Tax Planning Basics
Dealing with Worldwide Income
This abbreviated article provides an overview of the Canadian tax system, basic investments and how the two interact. In developing a broader understanding of the Canadian tax system, you may be in a better position to invest tax-efficiently so that you may be able to keep more of your investment income and achieve your financial goals. For the purposes of this article, it’s assumed you are a tax resident of Canada.
Canada taxes its tax residents on their worldwide income. In the majority of cases, this means you must report all of your taxable income for Canadian tax purposes, regardless of where in the world you earned that income. Tax residency is based on the relevant facts and circumstances, which include the residential ties you have in Canada, any ties you have abroad and the amount of time spent in Canada. Canadian citizenship is generally irrelevant in determining your obligation to pay Canadian tax.
If you move to Canada during the year, you are considered to be a part-time resident and are only taxed on your worldwide income from the time you become a tax resident of Canada.
The Canadian tax system is an honour-based system that requires you to declare your income to the Canada Revenue Agency (CRA), whether an information slip was issued to you or not. You may be issued an information or tax slip on various types of income you earn, for example, employment income and interest income. Common types of income you may earn where you may not receive a tax slip include capital gains realized on the sale of real estate and foreign currency conversions. If you do not report all of your taxable income for Canadian tax purposes, you can be subject to interest and penalties.
The federal government has the jurisdiction to tax income earned in Canada. You may also be subject to provincial or territorial tax for the year if you are a resident of that province or territory on December 31 of that year or in some cases, earn income in that province or territory. The Canadian personal income tax system is based on graduated tax rates at both federal and provincial/territorial levels. This means increasing tax rates apply to increasing levels of taxable income. The tax rates stay steady over a range of incomes and then increase and remain static over another range. These ranges are commonly referred to as tax brackets.
The Canadian tax system is very complex. Various types of income are taxed in different ways and a number of government-assisted programs exist to help taxpayers save. The taxation of income earned on investments depends on the nature of income earned and the type of account the investments are held in. While investment decisions should be made considering all of your goals and objectives, you may be able to maximize your after-tax returns by holding your investments strategically.
Due to space limitations, I’m unable to reproduce the entire 10-page report, which describes the Canadian tax system in greater detail, covering:
Average and marginal tax rates
Calculating your tax liability
Types of investment income earned in non-registered accounts and taxation
Investing in a registered account
Feel free to request an e-copy from me at firstname.lastname@example.org or reference on www.susangottlieb.com
This article may contain several strategies, not all of which will apply to your particular financial circumstances. The information in this article is not intended to provide legal, tax or insurance advice. To ensure that your own circumstances have been properly considered and that action is taken based on the latest information available, you should obtain professional advice from a qualified tax, legal and/or insurance advisor before acting on any of the information in this article.