May 13, 2026
Canada has a comprehensive personal income tax system. The taxes that are collected are used to fund, among other things, infrastructure, education, healthcare and numerous other services across the country.
Income tax is imposed at both the federal and provincial or territorial levels of government on an individual basis. In addition, the federal government has entered into tax treaties with a majority of countries in the world that impose income tax in the interest of avoiding double taxation and to facilitate the administration and enforcement of tax laws of both Canada and its international partners.
While the Departments of Finance for the federal, provincial and territorial governments determine personal income tax legislation, this legislation is administered by the Canada Revenue Agency (CRA), with the exception of the province of Quebec where Revenu Québec administers personal income tax. Personal income tax is collected by the CRA for the federal, provincial and territorial governments and by Revenu Québec for the province of Quebec.
In Canada, income tax is imposed based on your tax residency status and not your citizenship. Residents of Canada are required under the Income Tax Act (the “Act”) to pay tax on their worldwide income. Nonresidents also have an obligation to pay tax but only on their Canadian sourced income. The majority of this article will focus on taxation related to a Canadian resident. For Canadian residents, income tax is calculated on an individual basis based on a person’s net income for tax purposes in the tax year (which runs from January 1 to December 31).
If your move to Canada is the result of an international employment assignment and you’ve entered into a special agreement with your employer (e.g. a tax equalization or a tax protection agreement), the calculation of your ultimate liability for income tax under the agreement must be considered and it may affect the type of planning strategies that may be appropriate for you.
Your tax residency status in Canada is either resident or non-resident. This status is relevant with respect to determining your exposure to Canadian income tax and your filing requirements. A resident of Canada may be either a factual or deemed resident of Canada.
The date you become a resident of Canada for Canadian income tax purposes may differ from the date you become a resident for immigration purposes or obtain Canadian citizenship.
Based on the domestic tax laws of Canada and the foreign country, you may be considered resident in both countries for income tax purposes. However, where there’s a tax treaty between Canada and the foreign country, certain rules may apply that may deem you to be a non-resident of one country. These rules are commonly referred to as the “treaty tie-breaker” rules. If there’s no tax treaty, you may be resident in both countries and have income tax and tax filing requirements in both countries.
Determining your Canadian residency status can be complicated. A more detailed discussion regarding the determination of Canadian residency status is provided in a separate article. Your RBC advisor can provide you with a copy of that article. As well, it’s important to speak with a qualified tax advisor to determine your residency status for tax purposes.
For Canadian tax purposes, on the date you become a tax resident of Canada, you’re deemed to have disposed and reacquired certain worldwide assets you already own at fair market value (FMV). The assets to which the deemed acquisition rules apply include foreign currency, securities (such as stocks, bonds, rights, options) and real estate located outside of Canada but exclude real estate located in Canada. This deeming rule applies whether or not you physically move the assets to Canada when you move here.
You’re also deemed to have acquired your assets at their fair market value (FMV) on that date and that value becomes the new adjusted cost base (ACB) of your assets for Canadian tax purposes. The ACB is relevant because it’s used to determine your capital gains and losses for Canadian income purposes on a future disposition of that asset.
The deemed acquisition rules serve to ensure any gains or losses that accrued before your Canadian residency are not included in determining your future Canadian tax liability.
If you moved to Canada from a foreign country and did not dispose of your assets before your move, it’s possible that the foreign country may not levy tax on the accrued gains. If this is the case, you may not be subject to tax on the value of the accrued gains (up to your Canadian residency date) due to the deemed acquisition rules in Canada. This tax windfall may apply to a number of your assets that have accrued gains, except assets such as real estate located in the foreign country. This is because real estate continues to be subject to tax in most foreign countries even after you leave their tax system.
After you’ve attained Canadian residency status for income tax purposes, there are no Canadian income tax implications associated with physically moving foreign currency or securities in-kind to Canada. However, when you convert foreign denominated cash to Canadian dollars or use it to purchase another asset or investment, you’re disposing of that foreign currency, which is a taxable event and may result in a foreign currency exchange gain or loss. The gain or loss is calculated as the difference between the value of the foreign denominated cash converted to Canadian dollars on the date you establish Canadian residency and the value of the cash converted to Canadian dollars on the date it’s converted or used to purchase another asset. For individuals, the total annual gain or loss that’s in excess of $200 on converting foreign denominated cash is subject to Canadian tax.
That being said, an exchange gain or loss is not triggered if foreign denominated currency is used to invest in assets or accounts considered to be “cash on deposit,” provided the investments are denominated in the same foreign currency. For example, a gain or loss is generally not triggered if you use the foreign currency to purchase a term deposit in the same foreign currency or if you transfer the foreign currency to a high interest savings account denominated in the same foreign currency. However, if you purchase investments such as Canadian mutual funds, bonds or Canadian stocks, even if these investments are denominated in the same foreign currency, you will trigger a foreign exchange gain or loss on the currency.
If you own securities in a foreign account and you decide to transfer them to a Canadian investment account in-kind, you may want to provide the Canadian financial institution with the stepped up ACB of those assets as a result of the deemed disposition rules outlined earlier. For assets you decide to maintain outside of Canada, you should keep records of their stepped up ACB for Canadian tax purposes. For those investments you decide to consolidate with a Canadian financial institution, but it’s determined that they cannot be transferred in-kind and are disposed of, the disposition is reportable for Canadian income tax purposes.
If you were previously a tax resident of Canada and gave up your Canadian residency status, you would have been deemed to have disposed of certain property you own (such as non-registered investments or foreign real estate) at its FMV. Any capital gains realized as a result of this deemed disposition would have been taxable on your final Canadian income tax return (known as a “departure return”). The tax liability resulting from this realization of accrued capital gains is known as “departure tax”.
If you have now moved back to Canada and still own property that was subject to this departure tax in the year you moved away, there is a special tax election that you can file to unwind the departure tax you originally paid.
The election effectively reduces or eliminates the tax that was triggered when you left Canada, potentially resulting in a refund of the Canadian tax you previously paid. Therefore, the Canadian tax on the capital gains that had accrued before you left Canada is deferred until you actually sell the property. In addition, if your marginal tax rate in the year the property is actually sold is lower than when you departed Canada, you will incur less Canadian tax on the eventual sale. Conversely, if your marginal tax rate is higher in the year the property is actually sold, you will pay more tax on that accrued capital gain.
It’s important to speak with a qualified tax advisor to determine if you’re eligible to make an election to unwind any previously paid departure taxes and to ensure this strategy is right for you.
Your net income for Canadian tax purposes is basically the income you earned in the year on a worldwide basis, less certain permitted deductions.
Income includes both employment and investment income. Investment income can take the form of interest, dividends or net capital gains from the disposition of capital property. The income tax treatment for each form of investment income is different. For example, 100% of interest income is included in income for tax purposes, while only 50% of net capital gains is included. Dividends received from a Canadian corporation are taxed more favourably than interest income. This is due to the dividend tax credit, which reduces taxes payable on this type of income. Dividends received from a foreign corporation, however, are fully taxable, like interest income, and are not subject to the preferred tax rates that are available to dividends from Canadian corporations.
Permitted deductions include expenditures such as child care expenses, investment interest expenses and contributions to certain registered pension plans, provided certain criteria are met.
For more information about the Canadian tax system and the taxation of investment income, ask your RBC advisor for a separate article on tax planning basics.
Canada has adopted a graduated tax system, meaning as more income is earned, more tax is payable on that income. Each level of government has set out a number of tax brackets and each bracket is assigned a specific income tax rate. For taxpayers with low levels of income, a low rate of tax is applied, while individuals with higher levels of income will pay tax at a higher rate on income in the higher tax brackets. A surtax may also apply depending on the province of residence.
In calculating the amount of tax owing, certain credits may apply to reduce that amount. There are non-refundable and refundable tax credits. Non-refundable tax credits can be used to reduce the amount of tax owing to zero. If these credits are greater than your taxes payable, there will not be a refund of the difference. On the other hand, refundable tax credits that exceed your taxes payable may be paid to you if you’re eligible.
The first non-refundable credit, which is available to all individual resident taxpayers, is the basic amount. Any income earned up to this amount is not subject to tax. You may also be entitled to other non-refundable tax credits. Some examples include the donation tax credit if you make a donation to a qualified charity, the medical expense tax credit if you paid for eligible medical expenses, the tuition tax credit if you paid certain tuition fees, a foreign tax credit if you paid tax to a foreign country on foreign income taxed in Canada, and the federal dividend tax credit for Canadian dividend income that was included in your income. Examples of refundable tax credits are the employee and partner goods and services tax/harmonized sales tax rebate, eligible educator school supply credit and the Canada workers benefit.
Factual residents of Canada are subject to income tax at the federal and provincial or territorial level. In the first year of filing a Canadian income tax return, factual residents may need to prorate a portion of certain non-refundable tax credits based on their residency start date.
Deemed residents of Canada are generally not resident in a particular province or territory (except in certain cases under Quebec tax laws) and thus are subject to federal income tax and a federal surtax in lieu of the provincial tax. However, specific types of income sourced to a particular province may be subject to tax in that province. Deemed residents are not entitled to any provincial tax credits.
Federal, provincial and territorial income taxes may initially be collected through a withholding tax taken at source, such as income taxes deducted from employment income paid to you. You may also need to make quarterly tax instalment payments. This together with any withholding taxes taken at source are used to determine the amount of tax owing upon filing your Canadian income tax return.
The income earned by a Canadian resident in a foreign country is taxable in Canada. There may be a tax treaty in place between Canada and the foreign country from which the income is sourced that limits the amount of taxes payable in either the foreign country or Canada and/or dictates which types of income are subject to tax in the particular country.
Generally, some or all of the foreign tax paid may be claimed as a foreign tax credit on your Canadian return, potentially eliminating or minimizing the risk of double taxation. These rules are complex. You should speak with a qualified tax advisor to determine how and where you should report your income and any foreign tax credits you can claim.
As a resident of Canada, it’s important to be aware of the Canadian income attribution rules that restrict certain types of tax planning in Canada. It’s important to keep these rules in mind, as they may affect planning you’ve done in your previous country of residence as well as your future tax planning in Canada. A discussion of the types of tax planning affected and the income attribution rules that apply is beyond the scope of this article. However, you can ask your RBC advisor for a separate article that discusses these attribution rules.
The federal government has included legislation within the Act to provide Canadians with options to plan for retirement and to save for various other purposes. These options are offered to various registered plans, which provide different tax advantages and benefits. Some of the common types of registered plans in the Act include registered retirement savings plan (RRSP), tax-free savings account (TFSA), registered education savings plan (RESP), registered disability savings plan (RDSP) and the tax-free first home savings account (FHSA).
A discussion of these plans and accounts is beyond the scope of this article; however, your RBC advisor can provide you with information and articles on these topics.
Since as a resident of Canada you’re taxed on your worldwide income, if you receive income from a foreign country, that income is generally subject to Canadian tax. This is the case even though the income is not Canadian source and relates to a period when you were not a resident of Canada.
You may be able to claim a foreign tax credit on your Canadian return to reduce your Canadian tax liability. The credit is available for foreign income tax incurred in the same tax year. If the Canadian tax you’re liable for is higher than the foreign tax incurred, there will be more Canadian tax you’ll need to pay on your Canadian income tax return. Basically, the tax rate you pay on that foreign income is the higher of the two country’s tax rates. If the foreign tax was incurred in a different tax year, a foreign tax credit will generally not be permitted on your Canadian return. As a result, you will end up paying double tax (both Canadian and foreign tax) on the income.
Examples of the types of foreign income you may receive after settling in Canada include a bonus paid from your previous employer in the foreign country or income from employee stock options exercised in Canada that were granted while you were a non-resident of Canada.
If you were paid the bonus or exercised the employee stock options before you moved to Canada, you would not be exposed to the potential excess Canadian tax or double tax.
If you’re the settlor, trustee or beneficiary of a trust that was created outside of Canada, you should talk to a qualified cross-border tax professional about the potential tax implications (in Canada or in the foreign country) that may apply as a consequence of your move to Canada.
For example, if you’re the sole trustee of a trust that was created outside of Canada, the trust may now be considered resident in Canada. As a result, the deemed acquisition rules, discussed earlier, will apply to the assets in the trust and the trust will be subject to Canadian income tax, as a resident in Canada. It’s also possible that the taxation of the trust under Canadian and the foreign country’s tax rules may not coincide, resulting in unfavourable tax consequences such as double taxation.
If you continue to contribute to a foreign retirement plan once you become a tax resident of Canada, there are a few matters you should be aware of for Canadian income tax purposes.
Firstly, contributions made to the foreign plan are generally not deductible. However, a tax treaty between Canada and the foreign country (e.g. U.S., Germany, UK and France) may provide circumstances where you can deduct them against your taxable income in Canada.
Secondly, the foreign plan will usually be treated as an employee benefit plan (EBP) for Canadian tax purposes during the first 60 months you’re resident in Canada. Beyond 60 months, contributions to the plan may be considered to be made to a separate plan that’s taxed as a retirement compensation arrangement (RCA).
An employer contribution to an EBP or an RCA and the income earned within such a plan is not included in your income for Canadian tax purposes. These amounts will be subject to taxation in Canada when you make a withdrawal from the plan. In addition, for RCAs, 50% of the contributions and earnings must be transferred to a non-interest bearing refundable tax account with the CRA. When withdrawals are made from the RCA, the associate balance within the refundable tax account is refunded to the RCA by the CRA. For more information on the taxation of RCAs, ask your RBC advisor for a separate article on this topic.
The RCA tax treatment will not apply if your employer makes an election with the CRA within a specified period, to request that the CRA continues to treat the plan as an EBP. If you’re a resident of Canada at the time of receipt of amounts from an EBP, including any allocation of income earned by the plan, the amounts received may be taxable as employment income. Contributions made during the year to an EBP by your employer may impact the amount you can contribute to an RRSP in the following year.
Canadian tax laws generally allow a tax deferral on income earned from foreign pension plans until payments are received from these plans. A foreign tax credit for income taxes paid to a foreign jurisdiction may be claimed to minimize or eliminate double taxation.
There are also special tax provisions in the Act that may allow you to move the gross value of the assets from a foreign pension plan to an RRSP on a tax-neutral basis. For more information, ask your RBC advisor for a copy of an article on this strategy.
In Canada, there are special tax rules that allow for pension income splitting. Spouses can elect to allocate up to 50% of qualified pension income received by one spouse to the other spouse for Canadian income tax reporting purposes. This allocation may result in overall tax savings to the couple. In addition to Canadian pension income, foreign pension income you receive may also qualify for pension income splitting. For more information about pension income splitting, ask your RBC advisor for a separate article on this topic.
If you move to Canada and establish factual residency partway through a calendar year, you must file a “part-year return” reporting your worldwide income from the date you established residency for tax purposes until December 31 of that year. If you’re a deemed resident of Canada, you’re considered a Canadian resident starting on January 1 and you must file a “full-year return” and report worldwide income for the entire year.
Canadian residents file individual tax returns on a calendar-year basis. The deadline to file a part-year or full-year individual Canadian income tax return and pay your Canadian tax liability is April 30 of the following taxation year. If you or your spouse are self-employed, the filing deadline for your individual Canadian tax returns is June 15 of the following taxation year; however, the tax liability is still due by April 30 of the following taxation year. If you do not file your income tax return or pay your tax liability by these deadlines, you may be subject to interest and penalties. In addition to your tax return, you may need to complete other tax filings such as an information return to disclose foreign income and assets.
Canadian residents who at any time in the calendar year own or have a beneficial interest in specified foreign properties with a total cost greater than C$100,000 are required to file an annual information return with the CRA, Form T1135 – Foreign Income Verification Statement.
A Canadian resident individual does not have to file this form for the year they first become a resident of Canada. However, this exception does not apply if you’re returning to Canada and you re-establish Canadian residency. For more information on Form T1135, ask your RBC advisor for an article on this topic.
Additional foreign reporting may be required under Canadian tax rules if you have an interest in a foreign corporation or a foreign trust. Speak with a qualified tax advisor for more information.
Individuals employed in Canada and their employers must contribute to the Canada Pension Plan (CPP), or the Quebec Pension Plan (QPP) for employees in Quebec, as well as Employment Insurance (EI). Your Canadian employer will deduct these contributions at source from your wages.
If you’re an employee of a company that transferred you to Canada to work for a limited period and you continue to be covered by a comparable plan in your home country, you may be able to waive your requirement to contribute to CPP/QPP if you qualify under a social security agreement (or totalization agreement). Canada has entered into a number of agreements with various countries. Quebec has entered into similar agreements regarding QPP. Speak to your employer or qualified tax advisor about whether you may qualify under a social security agreement for relief from double social security taxation. For more information, visit the Service Canada website.
If you’ve lived or worked in Canada and in another country, or you’re the surviving spouse or common-law partner of someone who lived or worked in Canada and in another country, you may be eligible for pensions and benefits from Canada and/or from the other country. If you do not qualify for benefits from Canada and/or the other country, a social security agreement may help you qualify for some benefits.
A social security agreement is an international agreement between Canada and another country. One of the main objectives of these agreements is to ensure that the pension programs for people who have lived or worked in both countries are coordinated. Canada has signed social security agreements with a number of countries that offer comparable pension programs. The social security agreements vary from agreement to agreement.
To receive Canadian benefits, you will need to meet certain contributory or residency requirements. If you’ve lived and/or worked in Canada and in another country and do not meet the requirements for CPP or Old Age Security benefits, a social security agreement may help you qualify.
To confirm whether there’s a social security agreement in place with Canada and another country and for information regarding applying for benefits from Canada or the other country, please contact Service Canada.
Canada does not have a gift, estate or inheritance tax system. However, during your lifetime, for Canadian income tax purposes, if you make a gift of appreciated assets to someone other than a spouse, you’re deemed to have disposed of these assets at their FMV and will be taxed on the accrued gains and losses realized on the transfer in the year the gift is made. In addition, the income attribution rules referenced earlier may apply to attribute future income earned on the transferred assets back to you, so care must be taken when such decisions are made. Upon your death, you’re deemed to have disposed of your assets at FMV, unless the assets are left to your surviving spouse. As such, income tax on the accrued gains on your assets may be payable at that time.
Canada does not generally allow foreign tax credits for gift, estate or inheritance tax that you may incur in a foreign country on foreign source assets. You should speak with a qualified tax advisor in the country you moved from to determine if you’re subject to gift, estate, or inheritance tax in that foreign jurisdiction.
You may have moved to Canada with a Will and powers of attorney that were drafted and executed in a foreign country. The laws of the country and/or jurisdiction where your documents were prepared and executed may differ from those of the provincial or territorial jurisdiction within which you reside presently. As a result, the validity of these documents may be uncertain.
After you move to Canada, it’s important to ensure you have a valid Will that properly addresses your wishes for how your assets are to be distributed on your death. You should review your current Will with a qualified legal advisor to determine whether your Will is valid in accordance with the laws of the province or territory in which you’re now living. You may need to update your Will or draft a new Will. You may also wish to consider who you have named as your executor(s) or trustee(s) in your Will. If they’re non-residents of Canada, they may no longer be suitable candidates for a number of reasons, including tax, legal and compliance issues.
If you have assets located in different parts of the world, such as real property, you should review the laws in each country to determine whether it makes sense to have a separate Will in each country, or whether an international Will (where possible) is more appropriate. It’s important when you have separate Wills that they are drafted properly so that one does not revoke the other, and they deal with both Canadian and foreign assets separately as coexisting legal documents.
After your move to Canada, you may want to consider having powers of attorney that appoints someone to manage your financial and personal affairs should you become incapable. With the legal requirements for valid powers of attorney documents differing from country to country, if you already have powers of attorney, you may need to draft new ones that are valid in accordance with the laws of your province or territory of residence.
If you own property in other countries, such as real estate, it may be prudent to have a separate power of attorney for the jurisdiction where the property is located to ensure these properties can be properly managed. It’s important when you require a separate power of attorney for assets located in Canada and in a foreign country that one does not revoke the other, and they deal with Canadian and foreign assets separately as coexisting legal documents.
If your stay in Canada is not permanent and you later decide to move from Canada, it will be important to consider the tax implications of ceasing Canadian residency. When you cease Canadian residency, you’re deemed to dispose of your assets at FMV (with certain exceptions). This will trigger the accrued gains and losses on your assets, which will be subject to Canadian tax. If you were resident in Canada for not more than 60 months out of the prior 10 years, any assets you owned when you became a Canadian resident will not be subject to the deemed disposition rules when you cease residency. For more information ask your RBC advisor for a separate article on moving from Canada.
Now that you’re a resident of Canada, it’s important to understand the Canadian tax system and the effects it may have on your income tax and estate planning. Speak with a qualified tax and legal advisor who may be able to provide tax planning strategies and help you ensure your estate planning wishes can still be executed.
This article may contain 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.