Filing taxes is definitely one of the least fun parts of a working holiday in Canada but also one of the topics I receive the most emails about. The most common source of confusion is usually regarding residency status for tax returns.
Offering advice on determining residency status is difficult as it is quite subjective and everyone’s situation is, of course, different. Having said that, here are some tips to help determine your own tax residency status.
There are some affiliate links included in this post – if you make a qualifying purchase through them, I may receive a small percentage of the sale at no extra cost to you.
Filing taxes: the basics
The Canadian tax year runs January-December.
Tax is usually automatically deducted from payslips (alongside E.I and C.P.P) but annual tax returns are still mandatory to make sure the correct amount has been paid. The deadline for filing taxes is the end of April for the preceding tax year.
Most individuals in Canada are allowed to earn up to a certain amount without paying tax. This tax-free threshold is called the ‘basic personal amount’ and was $11,635 in 2018. If you earn over this amount, you will need to pay tax.
How much tax you pay above the threshold depends on a number of factors. Residency status is one of the considerations. There are different rules for residents and non-residents when it comes to filing taxes so it is important to know your residency status.
Resident vs. non-resident
Here’s the part that a lot of people get stuck at.
Generally, you are a non-resident for tax purposes if you:
- Normally, customarily, or routinely live in another country and are not considered a resident of Canada
- or don’t have significant residential ties in Canada and you lived outside Canada throughout the tax year
- or you stayed in Canada for less than 183 days in the tax year
Typically you’ll be considered a resident if:
- Canada is the place where you regularly, normally or customarily live.
For example, I have always filed as a resident as I have a Canadian common law partner and have the intention to live in Canada for the foreseeable future.
The Canadian Revenue Agency, an accountant or professional tax preparer can help you determine your residency status.
Rules and regulations of residency statuses
Once you know what your status is, be aware of the following rules:
- Any income earned outside Canada should be declared
- You will not be taxed on your foreign income but the amount will affect how many non-refundable tax credits you’re entitled to
The Canadian tax office will let you earn up to the tax-free threshold if 90% or more of your earnings for that year were earned in Canada. You should not claim the credits if you earn 10% or more of your income from outside Canada
- Income earned outside Canada must be declared
- You are taxed on your worldwide income
If you move to Canada with the intention to settle, anything earned up to that point should be declared, but you won’t be taxed on it and for that year you will be treated as non-resident
Filing your tax return
Once you have your residency status sorted, filing your taxes is relatively straightforward from here. There are however a number of different ways to physically complete your tax return.
One is using a professional tax preparer such as Taxback.com. Try the calculator below to see an estimated return – you will receive a 5% discount if you choose to file with them.
Remember to complete your tax return before the deadline!
Save the above photo to Pinterest for future reference!