Global expatriate tax guide

Expatriate tax - Canada

Expatriates taking up employment in Canada will be subject to comprehensive tax rules and, in some cases, visa requirements. Expatriates leaving Canada to take up employment in a foreign country will also be subject to comprehensive tax rules. The Grant Thornton LLP in Canada global mobility services tax team can help expatriates and their employers in dealing with the Canadian tax and other requirements, including tax withholdings, employment visa requirements and departure tax rules.

In particular, Grant Thornton LLP can assist expatriates and their employers in identifying Canadian tax planning opportunities, reviewing tax equalisation policies and providing compliance services regarding the many Canadian filing requirements.

Click on each of the areas below to expand for more information:

Facts and figures
Pre arrival procedures

Not applicable in Canada.

Employment visas

A work permit is needed for most temporary jobs in Canada, although a number of job categories are exempt from this requirement. However, if you are from a country that requires a visa to visit Canada, you must apply for temporary resident visa.

Tax year

The Canadian tax period is set for a calendar year.

Tax returns and compliance

There are two filing deadlines:

  1. April 30 for most individuals
  2. June 15 for individuals and their spouse, where at least one of them earns unincorporated business income.

No extension of time to file is allowed and taxes are due, in full, by April 30. Late filing penalties and interests apply and are based only on unpaid taxes.

Income tax rates

There are two levels of taxation: federal and provincial. The rates are graduated based on income and vary depending on which province or territory the individual was a resident of on 31 December of a particular year.

For the 2020 tax year, the federal rates are the following:

Federal rates

Taxable Income (C$) Rate (%) Cumulative tax
0 – 48,535 15 7,280
48,535 – 97,069 22 17,957
97,069 – 150,473 26 28,580
150,473 - 214,368 29 31,842
over 214,368 33 -

The following table outlines the top 2020 combined tax rates (federal plus provincial) by province for regular income (different rates apply to capital gains and Canadian source dividends).

British Columbia 49.80%
Alberta 48.00%
Saskatchewan 47.50%
Manitoba 50.40%
Ontario 53.53%
Quebec 53.31%
New Brunswick 53.30%
Prince Edward Island 51.37%
Nova Scotia 54.00%
Newfoundland and Labrador 51.30%
Northwest Territories 47.05%
Yukon 48.00%
Nunavut 44.50%



Sample income tax calculation
Federal tax   Cumulative tax
Base salary   80,000
Bonus   20,000
Cost of living allowance   15,000
Bank interest   5,000
Total income   120,000
RRSP1   (22,000)
Taxable income   98,000
Federal income tax   18,888
Less: Non-refundable tax credits (NRTC):  
Personal 12,298  
Spousal2 12,988  
CPP 2,898  
EI 856  
Canada employment amount 1,245  
Total NRTC 29,595 x 15% (4,439)
Federal income tax   14,449
  1. Taxpayers need earned income from the prior year to make a Registered Retirement Savings Plan (RRSP) contribution – therefore, newcomers to Canada may have to wait one year to accumulate RRSP contribution room.
  2. Full spousal credit assumes spouse has zero net income. Otherwise, credit is reduced for each dollar of the spouse’s net income.

Provincial tax

The following table outlines the combined federal and provincial tax by province for an individual with $98,000 taxable income (assuming the same fact situation noted above – ie, married employee, spouse has no income). Provincial tax includes all applicable surtaxes. Ontario tax includes the Ontario health premium tax.

British Columbia $21,774
Alberta $23,115
Saskatchewan $25,557
Manitoba $27,205
Ontario $23,540
Quebec $28,448
New Brunswick $26,735
Prince Edward Island $27,511
Nova Scotia $28,089
Newfoundland and Labrador $26,772
Northwest Territories $22,120
Yukon $22,176
Nunavut $20,518

 

Basis of taxation
Charge to tax

The taxation of individuals is determined by their residency status. A resident of Canada is taxed on their worldwide income for the period of residency. A non-resident is taxed only on Canadian source income.

Canadian source employment income is taxed at graduated rates similar to a resident. Income from a business operated in Canada and income from the disposition of a Canadian taxable property are also subject to tax at graduated rates.

Passive source income, like interest, dividends, pensions and rental real estate income earned by non-residents, is subject to a non-resident withholding tax at source. The basic rate is 25% and can be reduced if a tax treaty exists with the country of residence. Canadian source interest income earned by arm’s length non-residents is not subject to withholding tax at source (with certain exceptions).

Some elections are available for Canadian source rental income earned by non-residents to be taxed at graduated rates instead of being subject to the withholding tax.

