Why New Immigrants in Canada Should Report Their Foreign Income
As a new immigrant in Canada, you may be wondering if you should report your foreign income to the Canada Revenue Agency (CRA) while filing your income tax. While it may seem like an unnecessary hassle, there are several compelling reasons why you should do so.
As a new immigrant in Canada, it’s crucial to report your foreign income to the Canada Revenue Agency (CRA) when you file your income tax.
While reporting foreign income may not always result in an increase in your Government benefits payments, such as Canada Child Benefit (CCB), it’s still important to do so to avoid any penalties for non-disclosure.
In this article, we will explore three strong arguments for why reporting your foreign income is a smart move.
It’s the Law
First and foremost, as a resident of Canada, you are legally obliged to report your worldwide income to the CRA, including any income earned from foreign sources.
If you fail to report your foreign income, it may result in penalties, interest, and even prosecution for tax evasion.
Additionally, it’s important to note that the CRA has information-sharing agreements with many countries worldwide, so they can obtain information about your foreign income and holdings even if you don’t report them.
For example, let’s say you’re a new immigrant from India and you earned your income there before coming to Canada, but you decide not to report it while filing taxes in Canada because you think, you have already paid taxes on that income in India. Later on, the CRA discovers your foreign income through their information-sharing agreements with India. As a result, now you will have to face severe consequences, including penalties, interest, and even prosecution for tax evasion.
It’s simply not worth the risk to avoid reporting your foreign income if you like enjoying a simpler life.
Eligibility for Benefits and Credits
Your “net income” is your total worldwide income minus applicable (only canadian) deductions.
Obviously, your net income will be higher if you disclose your foreign income as well and a higher net income is a simple Canadian recipe to limit your eligibility to claim benefits and credits, such as the Canada Child Benefit (CCB).
This happens because most benefits, such as CCB payments, are calculated based on your family’s net income. The higher your net income, the lower your benefits will be.
However, there’s still hope for those with a higher income who want to increase their benefits payments. By applying for deductions and credits, you can effectively reduce your net income and this will potentially increase your benefits payments.
Some common deductions that can be claimed to reduce net income include charitable donations, moving expenses, child care expenses, and the deduction for RRSP, CPP or QPP contributions. Other credits, such as the Canada employment amount or the public transit amount, can also be used to reduce taxable income.
For example, let’s say that you are a Canadian resident and also have foreign income from a rental property that you own in another country. If you don’t report this foreign rental income to the CRA, your net income will be lower, which may make you eligible for a higher CCB payment. However, if you do report your foreign rental income then obviously your net income will increases but you may still be eligible for higher CCB payments if you are able to apply “deductions and credits” to reduce your “net” income.
By properly managing your deductions and net income, you can increase your CCB payment. Remember, proper tax planning and financial management can help you make the most of your income and benefits.
Establishing Creditworthiness
Reporting your foreign income also helps you establish your creditworthiness in Canada.
By reporting all your income, you demonstrate to financial institutions and lenders that you have a stable and reliable income source. This can be helpful when applying for credit cards, loans, and mortgages in the future.
For example, let’s say you’re a new immigrant who earns income from a foreign country and decides not to report it. Later on, when you apply for a mortgage, the lender may question your income sources and your ability to repay the loan. However, if you reported all your income, including your foreign income, it shows that you have a stable and reliable income source, making you more creditworthy.
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