Last Updated on 4th August 2025
Understanding the Canadian tax system is essential for expatriates considering a move. It is equally important for those already resident in the country who need to ensure that every aspect of their income, investments, pensions, and asset sales or purchases is managed tax efficiently.
One of the complexities in Canada is that there are both federal income tax rates and provincial tax bands. The Canada Revenue Agency (CRA) administers both types of taxes, excluding in Quebec, which means most Canadian resident taxpayers only need to complete one tax return.
However, this also means that your exact tax liabilities and the refundable and non-refundable tax credits that you may be able to claim will depend on the tax rates and brackets set by the specific province in which you live.
When Do Expatriates Living in Canada Become Liable to Pay Tax?
Like almost all countries, Canada determines where a person becomes liable for tax on only their income originating in Canada or against their worldwide income and assets based on their residency status. For most expats, the 183-day rule is the easiest way to work this out because if you’ve lived in Canada for 183 days or more within the tax year, you’re likely classified as a tax resident.
This can, though, be more involved since expats might split their time equally between two places and technically be tax residents in both. They might also assume they are tax residents when another set of rules, like the UK’s Statutory Residency Test, categorises them as UK tax residents.
We always recommend that you consult an experienced tax specialist with an in-depth understanding of the UK and Canadian systems or the regime in your country of origin to ensure you’re declaring your income and paying taxes correctly.
Understanding the Income Tax Rates Payable in Canada
Most types of employment income are subject to Canadian income tax, including wages, director’s remuneration, and non-financial perks like the use of a company car. As in the UK, employer contributions to most recognised pension plans are non-taxable.
The federal income tax rates applied to these earnings for 2025 are as follows:
It wouldn’t be practical to list the provincial income tax rates for every Canadian territory here, but to give you an idea, we’ve shown the 2025 tables for Ontario and Newfoundland and Labrador below as provinces with among the highest and lowest taxation.
Even ignoring tax credits and allowances, these examples illustrate why understanding tax rates and how they differ between provinces is key for all expats.
A taxpayer living in Ontario with an income of $200,00 would be subject to taxation of 41.16% on the highest proportion of their earnings. In contrast, the same taxpayer in Newfoundland and Labrador would be exposed to an upper tax rate of 46.3%.
Paying Taxes in Canada Against Investment Income
Interest income in Canada is taxed as if it were ordinary income. However, if an investment product or account that pays interest is held for under 12 months, the taxpayer can choose whether to report the income at the point it is received, when it becomes payable, or as an in-year earning.
In most other cases, interest is reported as accrued income within the tax year and declared on the taxpayer’s return.
Dividends are taxed differently and depend on whether the dividend is categorised as eligible or non-eligible. The contrasts are:
- Eligible dividends are paid by companies that have already paid corporate income taxes.
- Non-eligible dividends are any paid by other corporations or companies that pay business income tax at a lower rate.
Eligible dividends are taxed with a ‘gross-up’, which means the dividend income is added to your other earnings at an amount inflated by 38%. Non-eligible dividends are also grossed up, but only by 15%.
Although it might appear that dividends are being taxed twice, individual taxpayers need to claim the appropriate dividend tax credit, with enhanced credit for eligible dividends, to level out the net tax obligation payable by the taxpayer.
As an example, an eligible dividend worth $500 and subject to a 30% marginal tax rate would attract a net tax liability of $103.50, or 20.7%, and an ineligible dividend of the same value and with the same marginal tax rate would be taxed at $120.75 after the credit, or 24.15%.
Capital Gains Tax for Resident Taxpayers in Canada
Finally, taxpayers should be aware that there isn’t a separate capital gains tax in Canada. Instead, additional income tax is payable against gains based on the taxpayer’s marginal rate. However, the CRA only applies tax on 50% of taxable income.
Exceptions apply to profits made when selling a residential home, which doesn’t attract any tax liability.
Recently, the federal government in Canada announced a plan to increase the proportion of the gain subject to tax from 50% to two-thirds for resident taxpayers with capital worth $250,000 or more per year and for trusts and businesses.
However, this increase has been deferred until 1st January 2026 and may change again before then.
Specialist Tax Advice for Expats Living in and Relocating to Canada
We’ve covered just a broad outline of the Canadian tax system here, but it’s always important to have a detailed overview of your tax position, exposure, and liabilities, particularly when managing an initial relocation, establishing yourself as a Canadian tax resident, or dealing with the transfers and sales of assets like property and investments.
If you would like to learn more about the taxes payable in Canada, or the best ways to structure your income and other earnings as efficiently as possible, please get in touch with the Chase Buchanan Private Wealth Management team.
All investments carry risk, including the potential loss of capital. You should carefully consider whether investing is suitable for you, taking into account your personal circumstances, financial situation, and risk tolerance.
*Information correct as at July 2025