Residence

The Canadian Income Tax Act does not contain a formal definition of residence. Each case must be determined on its own facts and circumstances. The Canada Revenue Agency (CRA) looks at a number of factors in making a determination. These factors include the acquisition of a dwelling place, moving one’s family and establishing social and economical ties, eg acquiring provincial health coverage, a driver’s license, opening bank accounts etc.

Residence can also be established if an individual ‘sojourns’ in Canada for more than 183 days in any rolling 12 month period. The expatriate would then be deemed to be a Canadian resident for the entire calendar year and as such, is taxable on worldwide income for the entire year. It is possible, however, that a treaty ‘tie-breaker’ rule may override this provision if the expatriate has closer connections to another country.

Income from employment

Income from an office or employment includes all amounts received as salary, wages, commissions, director’s fees, bonuses, honoraria and taxable benefits. In addition to amounts received while an employee, amounts received in contemplation or on termination of employment are also taxed as employment income. Canadian federal and provincial tax withholdings are required on all wages earned in Canada.

Unless a tax treaty applies, income from an office or employment earned by an expatriate in Canada is taxable. In addition to income tax withholdings, social security contributions are also required unless a social security agreement exists.

For the 2020 calendar year, every individual is entitled to a federal personal amount of $12,298 which will not be subject to tax. Each of the provinces also has a personal amount which is generally not the same as the federal personal amount (it varies from a low of $8,481 in Nova Scotia to a high of $19,369 in Alberta).

Personal amounts are generally pro-rated for a partial year of residency based on the number of days the employee resided in Canada for the year.

Source of employment

All income earned from employment in Canada is taxed based on the employee’s province of residence on 31 December of the year, regardless of where in Canada the income was earned. As such, it may be prudent to ensure that all pre-assignment remuneration is received prior to commencing Canadian residency.

Benefits (in kind)

Many benefits are subject to tax and many exceptions exist. Generally, any benefit that relates to personal living expenses or that is disguised as additional remuneration is taxable.

In some cases, a Canadian resident assigned to a special work site may receive board and lodging allowances tax-free.

Relief for foreign taxes

A foreign tax credit is available for foreign taxes paid by a Canadian resident on income.

The foreign tax credit is first applied against federal income tax. Any unused amount is then applied against provincial income tax.

Deductions from taxable income

There are no standard deductions against employment income (although all employees are entitled to claim the Canada Employment Credit, which has a maximum value of $1,245 for 2020). A credit is not the same as a deduction. A tax deduction reduces taxable income, with the actual amount of tax saved based on the individual’s marginal rate of tax. A tax credit is a deduction from tax owed. Provided the credit can be used, each taxpayer receives the same tax relief with a tax credit regardless of his or her tax bracket.

Few employment deductions are allowed, although certain employees can claim business related car expenses and/or home office expenses. Trade union dues and professional membership dues are other deductions that may be claimed.

Deductions for contributions made to a Registered Pension Plan or a RRSP are allowed within defined limits.

Contributions made to a RRSP may be made in the calendar year or within 60 days after the end of the year. The annual deduction is limited to the lesser of: 18% of the employee’s earned income for the prior year or the RRSP limit for the year. For the 2020 calendar year, the limit is $27,230. Earned income generally includes income from employment, business income and rental income less certain employment deductions, business losses and rental losses.

Employee contributions to a foreign pension plan are not deductible. Some exceptions exist for contributions to specific US pension plans.

Amounts are deducted from gross income to arrive at taxable income. The taxable income for all of the provinces (except for Quebec) is based on federal taxable income. The provinces vary, however, in the amounts allowed for the various tax credits (which, as noted above, are a deduction from tax owed).

The federal and provincial governments each provide personal exemptions and tax credits. Federally, the credit is 15% of specified personal amounts. The provincial percentages and personal amounts vary.

Selected federal personal amounts for 2020 are as follows:

  Federal C$
Basic personal amount 12,298
Spousal/common law partner 12,298
Amount for eligible dependents 12,298
Income threshold for spouses or eligible dependents All income
Pension income amount 2,000
Age 65 and over amount 7,637
Income threshold 38,508
Disability amount 8,576
Amount for dependent child under 18 years old 2,273
Amount for dependent child over 18 years old and infirm 7,276
Income threshold 17,085
Adoption amount (maximum per child) 16,563
Other taxes
Capital gains tax

Half of the net capital gains (taxable capital gains) on the disposition of capital property are included in the calculation of taxable income. Allowable capital losses (half of the capital loss) can only be applied against taxable capital gains and cannot be deducted against any other source of income in the current year. Any allowable capital losses that cannot be claimed in the current year to offset taxable capital gains can be carried back three years and forward indefinitely to be applied against taxable capital gains arising in those years, if any.

Capital gains arising from the disposition of an individual’s principal residence are not subject to capital gains tax. A principal residence can be located outside Canada. Families, however, can only designate one property by calendar year as their principal residence.

