Understanding Canadian Taxes: A Guide for Newcomers

How the Canadian Tax System Works

Canada's tax system is based on self-assessment, which means it is your responsibility to report your income and file a tax return each year. The Canada Revenue Agency (CRA) is the federal government body that administers the tax system, collects taxes, and distributes benefit payments. Even if you arrived in Canada partway through the year, you are required to file a tax return for the portion of the year you were a resident.

Filing a tax return is not just about paying taxes. Many important government benefits, such as the Canada Child Benefit (CCB), the GST/HST Credit, and the BC Climate Action Tax Credit, are calculated based on your tax return. If you do not file, you may miss out on these benefits, which can provide significant financial support to newcomers and families with lower incomes.

Federal vs. Provincial Taxes

In Canada, you pay taxes to both the federal government and your provincial or territorial government. Federal income tax is the same across the country, while provincial income tax rates vary depending on where you live. In British Columbia, the provincial tax is administered alongside the federal tax, so you file a single tax return that covers both.

In addition to income tax, you may encounter other types of taxes in Canada. The Goods and Services Tax (GST) is a 5% federal sales tax applied to most goods and services. In British Columbia, there is also a Provincial Sales Tax (PST) of 7% on most goods. Some provinces combine these into a single Harmonized Sales Tax (HST), but BC uses the separate GST/PST system. You pay these taxes at the point of purchase; they are not part of your annual tax return.

Understanding Tax Brackets

Canada uses a progressive tax system, which means the more you earn, the higher the percentage of tax you pay on your higher earnings. However, this does not mean that all of your income is taxed at the highest rate. Only the portion of your income that falls within each bracket is taxed at that bracket's rate.

For 2026, the federal tax brackets are set by the CRA and are adjusted annually for inflation. British Columbia also has its own set of provincial tax brackets. Your total income tax is the sum of your federal and provincial tax. An easy way to estimate your tax is to use a free online tax calculator or consult with a tax professional.

Common Deductions That Reduce Your Taxable Income

Deductions reduce the amount of income on which you are taxed. Several deductions are particularly relevant to newcomers:

RRSP contributions: If you contribute to a Registered Retirement Savings Plan (RRSP), you can deduct the amount of your contribution from your taxable income. This reduces your tax bill and helps you save for retirement. Your RRSP contribution limit is based on your previous year's earned income and is shown on your Notice of Assessment from the CRA.

Moving expenses: If you moved at least 40 kilometres closer to a new job or school in Canada, you may be able to deduct your moving expenses. This can include transportation, storage, temporary accommodation, and travel costs. Note that this deduction applies to moves within Canada for work or study, not your initial move to Canada from another country.

Childcare expenses: If you paid for childcare so that you or your spouse could work, go to school, or conduct research, you can usually deduct these costs. This includes daycare, nannies, day camps, and boarding school fees up to certain limits.

Other Important Deductions

Other deductions you may encounter include union dues, professional fees required for your job, and interest paid on student loans from Canadian educational institutions. Self-employed individuals can deduct business expenses. Always keep receipts and documentation for any expenses you plan to claim. The CRA deductions and credits page provides a comprehensive list.

Tax Credits: Reducing Your Tax Bill

Tax credits directly reduce the amount of tax you owe. Canada has both non-refundable credits (which can reduce your tax to zero but not below) and refundable credits (which can result in a payment to you even if you owe no tax).

Basic Personal Amount: Every Canadian resident can earn a certain amount of income tax-free. For 2026, this amount is set by the federal government and adjusted annually. You do not need to do anything special to claim this; it is automatically applied when you file your return.

GST/HST Credit: This is a refundable credit paid quarterly to individuals and families with lower incomes to offset the GST/HST they pay. You are automatically considered for this credit when you file your tax return. Newcomers should file their return as soon as possible to start receiving these payments.

Canada Child Benefit (CCB): If you have children under 18, you may be eligible for the CCB, a tax-free monthly payment. The amount depends on your family income and the number and age of your children. To apply, complete Form RC66 and file your tax return.

Important Tax Deadlines

The most important tax deadline in Canada is April 30. This is the date by which most individuals must file their income tax return and pay any balance owing for the previous tax year. If you or your spouse or common-law partner is self-employed, the filing deadline is extended to June 15, but any balance owing is still due by April 30.

If you miss the April 30 deadline and owe taxes, the CRA will charge interest and may impose penalties. The late-filing penalty is 5% of the balance owing, plus 1% for each additional full month the return is late, up to a maximum of 12 months. However, if you are expecting a refund, there is no penalty for filing late, though you will miss out on receiving your refund and any benefit payments until you file.

Setting Up Your CRA My Account

The CRA provides an online portal called My Account that allows you to manage your tax information online. Through My Account, you can view your tax returns and notices of assessment, check your RRSP contribution limit, track your benefit payments, update your personal information, and set up direct deposit for refunds and benefits.

To register for My Account, you need your Social Insurance Number (SIN), date of birth, and information from a previously filed tax return. If you have not yet filed a Canadian tax return, you can register using a CRA security code, which will be mailed to your address. The process typically takes five to ten business days. Once registered, you can also sign up for the CRA's email notification service to receive alerts when new correspondence is available.

Filing Your Tax Return

There are several ways to file your tax return in Canada. The most common method is to use certified tax preparation software, much of which is available for free. The CRA maintains a list of NETFILE-certified software on their website. Popular free options include Wealthsimple Tax and TurboTax (free tier). You can also file through a tax professional or accountant, or use the Community Volunteer Income Tax Program (CVITP), which offers free tax preparation clinics for people with modest incomes.

The CVITP is particularly useful for newcomers. Trained volunteers will prepare your tax return for free. Many settlement agencies and community organizations host CVITP clinics during tax season (February through April). Contact your local settlement agency or dial 2-1-1 to find a clinic near you.

Tax Tips for Your First Year in Canada

Your first tax year in Canada may be a partial year, depending on when you arrived. You are considered a resident for tax purposes from the date you establish residential ties in Canada, which is typically your arrival date. You only need to report income earned from that date forward, plus any worldwide income earned while you were a Canadian resident.

Keep all documents related to your income and expenses, including T4 slips from employers, receipts for medical expenses, childcare receipts, and records of any foreign income. If you have assets in another country, you may need to report them on your tax return if their total cost exceeds $100,000 CAD. Consult with a tax professional if you have complex international tax situations.

WelcomeAide is dedicated to helping newcomers navigate all aspects of life in Canada, including finances and taxes. Our AI Newcomer Navigator can answer your tax questions and point you to free resources. Browse our blog for more settlement guides, including our guides on car insurance in BC and finding housing. Learn about our mission or get involved in supporting newcomer communities across Canada.