Understand who is liable for what tax in Canada...
Non-residents and deemed residents may or may not have to file a Canadian tax return. Much Canadian source income will have had Canadian tax withheld when it was paid, and in many cases there is no requirement to file a Canadian tax return. The most common types of income earned in Canada which are required to be reported on a Canadian tax return are:
- income from employment in Canada
- income from a business carried on in Canada
- taxable part of Canadian scholarships, fellowships, bursaries, and research grants, and
- taxable capital gains from the disposal of taxable Canadian property
When a non-resident or deemed resident files a Canadian tax return, they are taxed at the current federal tax rates, plus a surtax of 48 percent of the federal tax, unless income was earned from a business with a permanent establishment in Canada. In this case, provincial or territorial tax is paid on that income.
Deemed residents and non-residents can claim the federal basic personal tax credit plus other applicable tax credits. For non-residents, the amount of non-refundable tax credits allowed depends on whether Canadian source-income is 90 percent or more of total world income for the year.
- For more information, see the CRA Income Tax and Benefit Package for non-residents and deemed residents of Canada
When a non-resident disposes of certain taxable Canadian property, such as real estate, there are certain procedures to be followed, which include paying a tax of 25 percent of the gain on the property. If this tax is not paid, the purchaser of the property will be liable for the tax, and thus may withhold 25 percent (50 percent in some cases) of the selling price of the property. See disposing of certain types of property in the Canada Revenue Agency (CRA) guide T4058 Non-Residents and Income Tax for more information.
If a tax treaty exists between Canada and your country of residence, the terms of the treaty may reduce or eliminate the tax on some types of income. You may be a deemed non-resident of Canada for tax purposes if you were a resident of Canada in the year, and, under a tax treaty, you were considered to be a resident of another country. In this case, you will be treated as a non-resident for tax purposes.
A person who is a resident of Canada for any part of the year is subject to Canadian income tax on their worldwide income during the time that they are a resident of Canada. During the time that they are not a resident of Canada, they will pay Canadian income tax only on income earned from Canadian sources.
How is Income Tax Calculated in Canada?
Canadian federal income tax is calculated separately from provincial/territorial income tax. However, both are calculated on the same tax return, except for Québec.
Federally, there are four tax brackets. Each province has multiple tax brackets, except Alberta, which has only one tax rate for all taxable income. The federal and provincial/territorial income tax rates are combined in the tax rate tables here, so that taxpayers can see the total tax rate being paid, including any provincial surtaxes.
The tax rates increase as taxable income increases. Everyone pays the lowest tax rate for the amount of their taxable income within the lowest tax bracket. Taxable income in excess of this is taxed at the next higher rate.
After income tax amounts are calculated, non-refundable tax credits are deducted from the tax payable. Non-refundable tax credits include the basic personal amount, which is available to every taxpayer. A list of most of the non-refundable tax credits can be seen in the tables here. The actual tax amount of the credits is calculated by multiplying by the tax rate for the lowest tax bracket, except for Québec.
The basic personal amount for each province and territory is listed in their tax rate table, as well as the tax rate that is applied to calculate the tax credit. The basic personal amount is the amount that can be earned before any provincial/territorial tax is paid. Some provinces also have a low-income tax reduction which increases the amount that can be earned before any tax is paid.
The provincial/territorial tax rates before being combined with the federal rates are shown above the table of combined rates for each province/territory. Canada Revenue Agency (CRA) also has an article What are the income tax rates in Canada? The CRA tables do not include any provincial/territorial surtaxes. The surtaxes are included in the combined tax rate tables here.