So, you need to file a Canadian tax return, but you have income from outside Canada. What do you do?
Firstly, there are different rules for residents and non-residents. However, if you don’t know your residency status, check out this blog on determining your status here.
Please note that this blog is aimed at non-residents, not 'newcomers'as the rules ay be slightly different.
- Non-residents must declare any income earned outside of Canada on their tax return.
- Income earned outside Canada will not be taxed if you’re a non-resident, but it will affect how many non-refundable tax credits you can claim. This is your personal tax credit, otherwise known as your tax-free threshold.
- In Canada, you can earn up to a certain amount without paying tax. In 2015, this was $11,327.
The average Canadian tax refund is $904
- Basically, you are allowed earn up to $11,327 tax free in the tax year if 90% or more of your earnings were sourced in Canada.
- If you earned more than 10% outside Canada, you won’t be eligible to earn any tax free income up to a total amount of $11,327 (in 2015). In this case, if you have already been claiming these credits or the tax free income from your employer, then you have underpaid tax.
It all comes back to your TD1 form.
- Here is what it looks like. You’ll actually fill out a federal (TD1) and a provincial (TD1BC, TD1AB, TD1ON etc.), but we’ll concentrate on the federal tax form.
This is on the second page of the TD1 form.
As you can see in the above image, they ask you if you will earn 90% of your income in Canada. If yes, then you can claim the credits.
If not, you should tick NO and not claim the credits. You’ll be fully taxed but it’s much better than owing money when it comes to filing your tax return.
A lot of non-residents don’t fully understand this and unfortunately end it’s the most common reason they end up owing money to the Canadian tax office.
- If you’re a resident, you must declare any income earned outside of Canada on your Canadian tax return
- You will be taxed on this income.
- If you are an immigrant during the tax year (i.e. move to Canada with the intention to settle and build a life in Canada), you’ll only be taxed on income you earned after you became a resident.
- Anything earned up to that point should be declared, but you won’t be taxed on it.
Q: I earned income in my home country and arrived in Canada in that same year, do I put this on my Canadian tax return?
Q: I paid tax on this income in my home country. Does this make a difference?
Q: Do I need to pay tax on the income I earned at home, in Canada?
A: No. You won’t be double taxed on this income.
Q: Why does the tax office in Canada want to know what I earned outside of Canada?
A: They use it to calculate what non-refundable tax credits you can claim in Canada.
Q: If I earn income outside of Canada in the same tax year and include it on my tax return, what difference will it make to my refund?
A: In most cases, it will reduce your refund, but sometimes it could mean you have underpaid tax on your Canadian income after the non-refundable tax credits were recalculated.
Q: Do I declare my Net or Gross income from my home country?
A: Declare your NET income. I.e. how much you received in your bank account.
Note: *The “same year” or “tax year” means January 1st to December 31st of any given year – which is the tax year in Canada.*