Noh Review Tax: Basic Tax Information for Newcomers to Canada

It has come to my attention that it would be very helpful for newcomers to Canada if I provided them with some basic tax information and tips. This post is geared towards people who are not familiar with the Canadian tax system. Please note that this post will not cover all necessary items, but I will go over some of the key items I think are important.

Given the assumption that you have recently moved into Canada, your taxable income will not consist of many sources. The common ones are 1) employment income (e.g. if you got a job and you worked during the tax year), 2) rental income (e.g. if you leased your property to a tenant and you received rent), 3) capital gains (e.g. if you sold an investment security at proceeds in excess of cost) 5) investment income (e.g. if you purchased shares of a stock and received dividends), and 6) interest income (e.g. if you put money in a non-tax free savings account and received interest on the principal). In the next post, I will provide investment and savings tips for newcomers to Canada in a tax perspective.

1. First, let's go over the employment income.

If you worked during the year, you would receive a T4 slip and you would have to report this as your employment income. Among other things, I suggest that you pay attention to the federal tax withheld amount on your pay stub because some of this amount can be refunded if your total tax payable is less than the total income tax deducted. Your non-refundable tax credits can help decrease your tax payable. Please refer to the previous post "Noh Review Tax: Non-Refundable Tax Credits" to see which one you are eligible for.

2. Next up is your rental income.

If you leased your property and you received rent from a tenant during the year, you would need to report this as your rental income on the T776 "Statement of Real Estate Rentals" form. It is important to note that the CRA lets you deduct some expenses from your rental income, so you don't pay taxes on the full amount of rent you received from a tenant. Just as an example, some of the expenses you can deduct are insurance, interest, maintenance and repairs, management and admin fees, professional fees and property taxes.

Please note that if you are the one paying rent to a landlord, you can claim the rent you paid during the year on the ON-BEN form. The Ontario Trillium Benefit (OTB) combines the Ontario Sales Tax Credit and Ontario Energy and Property Tax Credit. Simply put, these are the amounts you can get in a cheque from the CRA as a separate payment from your income tax refund. For OSTC, you can receive up to $278 for each member of your family provided that you are 19 or older and your family income is low to moderate. And if you pay rent, you can get the OEPTC up to $963 provided that you are 18 or older. Basically, the less money your family makes, the more money the CRA gives you for OTB. Please note that the CRA may ask you for proof of rent paid in a pre-assessment review.

3. Let's discuss about taxable capital gains.

A capital gain arises when you dispose a financial asset and the proceeds are in excess of the cost. For example, if you purchase a stock for $100 and you sell it at the value of $150, your capital gain is $50. Usually, 1/2 of a capital gain amount is included in your taxable income.

4. Have an idea about capital losses so that you can take advantage of them.

A capital loss arises when the sale proceeds are less than the cost. Basically, if you sell an investment security and you receive less $ than what you originally paid for, you can claim this as a capital loss on your tax return. You can apply a capital loss against a capital gain by carrying this back 3 years or forward indefinitely.

I just gave you some very basic information on some of the items that make up your taxable income. If your taxable income is high, you can contribute to RRSP to lower your taxable income so that you pay less taxes in a lower tax bracket among other benefits. You can go back to "Noh Review Tax: RRSP and Tax Planning" for more information. Please stay tuned for the next post on investment and savings tips.