Taxes in Canada for investors

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A tax is a legally established mandatory, individually executed monetary payment, which is periodically collected from legal entities and individuals to finance the activities of the state. It is collected and paid only in cash. This means that it is impossible to pay tax in goods, products and other tangible and intangible equivalents.

All taxes are established by the state. The main document in the field of taxation is the Tax Code. It defines the foundations of the tax system in the country.

Canada and capital

There is no special capital gains tax in Canada. It is subject to the same income tax, but only 50% of the amount. For example, if you made a profit of $5,000 from the sale of shares, then $2,500 would have to be added to your annual taxable income.

If you suffered a loss during the sale of capital (sold cheaper than you bought), then it can be applied to any amount of capital gains received during the year, thereby reducing the tax base. Unused losses can also be carried forward to the previous three years or future periods.

Taxation of dividends

The taxation of dividends works according to separate rules. First, the entire amount of dividends is taxed, as well as their gross profit, depending on the category.

There are two types of dividends in Canada: eligible (corporations that are not eligible for the small business deduction and therefore pay higher taxes) and ineligible (small business dividends).

Profit of acceptable dividends is 38%, unacceptable – 15%. That is, if you received both types of dividends of $200, your taxable income will be:

200 x 1.38 + 200 x 1.15 = 276 + 230 = $506.

The second nuance is that you are entitled to a tax deduction, since the dividend income that the company should have earned was already taxed at the corporate rate (only for Canadian companies).

For eligible dividends, the deduction is 15.0198% of taxable income, for the rest – 9.0301%. In our example, the deduction would be:

276 x 15.0198% + 230 x 9.0301% = $62.22

Foreign dividends are treated as interest income and are taxed at the full rate, they are not tax deductible.

Taxes for non-residents

Non-residents are subject to a 25% tax rate on certain types of Canadian-sourced income. It covers interest, dividends, royalties, pension payments and rental income.

In the presence of an agreement on the avoidance of double taxation, the tax rate can be reduced to 15, 10 or even 5%. Thus, tax residents of Russia pay a tax on dividends of Canadian companies of no more than 15%.

Important!

If a person or organization does not pay taxes, then tax sanctions can be applied to them. This is a measure of responsibility for violation of tax laws, applied in the form of a fine. Each type of violation has its own types of penalties. It is also worth remembering that in addition to the taxes themselves, there is also tax reporting. It is also rented, both by individuals and legal entities.

In some cases, criminal liability for non-payment of taxes may be provided. We are talking about large sums. In addition to the fine, in case of violation of the deadlines for paying the tax, the law establishes the payment of penalties.

Thus, if you do not provide a tax return, do not pay tax, or pay it incompletely, then you will have to spend additional money on paying fines and penalties. Therefore, taxes must always be paid on time.

Read more: https://taxtaxation.com/taxes-for-individuals-in-canada/