Tax Literacy: Helping Canadian Newcomers Settle In

Did you know that 1,212,075 new immigrants permanently settled in Canada from 2011 to 2016, representing 3.5 percent of Canada’s total population in 2016? Tax and financial advisors have a great opportunity to help with the financial affairs of these families, especially because the tax rules are somewhat different for these residents.

Immigrants may be required to report income, deductions and credits from two periods:

1. The residency period, based on the actual number of days residing here during the year.
2. The non-residency period on the same tax return, depending on their Canadian income sources generated before and after arriving here.

Taxpayers who immigrate to, or emigrate from, Canada during the year are required to file a Canadian tax return to report their world income (for the period in which they were resident in Canada).

Newcomers must also determine the Fair Market Value (FMV) of their assets at time of immigration. Canada is not able to tax any accrued capital gains before this; nor will Canada recognize accrued losses.

For tax purposes, all income is reported in the normal manner, but only for the residency period. Here’s what’s unusual, though:

• Personal amounts are prorated according to the number of days the taxpayer was a resident in Canada.
• Provincial taxes are due to the province of residence on the last day of residency for emigrants, and the last day of the year for immigrants.
• Generally refundable tax credits (GSTC, CTC, and provincial credits) are not available to emigrants, but they are for immigrants.

Other guidelines:

Full Claims - Deduction. Allowable deductions taken to reduce income can include all deductions available, but are applicable only to the residency period. This can include support payments made to an estranged spouse that are normally deductible, child care expenses, employment expenses and so on. However, it must be shown that these amounts are attributable to income earned in the period of Canadian residency.

Full Claims - Non-Refundable Tax Credits. The following non-refundable tax credits, which apply to the residency period can be claimed in full: CPP and EI premiums paid in the residency period, Provincial Parental Insurance Plan Contributions, Canada Employment Amount, Home Buyers’ Amount, the Home Accessibility Tax Credit, Adoption Expenses, the Pension Income Amount, Interest on Student Loan Amount, Tuition Amounts, Medical Expenses, Charitable Donations, spousal transfers for income earned in the residency period, amounts transferred from child (tuition for residency period and a prorated disability amount).

Refundable Credits. Most refundable credits are allowed in full to immigrants and emigrants. The exception is the Working Income Tax Benefit (renamed Canada Workers’ Benefit), which is available only to taxpayers who are residents throughout the year.

Excerpted from Evelyn Jacks’ latest book, Essential Tax Facts: How to Make the Right Moves and Be Audit-Proof, Too. Pick up your copy today as your guide for tax-efficiency at all life stages.

Additional educational resources:

Want to help newcomers to Canada address their unique tax filing needs more effectively? Take our Income Tax Filing Fundamentals certificate course (formerly Introduction to Personal Tax Preparation) online, and study at your convenience! Credits can be applied towards your Distinguished Financial Advisor – Tax Services Specialist designation.  Also, take advantage of the free Income Tax Estimator calculator, to help them prepare for this year’s income tax requirements.

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