Capital gains arising for the disposition of Canadian Private Controlled Corporations (CPCC) can benefit from a maximum exclusion of $883,384.

The following table outlines the top 2020 combined tax rates (federal plus provincial) by province for capital gains.

British Columbia 24.9%
Alberta 24%
Saskatchewan 23.75%
Manitoba 25.2%
Ontario 26.76%
Quebec 26.65%
New Brunswick 26.65%
Prince Edward Island 25.69%
Nova Scotia 27%
Newfoundland and Labrador 25.65%
Northwest Territories 23.53%
Yukon 24%
Nunavut 22.25%

 

 

Inheritance, estate and gift taxes

There are no inheritance, estate and gift taxes in Canada. However, at the time of death, there is a deemed disposition at fair market value of all assets owned by the deceased, which generally gives rise to additional income tax. Certain tax-free rollovers are available, eg to a surviving spouse or common-law partner.

Investment income

Dividends and interest are taxable when received. Compound interest bearing securities are subject to accrual requirements, generally on an annual basis. Dividends from taxable Canadian corporations are taxed at a reduced rate through a gross up and tax credit mechanism. Two different tax rates can apply to Canadian source dividends (eligible dividends and regular dividends).
Eligible Dividends are taxed at a lower rate, but must be designated as such. In general, eligible dividends are paid out of corporate income that has been taxed at the general corporate rate of tax (not subject to any special tax reductions).

Income from a trust, royalties and similar income is taxed as received or allocated, depending on the circumstances.

Local taxes

A few of the provinces assess additional taxes. The most common ones are for health care and worker’s compensation programs. British Columbia, Ontario and Quebec assess an additional health premium on some individuals when they file their personal income tax returns.

Real estate tax

There are no real estate taxes in Canada as part of the income tax system. However, local jurisdictions (municipalities) assess a local property tax on most real estate. Most of the provinces also have land transfer taxes which apply on the conveyance of real property from one person to another. The tax is paid by the purchaser.

Social security taxes

Employment insurance

Individuals employed in Canada are required to contribute to the Canada Employment Insurance Fund (EI). The maximum annual premium for 2020 is $856.36 based on a contribution rate of 1.58 on maximum insurable earnings of $54,200. The employer is required to pay a premium equal to 1.4 times the employee premium. The employer’s maximum annual premium for 2020 is $1,198.90. The employee premium is partially credited against federal income tax. EI contributions are not eligible for exemption under a social security agreement.

Canada Pension Plan (CPP)

Individuals employed in all provinces except for Quebec are subject to Canada Pension Plan (CPP) contributions.

The maximum annual contribution for 2020 is $2,898.20 based on a contribution of 5.25% on maximum contributory earnings of $58,700. The employer is required to match the contribution. The employee contribution is partially credited against federal income taxes. An expatriate may qualify for exemption from CPP if he or she is subject to a social security tax in the home country with which Canada has a social security agreement.

Individuals employed in the province of Quebec are subject to Quebec Pension Plan (QPP) contributions. The rules for QPP contributions are similar to the above for CPP contributions.

Stock options

Canada taxes stock options in two possible ways depending on whether the employer is a Canadian controlled private corporation (CCPC) or not. In general, stock option benefits from a non-CCPC are taxable when the option is exercised. There are no exceptions for foreign plans or options granted prior to becoming a resident. The taxable event for CCPC options may be deferred until the shares are sold.

Options granted while resident but exercised after emigration will continue to be taxable in Canada. The benefit is equal to the difference between the fair market value of the stock, on the date of exercise, and the option exercise price. A tax deduction for 50% of the resulting employment benefit can be claimed on the employee’s tax return provided the option meets certain criteria.

Wealth tax

There are no wealth taxes in Canada.

Other specific taxes

When individuals leave Canada, they are deemed to have disposed of all their capital property, with limited exceptions, at fair market value. Half of any resultant gain, if any, would be brought into taxable income. Canadian real property, assets used in a business, certain pensions and stock options are excluded from the departure rules, as they remain subject to Canadian tax upon disposition by a non-resident of Canada. The departure tax can be deferred by posting acceptable security with the Canada Revenue Agency. Security is not required on the first $100,000 of capital gains. The deferred tax is due when the assets are finally sold.

Tax planning opportunities

For some wealthy short term immigrants (less than 60 months of residence), pre-immigration planning may be considered. There are also tax planning opportunities for certain stock options and retirement plans. Depending on the individual’s personal situation, other planning may be possible prior to becoming a resident of or ceasing residence in Canada.

For further information on expatriate tax services in Canada, please contact:

Grant Thornton Canada – Global Mobility Tax Services
E GMSCanada@ca.gt.com