the year.
Non-residents are required to file Canadian income tax returns if they receive work or business income in Canada or if they have capital gains from the sale of “taxable Canadian property” (TCP),
Which includes the following:
- real estate in Canada
property utilized in conducting business in Canada
shares of a Canadian resident or non-resident corporation not listed on a designated stock exchange, capital interests in trusts, income interests in non-resident trusts (other than units of mutual fund trusts), or interests in partnerships, if at any time during the 60-month period preceding the disposition, more than 50 percent of the fair market value of these shares or interests was derived directly or indirectly from real or immovable property located in Canada, Canad (or from any combination of these properties)
shares of a Canadian resident or non-resident corporation listed on a designated stock exchange, shares of mutual fund trust corporations or units of mutual fund trusts, if at any time during the 60-month period preceding the disposition, 25 percent or more of the issued shares of the corporation or units of the mutual fund trust were owned by non-residents and related parties, and more than 50 percent of the fair market value of the shares or units of the mutual fund trust (or from any combination of these properties)
income interests in Canadian resident trusts
The double taxation treaties of Canada may amend or exempt non-residents from the aforementioned tax laws.
In general, however, Canadian non-resident tax withholding is needed unless a payroll exemption is granted or the business obtains certification under a new certification process started in 2016.
Any unpaid income taxes are payable by April 30 of the year after the tax year, regardless of the individual’s return due date. If any tax is not paid on time, penalties are assessed, and interest is charged on delinquent taxes.
Individuals may be compelled to make quarterly installment payments if the difference between tax payable and the amount withheld at source exceeds CAD3,000 (or CAD1,800 for Quebec residents) in the current year and either of the two previous years.
Taxpayers entering or leaving Canada throughout the tax year are taxed on their worldwide income for the portion of the year that they are Canadian residents.
Taxpayers coming to or departing from Canada during a tax year are taxed on their worldwide income for the portion of the year in which they are residents of Canada.
The first step towards moving to Canada is to get an assessment of your specific situation. Call us today at +1 613.222.7154 for an assessment to see if you are eligible to move to Canada, or fill out our online assessment form.
