Reporting income and deductions - Segment 7
Host: Welcome to the segment called Reporting income and deductions, part of the CRA's Newcomers to Canada and the Canadian Tax System video.
This segment mentions links where you can get more information. You can find them in the Related links for this video.
With me is Frank Stewart. Welcome Frank.
Subject matter expert: Thank you Kathleen.
Host: What special information does a newcomer need to know to report their income on the first return?
Subject matter expert: For the part of the year that you were a resident of Canada, you must report your world income. World income is income from all sources, both inside and outside Canada.
In some cases, income from outside of Canada may be exempt from tax in Canada because of a tax treaty. However, you must still report the income on your tax return. Where applicable, you can deduct the exempt part on line 256 of your return.
For the part of the year that you were not a resident of Canada, you only have to report:
- income from employment in Canada or from a business carried on in Canada;
- taxable capital gains from the disposition of taxable Canadian property; and
- the taxable part of scholarships, fellowships, bursaries, and research grants you received from Canadian sources.
It's also important to note that for the part of the year that you were not a resident of Canada, do not include on your return any gain or loss from the disposition of taxable Canadian property, or a loss from a business carried on in Canada if, under a tax treaty, the gain from that disposition or any income from that business would be exempt from tax in Canada.
Host: What if I'm a newcomer to Canada and I'm considered to be a protected person and I receive money from an organization to help me get started; do I have to report that money as income?
Subject matter expert: If you're a protected person and you received funds from a charitable organization such as a church group, you generally don't have to report the amounts on your return. However, if a charitable organization hired you as an employee, the employment income you received is taxable.
Host: After I became a resident, I received income from outside of Canada but I already paid taxes on it in the other country. Do I have to pay taxes again?
Subject matter expert: If the income is exempt from tax in Canada because of a tax treaty, you still have to report the income. However, you can claim a deduction for the amount that is exempt from tax. If the amount is not exempt from tax in Canada and you paid foreign taxes on the foreign income you received, you don't reduce the amount you report by the amount of tax paid to the foreign country. Instead, you can claim a foreign tax credit for the foreign tax paid when you calculate your federal and provincial or territorial taxes.
For more information, see Form T2209, Federal Foreign Tax Credits, and Form T2036, Provincial or Territorial Foreign Tax Credit.
Host: If I'm a resident of Canada now, but I still own property or stocks from my country of origin, will I be taxed on those?
Subject matter expert: If you owned certain properties, other than taxable Canadian properties, while you were a non-resident of Canada, the CRA considers you to have disposed of the properties and to have immediately reacquired them at a cost equal to their fair market value on the date you became a resident of Canada. If, after you become a resident of Canada, you earn income on these investments, such as rent, interest, or dividends, that income is taxable in Canada.
It's important to keep records of the fair market value of your properties on the date you arrived in Canada so that you can calculate the capital gain or loss when you dispose of the property.
Host: I sold everything I had when I came to Canada and put the money in the bank here. My family is helping me by giving me money to get established here. Do I have to report that money and pay tax on it?
Subject matter expert: You don't pay tax on the savings you brought to Canada or on the money you are receiving as a gift. If you invest this money in Canada or in another country and earn interest or other property income, you will have to report the investment income on your return.
Host: Can newcomers deduct the cost of moving to Canada?
Subject matter expert: Usually not.
However, if you entered Canada to attend courses as a full-time student at a university, college, or other post-secondary educational institution and you received a taxable scholarship, bursary, fellowship, or research grant from Canada to attend that educational institution, you may be able to deduct your moving expenses.
You can't deduct moving expenses if your only income at the new location is scholarship, fellowship, or bursary income that is entirely exempt from tax.
For more information, go to the CRA webpage on moving expenses.
Host: Frank, are there any other deductions that apply to a newcomer's first income tax and benefit return?
Subject matter expert: There are other deductions that may be available for newcomers on their first tax return. Some of these deductions are for support payments, professional fees, carrying charges, employment expenses, child care expenses, and a few others.
For more information, go to the CRA webpage on what you can deduct.
Host: I've also heard of pension income splitting; what is that?
Subject matter expert: If you are receiving a pension, you may be able to jointly elect with your spouse or common-law partner to split your eligible pension income if you meet all of the requirements.
For the joint election to split pension income, the pensioner is the individual who received eligible pension income and who elects to allocate part of that income to his or her spouse or common-law partner.
If you and your spouse or common-law partner would like to split pension income, follow the instructions at Step 5 on Form T1032, Joint Election to Split Pension Income, to calculate the amount to enter on line 437 of your and your spouse's or common-law partner's returns.
For more information, go to the CRA webpage on pension income splitting.
Host: You mentioned a deduction called support payments. If I'm making support payments to individuals outside of Canada, can I deduct these amounts on my tax return?
Subject matter expert: Yes. If you make spousal or child support payments, you may be able to deduct the amounts you paid, even if your former spouse or common-law partner does not live in Canada.
To determine the amount you can deduct, go to the CRA webpage on support payments. Also, see the information in Guide P102, Support Payments.
Host: Are there any other types of credits that a newcomer might be entitled to?
Subject matter expert: Yes, you might be able to claim some non-refundable tax credits, and reduce your federal tax. However, if the total of these credits is more than your federal tax, you will not get a refund for the difference.
Host: How do I know how much of the non-refundable tax credits I can apply to my first tax return?
Subject matter expert: As a newcomer to Canada, you may be limited in the amount you can claim for certain federal non-refundable tax credits.
More information on how to calculate the amount you can claim is available in Pamphlet T4055, Newcomers to Canada. Refer to the section on federal non-refundable tax credits.
Host: So can you tell me what I can claim for the part of the year that I was not a resident of Canada?
Subject matter expert: You can claim certain federal non-refundable tax credits, as long as they apply, if you are reporting Canadian-source income for the part of the year you were not a resident of Canada. For more information, go to the CRA webpage on non-refundable tax credits. In addition, if the Canadian-source income you are reporting for the part of the year you were not a resident of Canada is 90% or more of your net world income for that part of the year, you can claim the remaining applicable federal non-refundable tax credits in full.
Host: What about the part of the year that I was a resident of Canada? How does that work?
Subject matter expert: You can claim federal non-refundable tax credits, as long as they apply, to the part of the year that you were a resident of Canada.
For a complete list of federal non-refundable tax credits, go to the CRA webpage on that topic.
Host: Where can I get more information on filing my first income tax and benefit return?
Subject matter expert: More information is available on the CRA webpage for newcomers to Canada, in Pamphlet T4055, Newcomers to Canada, and in the tax information video called Preparing Your Income Tax and Benefit Return.
Host: Thank you Frank. This concludes the segment called Reporting income and deductions, part of the CRA's Newcomers to Canada and the Canadian Tax System video.
Thank you for watching.
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