The Canadian Working Holiday Visa (WHV) can be a great experience for everyone. But there is one aspect that not many look forward to — doing your taxes. It’s understandable to wish this part of your visa didn’t exist, but all good things come with a catch.
You can file for your Canadian tax return either yourself or by paying a professional to take care of the process for you! If you’re diving into the process with nothing but high spirits and a 0% idea of what your tax obligations are, here’s a quick guide to managing your tax as a backpacker in Canada on a WHV.
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How Much Tax Would You Have to Pay in Canada?
The amount of tax to pay primarily depends on your job situation. Here’s a breakdown of the types of tax you will be paying during your stay in Canada:
You have to pay a sales tax associated with every item or service purchased. Canada has Goods and Services (GST), Provincial (PST), and Harmonized (HST) Sales Taxes. The Federal GST is 5% in Canada and is often combined with the local PST (5% to 10%) to make one HST.
Income Tax Rates
Aside from Quebec, which has a separate tax system, the Canadian government collects all the provinces’ income taxes. For the year 2022, if you earn under CA$14,398, no federal income tax is deducted from your income. Over that, you’ll be charged 15% on the first CA$50,197.
The Importance of Filing Your Taxes on a Canadian WHV
If you’ve paid taxes during your stay in Canada, you should always file for a tax return because:
It ensures that your record is clean and the Canadian Revenue Agency (CRA) won’t be on your tail — vital for future visa application approvals, and
Who doesn’t like having their money back? You’ll know how much you’re entitled to get back.
It’s important to declare all of the income you have earned from each employer throughout your stay in Canada in the current tax period.
Does Residency Status Affect the Process?
You need to file your taxes under the correct residency status. You’re considered a non-resident for a tax return if you:
Hold no strong ties to Canada except for your job,
Have not applied for permanent residency,
Typically reside in another country,
Have stayed in the country for under 184 days, or
Hold a temporary visa (1 to 2 years), such as the WHV, and plan to return to your home country after its expiration
If you file your tax return under the wrong residency status, you could find yourself in some trouble with the Canadian tax authorities.
Key Points about Canada’s Tax Return
Here are a few important things you should keep in mind before filing for your tax return:
The 90% Rule
The 90% rule applies in cases where you’ve earned a sum of your income from outside of Canada during a tax year; 1st January to 31st December. Under this rule, if you’ve earned over 10% of your annual income from another country, you can’t claim your tax refund in Canada. However, if your Canadian job(s) account for 90% or more of your net income, you’re eligible for a tax return.
The last date to file your tax return for 2022 is the 30th of April. It’s better to get done with this process ahead of the deadline so you’ll have enough time to get your finances in order. If you miss the deadline, you could be in hot waters in case you owe more tax to the CRA than what you’ve already paid. You’ll be charged a 5% penalty fee in addition to what you already owe to the CRA and another 1% added fine for each month you’re late after the deadline, up to 12 months. To make matters worse, you’ll also face trouble with your future Canadian visa applications if your tax history is sketchy. But, if you don’t owe any more tax, you won’t face any penalty for late filing. The term for this return is 10 years after the end of the tax period.
How Would I Know If I’m Eligible for a Tax Return?
If you’ve overpaid your taxes, you’re eligible for a tax refund. Overpayment of tax can occur in a Canadian employee’s:
Income tax due to changes in income or incorrect tax code usage,
Canadian Pension Plan (CPP), or
Employer Insurance (EI).
You can never be sure if you’ve overpaid or underpaid your taxes, so it’s best to file your taxes before the deadline in any case.
Where Do You Get Started?
When you land your first job in Canada, you’re required to fill out a TD1 form. It determines how much tax you need to pay on your income. If you’ve earned more or less than 90% of your net income from a Canadian employer in the current tax year, you’ll be asked to specify on this form.
You’ll also need a T4 form from every single employer you’ve worked for in Canada. A T4 authenticates your employment and contact details for a particular employer — address, SIN, income amount, tax paid on it, as well as your CPP and EI contributions.
What Is a SIN and How Do You Get It?
A SIN is your 9-digit Social Insurance Number that allows you to start working in Canada. You should apply to get your SIN as soon as possible after landing in the country. You’ll need your:
Work permit issued at the airport, and
Official ID from your home country.
When you have these things in order, visit your nearest Service Canada branch to get your SIN.
It might sound like a lot of work, but filing your taxes is necessary if you wish to maintain a clean record and get your money back if you’ve overpaid.
April always comes faster than you think, so happy tax filing!