Tax in Canada

Unlike the United States, Canada taxes based on residence, not citizenship — but "residence" is a facts-and-circumstances test, not a passport stamp, and getting it wrong in either direction is expensive. Residents are taxed on worldwide income; non-residents only on Canadian-source income. Filing a return also unlocks a long list of income-tested benefits that many people would otherwise simply not receive.

How residency actually works

The CRA will give a formal opinion on your status via Form NR73 (leaving Canada) or NR74 (entering Canada). When someone ceases Canadian residency, a departure tax applies: most property is deemed to have been sold at fair market value the day before departure, crystallising any accrued gain even though nothing was actually sold.

Personal income tax and filing

Canada cut its lowest federal tax bracket from 15% to 14%, effective mid-year on 1 July 2025 — because the cut wasn't in place for the full year, the CRA applies a blended rate of 14.5% on 2025 returns. The federal Basic Personal Amount for 2025 is $16,129. Provinces add their own tax on top of the federal rate (for example, Ontario's provincial brackets run separately from the federal ones), so total marginal rates vary significantly by province. The personal (T1) filing deadline is 30 April, extended to 15 June for the self-employed and their spouses (though any balance owing is still due 30 April).

Why low-income Canadians file anyway

Filing a T1 return is how the CRA calculates entitlement to income-tested benefits, so many Canadians with little or no income file specifically to unlock them — including the Canada Child Benefit (CCB) and the GST/HST credit, both paid automatically based on the income reported on your return. Skipping a return because you owe nothing is one of the most common ways Canadians accidentally leave benefit money unclaimed.

Corporate returns

Every Canadian-resident corporation must file a T2 return within six months of its fiscal year-end — even a completely inactive one. Canadian-controlled private corporations (CCPCs) claiming the small business deduction pay a federal rate of just 9% on the first $500,000 of active business income (the "business limit," which shrinks once taxable capital passes $10 million and disappears at $50 million); income above that, or earned by non-CCPCs, is taxed at the general federal corporate rate. Provinces layer their own corporate tax on top, again varying by province.

Trust returns

Trusts generally file a T3 return. Ottawa significantly expanded trust reporting rules for 2023 and later years, adding new beneficial-ownership disclosure (Schedule 15) aimed squarely at "bare trusts" (arrangements where a trustee holds legal title but has no real trustee discretion, common in family property arrangements). That expanded bare-trust filing requirement has been suspended for the 2025 tax year, with the CRA confirming bare trusts will not need to file unless new legislation is enacted well before the filing deadline — but the underlying T2 filing obligation for other trusts remains unaffected.

Non-resident withholding

Canada withholds tax at a flat 25% under Part XIII of the Income Tax Act on most Canadian-source income paid to non-residents — dividends, certain interest, and pension income including CPP and OAS. Tax treaties routinely cut that rate: under the Canada–US treaty, CPP and OAS paid to US residents face no Canadian withholding at all, while other treaty partners (for example Denmark) may still see the full 25% withheld with taxing rights allocated to Canada. The rate that actually applies to you depends entirely on which treaty, if any, your country of residence has with Canada.

CPP, OAS and pension eligibility abroad

The Canada Pension Plan (CPP) can be paid anywhere in the world for life, regardless of how long you've lived in Canada. Old Age Security (OAS) is different: to keep receiving it indefinitely while living abroad you generally need 20 years of Canadian residency after age 18 — totalization-style agreements with certain countries can help bridge a shortfall by counting years spent there. OAS also carries a recovery tax ("clawback") of 15 cents per dollar of income above CAD $93,454 (2025), fully clawed back by CAD $152,062 (ages 65–74) or $157,923 (75+) — though residents of a treaty country may be exempt from the clawback specifically, even while remaining subject to ordinary withholding.

References

CRA — Determining an Individual's Residence Status · CRA — Income tax rates · CRA — Corporation tax rates · CRA — Enhanced trust reporting FAQ · Canada.ca — CPP/OAS while living abroad

This page is general information, not tax advice, and not a substitute for advice on your specific situation. Canadian federal and provincial tax rules change yearly — always confirm the current position with the CRA or a qualified professional and contact us before acting. ← Back to Tax overview