How income tax for foreigners in Canada works (UK guide)

Moving to Canada from the UK? Perhaps you’re spending time over there for work, or have business or investment interests in the country.

Whatever your situation, if you earn money in Canada then you’re going to need to know about its income tax system - and whether it applies to you.

In this helpful guide for UK expats, we’ll cover how income tax in Canada works for foreigners. This includes who has to pay it, bands, rates and everything else you need to know.

We’ll also show you how to save on fees when making tax or other multi-currency payments abroad - with the Wise account.

Learn more about the Wise account

Tax basics for foreigners living in Canada

Foreign nationals living in Canada permanently must pay tax on all income earned in the country. This is only if you’re considered a tax resident of Canada - which is usually if you spend at least 183 days a year living there.¹

Under the country’s tax laws, foreign permanent residents are treated the same as Canadian nationals. You’ll need to submit a tax return and pay taxes to the Canada Revenue Agency (CRA).

The tax year runs from 1st January to 31st December, and tax returns are due on 30th April.²

Another important thing to know about income tax in Canada is that it has both federal (national) taxes and provincial/territorial taxes. We’ll look at the income bands and rates for these shortly.

Overview: Income tax for expats living in Canada

Here’s some handy at-a-glance info on income tax for UK expats living in Canada:

Who has to pay income tax in Canada?

Anyone who is a resident of Canada for tax purposes needs to pay income tax, as do non-residents who earn income in the country.

Non-residents may be people who are in the country temporarily on short-term student visas or working holiday visas, or who live in the UK but have income-earning business interests in Canada.

Income tax for residents vs non-residents

Tax in Canada is different for non-residents compared to residents, starting with what income is considered taxable.

Residents need to pay Canadian tax on all of their worldwide income while living in Canada. For non-residents, only income derived from Canada (i.e. through a Canadian job, business, property or investment) is taxable.³

Residents and non-residents may pay different tax rates, depending on the type of income.

How does income tax work for foreigners in Canada?

For foreign residents, income tax is calculated in the same way as for Canadian nationals.

Any deductible expenses and losses are deducted from assessable income, which includes salary, wages, allowances and cash compensation. It may also include investment income, bank account interest and other forms of income.

From this amount, taxable income is determined and the appropriate rate of tax is applied. The same process applies to calculate federal taxes and provincial/territorial taxes.

Most people living and working in Canada will need to submit an annual tax return - either a Section 217 tax return or an income tax return for non-residents, depending on your situation.⁴

Self-employed people, freelancers and businesses also need to file tax returns and pay income taxes.

📚Canadian tax codes

Income tax for businesses in Canada

Businesses in Canada need to pay corporate income tax on their revenue, on both a federal and provincial/territorial level.

Federal taxes start at 38%, which in effect is 15% after tax abatements and reductions. There’s a reduced rate of 9% for small businesses.⁵

Income bands and tax rates in Canada

Now, let’s take a look at income bands and tax rates in Canada for 2025:⁶

Bear in mind that you’ll only pay the given rate of tax on the portion of income that falls into each tax bracket.

So if you earn $60,000, you’ll pay 15% on $57,375 and then 20.5% on the remaining $2,625.

Non-residents pay tax at the rates above for employment and business income deriving from Canada. But for some other types of income such as dividends, pension and annuity payments, a withholding tax of 25% will apply - this will be deducted by the provider before the sum is paid to you.⁷

And don’t forget that there are also provincial/territorial income taxes to factor in. You can see rates for each region of Canada on the tax rate section of Canadian government site.

Manage your money internationally with the Wise account

After reading this, you should have a better idea of how income tax in Canada works for foreigners.

We’ve looked at who pays it, rates, income bands and more. All of this information should be helpful if you’re moving to Canada, or spending time working in the country.

If you do have a tax bill or other payment to make between countries, you’ll need a cost-effective way to make the transfer.

Open a Wise account online and you can manage your money in 40+ currencies all in one place.

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Sources used:

1. