The tax system in Canada: A complete guide for expats

Tax can be a complicated topic, but it’s important to understand – especially if you’re moving to a new country. You’ll need to learn about your tax responsibilities in both your new home and the country you’ve moved from.

The tax system in Canada is well-established and applies to both residents and non-residents alike. This guide explains how the system works, which taxes may apply, how to calculate what you owe, and where to file your return.

It also outlines how services like Wise can help people living internationally manage their money across borders. The information provided is for general guidance only and isn’t a substitute for professional advice. For help with your personal situation, you should speak to a qualified tax specialist.

Sections include:

Understanding the tax system in Canada

Canada’s tax system includes both federal and provincial taxes that apply to individuals and businesses. The Canada Revenue Agency (CRA) is responsible for administering federal tax laws and collecting taxes. For most people, the Canadian tax year runs from 1 January to 31 December.

Canada uses a progressive income tax system, meaning that higher incomes are taxed at higher rates. In 2023, Canada’s tax-to-GDP ratio (the share of tax collected compared to the country’s total economic output) was 34.8%. This was slightly above the OECD average of 33.9%.

Taxes in Canada help fund a wide range of public services, including:

• Education and schools
• Public healthcare (Medicare)
• Infrastructure, such as roads and bridges
• Community services, including libraries and emergency services
• National defense

Recent tax-related developments include new affordability measures designed to support Canadians facing higher living costs. These include improving access to certain federal benefits and tax credits.

Who pays tax in Canada?

Anyone who lives in Canada or earns income from Canadian sources may have to pay tax.

• Residents of Canada pay tax on their worldwide income (earning both in and outside Canada)
• Non-residents pay tax only on income earned within Canada

Canadian citizens living overseas are generally taxed based on their residency status, not citizenship. However, they may still owe tax on Canadian-sourced income, such as pensions or investment earnings.

For tax purposes, the CRA recognizes three main categories of residents: :

• Factual residents: People who have significant residential ties in Canada (such as a home, spouse, or dependents), even if they spend time living abroad.
• Deemed residents: Individuals who stay in Canada for 183 days or more in a tax year and are not considered a resident of another country with which Canada has a tax treaty.
• Non-residents: People who live outside Canada and do not have significant residential ties with Canada.

You can check your residency status through the CRA’s website.

Canada has tax treaties with over 90 countries. These treaties help prevent double taxation, meaning you won’t be taxed twice on the same income in both Canada and another country.

You file a tax return for the previous calendar year. For example, income earned in 2025 must be reported when filing your 2026 tax return. .

How do taxes work for expats in Canada?

Expats living and working in Canada follow the same basic rules as everyone else:

• If they qualify as residents, they pay tax on worldwide income
• If they are non-residents, they pay tax only on Canadian-source income

Managing taxes can be complex for people with income in more than one country. Financial services such as the Wise multi-currency account can help by allowing users to hold money in 40+ different currencies.

Wise supports international transfers to 140+ countries, using the mid-market exchange rate with no hidden fees, helping users to save on transfer costs when sending funds abroad.

Do I need a tax ID number in Canada?

Yes. Anyone who files or pays taxes in Canada needs a tax identification number.

Residents use a Social Insurance Number (SIN) – a unique 9-digit number used for tax, employment, and social benefits. You can apply for a SIN online, by mail, or in person at your nearest Service Canada Center.

Non-residents who don’t qualify for a SIN will need an Individual Tax Number (ITN). This is also a unique 9-digit number, but it’s used only for tax purposes. To get an ITN, you must complete an application form and send it to the CRA along with supporting identification documents.

Types of tax in Canada

Taxes in Canada generally fall into three main categories:

• Taxes on what you earn: This group includes income tax, payroll tax, and corporate income tax
• Taxes on what you buy: These include sales and excise taxes
• Taxes on what you own: These cover property taxes and certain other taxes related to owning assets

Canada does not have inheritance or estate taxes. However, when a person dies, any increase in the value of their assets (capital gains) is treated as if the assets were sold, and this amount may be subject to income tax.

Some taxes are collected by the federal government, while others are set and collected by provincial or territorial governments. The specific rates and rules vary depending on the type of tax and where you live.

Below is an overview of how each main type of Canadian tax works, who pays it, and what the general rates are.

Canadian income taxes

Most types of income you earn during the year are subject to tax in Canada. This includes:

• Employment and self-employment income
• Pension income
• Registered savings plan withdrawals
• Investment income, such as interest, dividends, or other earnings from investments
• Certain benefits, such as employment insurance
• Rental income
• Trust income
• Capital gains

Income that you do not have to pay tax on includes:

• Lottery winnings
• Gifts or inheritance
• Most life insurance policy payouts

Federal income tax rates for 2025 are:

Income	Tax rate
Up to CAD 57,375	14.5%
CAD 57,376 – 114,750	20.5%
CAD 114,751 – 177,882	26%
CAD 177,883 – 253,414	29%
Income above CAD 253,414	33%

In addition to federal income tax, each province and territory applies its own rates. These vary in 2025 from around 5% to 25%, depending on where you live and how much you earn. Examples include:

• Alberta ranges from 8% on income below CAD 60,000 to 15% on income over CAD 362,961
• British Columbia ranges from 5.06% on income below CAD 49,279 to 20.5% on income over CAD 259,829
• Ontario ranges from 5.05% on income below CAD 52,886 to 13.16% on income over CAD 220,000

If you are an employee, your employer usually withholds federal and provincial (or territorial) income tax from your pay throughout the year and sends it to the CRA. Self-employed workers, however, are responsible for calculating and paying their own taxes, typically by making quarterly instalment payments to the CRA.

If you earn money from foreign sources or live abroad while earning Canadian income, your tax situation can become more complex. Using Wise to receive international income can help you avoid unnecessary transaction costs. Wise uses the mid-market exchange rate with transparent fees, which can help you maximize your net income when filing income tax returns in Canada.

Canadian payroll taxes

Payroll taxes, sometimes called social security contributions, help fund public programs such as the Canada Pension Plan (CPP) and Employment Insurance (EI). Like income taxes, these amounts are withheld from employees’ pay by their employers and sent to the CRA.

Payroll taxes apply at the federal level, though Quebec runs its own pension plan (the Quebec Pension Plan, or QPP) and has separate EI rates.

CPP contributions are shared equally between employees and employers. Self-employed individuals must pay both portions but can claim the employer half as a tax deduction. 2025 rates are:

• 11.9% of earnings between CAD 3,500 and CAD 71,300 (shared 50/50 between employee and employer, i.e. 5.95% each)
• 8% of earnings between CAD 71,300 and CAD 81,200 under the new CPP enhancement (CPP2)

Maximum contributions in 2025 are:

• CAD 8,068.20 for CPP
• CAD 792 for CPP2

These are also split evenly between employer and employee, while the full capped amounts apply to self-employed workers.

EI provides temporary income support if you lose your job. 2025 rates are:

Outside Quebec:

• Employee rate: 1.64% of insurable earnings up to $65,700
• Employer rate: 1.4 × employee rate = 2.296%
• Maximum annual contributions:
• Employee: $1,077.47
• Employer: $1,508.47

In Quebec:

• Employee rate: 1.31%
• Employer rate: 1.834%
• Maximum annual contributions:
• Employee: $860.67
• Employer: $1,204.94

Self-employed workers are not required to pay EI premiums, but they may choose to opt in voluntarily to access benefits.

Corporation income tax in Canada

Corporation income tax is a tax on profits earned by incorporated businesses in Canada. Resident corporations pay tax on their worldwide income. Non-resident corporations pay tax only on income earned in Canada, including profits from Canadian branches or subsidiaries.

Not all businesses in Canada pay corporate income tax. Sole proprietors and unincorporated partnerships report their business income on their personal tax returns instead. Registered charities and most non-profit organizations are exempt from corporate income tax.

At the federal level, the basic corporation tax rate (2025) is 38%. After applying the federal tax abatement (10%) and the general tax reduction, the net federal tax rate becomes:

• 15% for most corporations
• 7.5% for manufacturers of zero-emission technology

Canadian-controlled private corporations (CCPCs) that qualify for the small business deduction pay lower federal rates on their first CAD 500,000 of business income.

In addition to federal tax, corporations also pay provincial or territorial income tax. Each jurisdiction sets its own rates. There are usually two main rates:

• Lower rate: for small businesses eligible for the small business deduction, ranging from roughly 0-3% in 2025.
• Higher rate: for other corporations, ranging roughly from 12-15% in 2025.

Certain financial institutions – such as banks and life insurance companies – pay an extra 1.5% federal surtax on their taxable income.

Sales taxes in Canada

Sales taxes in Canada are a consumption tax applied to most goods and services. The federal Goods and Services Tax (GST) is set at 5%. Although businesses collect the GST from customers, they remit it to the federal government.

Some items are exempt from the GST (and provincial sales taxes), including:

• Basic groceries
• Prescription drugs
• Certain medical devices
• Feminine hygiene products

In addition to the GST, most provinces apply their own sales tax. Only Alberta and the three territories (Yukon, Northwest Territories, and Nunavut) do not have a local sales tax.

The structure of these taxes varies by province:

• Five provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Albert Island) use a Harmonized Sales Tax (HST) which includes the GST. Rates range from 13-15% in 2025.
• Three provinces (British Columbia, Manitoba, and Saskatchewan) apply a separate Provincial Sales Tax (PST), typically between 6-7%, in addition to the GST.
• Quebec has its own Quebec Sales Tax (QST), 9.975% in 2025,on top of the GST.

Businesses that sell taxable goods or services must register to collect sales taxes once their revenue exceeds certain thresholds. In 2025, these amounts are:

• CAD 30,000 a year for businesses
• CAD 250,000 a year for charities and public organizations

Excise taxes and duties

Excise taxes are special consumption taxes applied to specific goods, services, or activities – rather than to general sales. In Canada, most are imposed by the federal government, although some provinces and territories also levy their own excise-style taxes on certain products.

Common products and activities subject to excise taxes or duties include:

• Alcoholic beverages
• Tobacco and vaping products
• Fuels (such as gasoline, diesel, and aviation fuel)
• Certain insurance premiums

The rates and calculation methods vary depending on the product. Some are specific excise duties, charged as a fixed amount per unit (for example, per litre of fuel). Others are excise taxes, calculated as a percentage of the sale price.

Luxury tax

This federal tax applies to certain high-value vehicles, boats, and aircraft purchased in Canada. It is a one-time tax of 10% (or 20% of the amount above a set threshold, whichever is less) for:

• Cars and aircraft priced over CAD 100,000
• Boats priced over CAD 250,000

Property taxes in Canada

Property tax is a levy on the assessed value of real estate in Canada. It is primarily administered by municipal governments – cities, towns, and some regional districts – rather than by the federal government.

Revenue from property taxes help fund key local services, such as:

• Schools
• Emergency services (police, fire, ambulance)
• Road and sidewalk maintenance
• Waste collection and recycling
• Parks, libraries, and other municipal infrastructure

Property tax rates vary widely across the country and are set by local municipalities. Rates are usually expressed as a percentage of a property’s assessed market value, which is determined by provincial assessment authorities.

As of 2025, average effective municipal tax rates range from 0.29% in Manitoba to 2.72% in parts of British Columbia, though rates can differ significantly between cities and property types.

In addition to local property taxes, the federal government applies an Underused Housing Tax (UHT) of 1% annually on vacant or underused residential properties. This tax mainly targets non-resident, non-Canadian owners, although certain Canadian owners may also need to file a UHT return depending on their situation.

Land transfer tax

When you buy real estate in Canada, you must generally pay a land transfer tax (LTT) at the time of purchase. This tax is charged by provincial or territorial governments, and in some cases by municipalities (such as Toronto).

Land transfer tax rates vary by location and property value. They are usually progressive, meaning higher portions of a property’s price are taxed at higher rates. In most provinces, rates range from about 0.5% to 5% of the property’s purchase price.

Some provinces also impose an additional property transfer tax (often called a foreign buyers tax or non-resident speculation tax) on properties purchased by non-residents of Canada. As of 2025:

• British Columbia: 20% in designated areas (such as Metro Vancouver, Victoria, and others)
• Ontario: 25% province-wide
• Nova Scotia: 5% on residential properties purchased by non-residents

(Other provinces and territories do not currently apply a foreign buyers tax, though rules and rates can change.)

Inheritance and estate taxes

Canada does not have an inheritance tax or an estate tax at either the federal or provincial level. This means that when someone dies, their heirs do not pay tax on the value of what they inherit.

However, when a person passes away, the CRA treats most of their property as if it had been sold at fair market value right before death. This process is called a “deemed disposition.”

If the property has increased in value since it was originally acquired, any capital gains are included in the deceased’s final income tax return and taxed at the applicable rate.

In addition, most provinces and territories charge probate fees (also known as estate administration taxes) when a will is validated by the courts. These fees vary by province and are generally based on the total value of the estate.

If you are the beneficiary of an overseas inheritance, Wise can help with the low-cost transfer of large sums. There are high transfer limits (usually equivalent to 1 million GBP in many currencies) and automatic fee discounts on transfers above 20,000 GBP (or equivalent).

Wise uses the mid-market exchange rate with no hidden costs, and there is help from a dedicated support team if you need it.

Glossary of Canadian tax terminology

Name	Description
Basic personal amount (BPA)	A non-refundable tax credit that can be claimed by all individuals.
Canada Revenue Agency (CRA)	Agency responsible for collecting taxes and administering various benefits and credits.
Deductions	Certain amounts or expenses that reduce the amount you pay tax on.
Goods and services tax (GST)	Federal tax you pay on most goods and services in Canada.
Net income	Your income after deducting certain amounts from your total income. Used to determine if you are eligible to claim certain benefits or tax credits.
Non-refundable tax credits	Credits that reduce the taxes you owe, but only to zero. They cannot be refunded to you.
Payroll deductions	Amounts that your employer takes off your pay, for example income tax, pension contributions, or employment insurance premiums.
Progressive tax	Tax system where higher-income individuals or businesses pay higher tax rates on higher levels of income.
Refundable tax credits	Amounts that help reduce your tax payable, and any excess amounts can be refunded to you.
Tax avoidance	Legal strategies used to minimize taxes owed.
Tax brackets	Pre-determined levels of income used on the tax return to calculate the taxes you owe.
Tax credit	Amount that helps reduce the tax you owe. Some can only reduce your taxes to zero, while others can be refunded to you.
Tax evasion	Illegal failure to report income, file tax returns, or pay taxes owed.
Tax liability	Total amount of tax owed to authorities.
Taxable income	Your income after deducting certain amounts from your net income. It is used to calculate how much tax you owe.
Total income	The sum of all the income you earned or received during the year.

How to file income taxes in Canada as an expat

Most people living and working in Canada – including foreign residents (expats) – must file an income tax return with the CRA.

Canadian citizens who live overseas may also need to file a tax return if they earned income from Canadian sources, such as a pension, rental property, or investments.

You can find detailed information about tax filing requirements for both individuals and businesses on the CRA website.

Below is a simple step-by-step guide to filing your taxes in Canada as a foreign resident.

Step 1: Check if you need to file a tax return

Start by finding out whether you need to file a tax return in Canada. You usually have to file if you:

• Earn income and owe tax in Canada
• Want to claim a refund or tax credit, even if you don’t owe any tax
• Earn income from self-employment in Canada

In some cases, you may also need to file for other reasons – for example, if the CRA asks you to. The CRA will typically send you a notice or form if they expect a return from you.

For full details, visit the CRA website.

Step 2: Gather your documents

Before you file your tax return, collect all the documents and information you’ll need to include. These may include:

• You tax number (SIN or ITN)
• Tax slips from your employer, such as T4 slips
• Income records for any self-employment or freelance work
• Details of other income sources, such as rental income, investments, or pensions
• Records or records for deductions, credits, or refunds, such as charitable donations, medical expenses, or benefits statements

Step 3: Claim your allowable deductions, credits, and expenses

Tax deductions, credits, and expenses can help lower the amount of tax you owe in Canada.

• Deductions and expenses reduce your taxable income – the amount of income you pay tax on.
• Tax credits directly reduce the amount of tax you have to pay. Some are refundable (you can get money back even if you owe no tax), while others are non-refundable (they only reduce the tax you owe to zero).

Common examples include:

• Basic personal amount (BPA), which is a non-refundable tax credit available to most individuals. For 2025, the standard federal BPA is CAD 15,705.
• Childcare expenses (for parents and guardians)
• Business expenses for self-employed or freelance work
• Credits for pensions and employment insurance contributions

For a full and updated list of what’s available, visit the CRA website.

Step 4: File your tax return

You can file your Canadian tax return electronically or by mail. Options include:

• Tax software using NETFILE
• Through a tax professional using EFILE
• Paper forms using the T1 income tax package
• SimpleFile or free tax clinics – available for people with low income and straightforward tax situations

The filing deadline for Canadian tax returns is usually 30 April each year. Self-employed workers and freelancers usually have to file by 15 June.

Step 5: Pay any tax due

After filing, you need to pay any remaining tax you owe. This is your total tax for the year, minus any tax already withheld (for example, from wages) and any tax credits.

Taxes in Canada are generally due on 30 April, the same day as the general filing deadline. Self-employed individuals may need to pay in quarterly instalments (15th of March, June, September, and December). If you cannot pay on time, contact the CRA as soon as possible – you may be able to set up a payment plan.

The CRA website provides details on all available payment methods.

If you have tax obligations in more than one country, you can use a Wise multi-currency account to hold and exchange funds in 40+ currencies. Wise supports international transfers to 140+ countries, using the mid-market exchange rate with no hidden costs. This can help you to save money as well as making things easier when it comes to international tax.

Tax fines and penalties

You may face a fine or penalty if you don’t:

• File your tax return on time
• Pay your tax bill by the deadline
• Provide accurate and complete information on your return

If you don’t file your tax return on time, the standard late-filing penalty is 5% of the unpaid tax, plus an additional 1% for each month that the return is late. Payments not made on time are charged interest, which is determined by the CRA every three months. The current late payment interest rate is 7%.

You may have to pay a penalty if you provide inaccurate or incomplete information on your tax return. The penalty for knowing false statements or omissions on 2024 tax returns was the higher of the following two amounts:

• CAD 100, or
• 50% of the understated tax (or overstated credits) related to the discrepancy

Double taxation agreements

Canada has tax treaties with over 90 countries. These treaties help prevent double taxation, meaning you won’t be taxed twice on the same income in both Canada and another country.

Countries with tax agreements with Canada include:

• Brazil
• France
• Germany
• Japan
• UK
• US

You can use Wise Account to help manage your income and tax obligations in more than one country. The Wise multi-currency account can hold and exchange money in 40+ currencies, as well as receive funds in 20+ different currencies.

Wise international transfers have low transparent fees, with the mid-market rate. You can set up one-off or recurring payments with Wise, making it easier to manage your money internationally.

Tax avoidance and evasion in Canada

According to the Tax Justice Network, Canada loses around CAD 3.6 billion each year to tax abuse. This includes both:

• Tax avoidance – legal methods to reduce tax bills. For example, moving profits to lower-tax jurisdictions within the bounds of the law.
• Tax evasion – illegal non-payment methods, such as failing to report income, not paying tax bills, or hiding money offshore.

The Canadian government engages in various strategies to combat both tax evasion and avoidance. If you are found guilty of tax evasion in Canada, you can face fines of up to 200% of the amount evaded, in addition to having to pay the outstanding bill in full. Serious tax fraud can result in prison sentences of up to 14 years.

If you suspect someone of committing tax evasion, you can report it anonymously through the CRA website.

Tax advice in Canada

This is a general guide intended for informational purposes only and should not be treated as professional advice. You should consult a qualified tax expert if you have any queries about your own situation.

You can contact the CRA for help and advice – either online, by phone, or visiting a local office. If you need help with a provincial or territorial tax issue, you can contact the relevant tax authority.

There are also numerous advisors with expat and international tax expertise. Services available in Canada include:

• Experts For Expats
• HSBC Expat
• Taxes For Expats

You can find information on choosing a financial advisor on the Government of Canada official website.

Useful resources

• Canada Revenue Agency (CRA) – federal tax authority in the Canada (accessed 22 Oct 2025)
• List of provincial and territorial government sites in Canada (accessed 22 Oct 2025)
• Wise – provides international money transfer services and multi-currency accounts (accessed 22 Oct 2025)