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In Canada, residents and citizens are required to file taxes each year. Understanding the tax system can be challenging for newcomers, but filing on time is crucial to avoid any penalties.
What is taxed?
What is not taxed?
- Tax-Free Savings Account (TFSA): Earnings in and withdrawals from a TFSA are tax-free.
- Gifts and inheritances: Generally, these are not taxed.
- Scholarships: Most academic scholarships are exempt.
- Lottery winnings: These are tax-free, unlike in some other countries.
By understanding these categories, you can better manage your income and reduce your tax burden with the right deductions and credits.
How Canada taxes income
Newcomer tax considerations
If you arrive partway through the year, you only need to report income earned after becoming a resident. However, if you had foreign income, you may still be required to declare it.
What’s new for 2024?
The basic personal amount — the portion of income that isn’t taxed — continues to increase, providing more tax relief. For 2024, it’s set at $15,000. You may also benefit from credits like the Climate Action Incentive and various provincial programs that can reduce your tax burden.
Avoiding penalties
Filing your taxes late results in penalties. For 2024, the penalty remains at 5% of the balance owing, plus 1% for each late month up to 12 months. It’s important to report all income accurately to avoid additional penalties, which can be severe if you fail to disclose.
Maximizing deductions and credits
Newcomers can take advantage of tax deductions such as child care expenses, contributions to a Registered Retirement Savings Plan (RRSP), and medical expenses. Ensure you’re aware of any provincial credits, as these vary across Canada.
Conclusion
Filing taxes in Canada may seem complicated, but with a solid understanding of the system, you can avoid penalties and even maximize your refund. For newcomers, staying organized and filing on time are key. Be sure to use resources like tax software, accountants or tax clinics if you’re unsure where to start. Banks like CIBC also have resources to help you avoid errors, such as Jamie Golombek’s report It’s 2025: Do you know what your tax rate is? (PDF, 365 KB) Opens in a new window..