Information on the United States-

Canadian Income Tax Regime- Guidance Note
Guidance Note on Canadian Income Tax Regulations
The Canadian Income Tax Act, 1985 is a large and complicated taxation system which is
enforced by Canada Revenue Agency. The tax system in Canada is progressive and taxes
individual at higher rate as the income of individual jumps from one slab to other. ( Intuit
Canada ULC, 2020)
Taxation Regime
Canadian residents (determined under the Canadian Income tax) are taxed at both Federal and
Provincial levels on their income earned globally irrespective of their repatriation to Canada.
However, there is caveat where in certain income of foreign affiliates is taxed on an accrual
basis. In addition to above, a resident is taxed in respect of investment in certain non-resident
trusts and offshore investment funds.
On the other hand non-residents are taxed on Canadian Source Income and on gains arising
on disposition of taxable property situated in Canada.
Residence Criteria
There are two types of residency in Canada ordinary residency in Canada
(a) Deemed Residency;
(b) Ordinarily Residency.
An individual shall be considered as deemed tax resident of Canada if it satisfies the
following condition:
(a) An individual shall be considered as tax resident of Canada if he/she stays in Canada
for a period of 183 days or more in Canada in a calendar year; (Determining your
residency status, 2020)
(b) In addition to above, the said clause is not applicable for the City of Quebec if tax
treaty is more favourable. Thus, a person may stay for more than 183 days in Quebec
without becoming tax resident if the treaty provides such benefit. (Determining your
residency status, 2020)
An individual shall be considered as ordinarily resident if he has significant residential ties to
Canada which shall encompass the following:
(a) Home in Canada;
(b) Spouse or Common law partner in Canada;
(c) Dependants are in Canada.
Secondary residential ties may also be considered for determining the residential status in
Canada. (Determining your residency status, 2020)
Filing Criteria
Filing tax return in Canada is not impacted by your residency status. The tax return is
required to be filed if any of the following conditions are satisfied:
(a) Any taxed is owed to Canadian Revenue Authorities under the Act;

(b) Any individual who is self-employed and is required to pay Canada insurance plan
premiums;
(c) Any individual who is self –employed and is required to pay employment insurance
premiums on self-employment income;
(d) For the purpose of splitting of pension income between husband and wife;
(e) Participated in Home Buyer’s Plan or Lifelong Learning plan and have repayments
owing; ( Intuit Canada ULC, 2020)
(f) On disposition of capital property. The return is required to be filed even when there is
no capital gain tax liability on such sale; (Intuit Canada ULC,, 2020)
(g) Repayment of any old age security or employment insurance benefits;
(h) Any Working Tax advancement benefit has been received during the year;
(i) Request has been received from Canadian Revenue Authority to file the Income-tax
Return; (Deloitte Touche Tohmatsu Limited., 2020)
(j) Any demand to file has been received from Canadian Revenue Authority
Further, in Canada there is no family income tax return concept and each individual is
required to file return individually. However, property attribution rules shall apply.
Taxable Income
The following income generally falls within the purview of Canadian Income-tax Act, 1985:
(a) Employment Income and most employment benefits associated with such income;
(b) Investment income of certain category;
(c) Profits which are earned by an individual from business/profession or trade are taxable
based on the slab rate of the individual;
(d) Dividend received from Canadian Corporation. These incomes are subject to favourable
tax regime in Canada;
(e) In case of Resident : All other foreign income, subject to benefit of treaty.
Relief under Taxation of Capital Gains
In terms of Canadian Income tax Act, capital gain arising on disposition of property in
Canada (for non-resident) or globally (for resident) shall be taxable in Canada. Further, the
said Capital Gains after deduction of any capital losses shall be reduce to half for the purpose
of payment of capital gain tax in Canada. The rate applicable on such disposition of property
is based on the slab of the individual. (Deloitte Touche Tohmatsu Limited., 2020)
Tax Year in Canada
Under the Canadian Tax Regime, the tax year is calendar year i.e. 01-01 to 31-12.
Slab Rates in Canada
The tax slab/ brackets that were applicable for an individual for the year 2019 are as under:
(a) Tax at the rate of 15% is applicable on the first $ 47630 of taxable income;
(b) Tax at the rate of 20.5% is applicable on the next $ 47,629 of taxable income; (Turbo
Tax Canada, 2020)