Navigating our tax system can be challenging for most; yet it can have a significant impact on a newcomer’s financial life. The good news is Canada’s tax regime it is very generous, especially for families with low incomes. At year end, there is an excellent opportunity for advisors to gain – and retain - new clients before the tax season rush, with information sessions designed to empower new Canadians. Are you working with newcomers to Canada? Here is a brief case study and six important tax concepts to discuss:
Abbas, his wife Alima and 6 year-old son Amar became residents of Canada on March 15 of the current tax year, as refugees. Having lived in a refugee camp for more than a year, neither parent had any income before arriving in Canada. After arriving in Canada, Abbas was able to find employment and earned $8,500 before being laid off. He also received non-taxable federal assistance and $10,000 of pandemic assistance and employment insurance.
What are the special considerations to be taken when preparing returns for this family?
Checklist of Important Tax Concepts for New Canadians:
1. Always File a T1 - Always file a tax return for every adult in the family with the Canada Revenue Agency (CRA). Canadian residents must file a tax return to report worldwide income in Canadian funds. The purpose of this annual requirement is also to:
· Recoup any overpaid taxes and receive a tax refund
· Pay any additional taxes owing or make contributions to the CPP (Canada Pension Plan)
· Receive social benefits, including the federal OAS (Old Age Security), CCB (Canada Child Benefit) and GST/HST Credit. In some provinces, there are additional credits.
· You will need a SIN (Social Insurance Number) to do so
2. No income? File even if you have no income, in order to qualify for refundable tax credits, which are based on your family net income.
3. Family net income is an important concept in tax filing and planning, as it is used to determine the size of tax credits available. For these reasons, file family tax returns together.
4. Owing Money to CRA? You may owe money, in which case it’s important to file by the tax filing deadline. This is April 30 for most filers; June 15 for proprietorships. This can occur if your taxable income is higher than allowable deductions and personal amounts. Discuss which deductions and personal amounts are available for each family member with your tax advisor.
5. Owe a balance due? If after filing your annual tax return you owe more than $3000 as your balance due ($1800 in Quebec) you will be asked to prepay your taxes for next year in advance. CRA will send you a billing notice to pay quarterly tax remittances. Ask about options to estimate current year income and submit based on this amount instead if to your advantage.
· Farmers/fishers can make one annual remittance on December 31.
6. What is included in the definition of income?
Additional Educational Resources: Check out the newly updated DFA-Personal Tax Services Specialist Program and join us at the November 10, 2021 Virtual CE Summit to enhance your credentials in these areas.