If you are filing income tax in Canada, you are required to take certain factors into consideration, which will help you to avoid some common errors and mistakes. These tips include the following:
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Non-canadian Income Will Not Be Taxed in Canada
If you live abroad, you will probably be surprised to learn that you may still need to pay Canadian income taxes. For example, if you are living in Canada and work for a company outside of Canada, you are considered a non-resident and are liable to pay withholding tax on your income.
In addition, you are also likely to need to pay the federal sales and goods tax (GST/HST) on some supplies. Some of these supplies are exempt from the GST/HST, however.
Depending on the province you live in, you will also need to pay provincial taxes. However, it is important to remember that you do not have to pay this type of tax if you are a resident of a different province. You can use the form T2203 to calculate your provincial taxes.
Non-residents and Residents Must Declare Income Earned Outside of Canada
As a non-resident or resident of Canada, you must declare your income earned outside of Canada when filing your income tax return. You will also be required to pay Canadian taxes on any income you receive from abroad.
In order to avoid double taxation, you should consider establishing your primary residence in your country of origin. This will ensure that you are considered a resident, and will help reduce the Canadian tax you may have to pay. However, you should be aware that you may still be liable to pay Canadian taxes if you earn income in Canada from an employer that is located in another country.
You should not claim non-refundable tax credits if you have not earned at least 90 percent of your total income in Canada. If you do, you will be subject to fully taxed income.
Withholding Tax on Services Rendered in Canada
If you provide services in Canada, you may be subject to withholding tax. This may depend on whether you are a non-resident, the type of service you are providing, and the tax treaty you have with Canada. There are different ways that you can claim your tax withheld.
A tax treaty can reduce the withholding tax rate. For example, a non-resident may be exempt from withholding tax on dividends or interest paid to a Canadian subsidiary. The rate may vary from province to province.
Generally, a corporation will be subject to branch tax if its business activities involve the provision of services to customers in Canada. It is also required to maintain records of its accounting activity in Canada. However, there are exceptions. But you can consult a personal tax accountant.
Non-resident corporations carrying on business in Canada are also subject to branch tax. Typically, the tax is equal to 25 percent of the after-tax income of the corporation.
Repayment of OAS, EI, or CRB Benefits
If you are a Canadian who received a government benefit, you may be surprised to learn that you can actually repay some or all of the benefits you have received. In fact, the Government of Canada has created a suite of temporary benefits for those who have experienced financial hardship.
These include the Canada Emergency Response Benefit (CERB) and Canada Recovery Benefit (CRB). CERB and CRB were previously available only to self-employed individuals. They offered a taxable benefit of $2,000 per month for up to 28 weeks. However, the Canada Recovery Benefit was introduced to support workers who were earning more than their previous income.
For a person to qualify for the CERB, they must have earned $5,000 or more in income in a single year. Applicants must also have a legitimate declaration of income elimination. The CRA will confirm if a person meets the eligibility requirements.
Can You Owe Money While Filing Taxes in Canada?
Many Canadians hire a tax preparer for the specialized task of filing their taxes. The task can be made more efficient by utilizing software that allows you to fill out your tax return from start to finish. A few tax preparation software providers even have tax advisers on hand to help you navigate the system.
If you’re a Canadian resident you’re no doubt aware that you have to pay federal and provincial income taxes. However, you may also have to pay tax on your overseas earnings. This can be tricky, especially if you’re a Canadian citizen living in another country. There are tax treaties between Canada and over 90 countries in the world. Some of these treaties allow you to reduce your tax bill, but it’s not without risk.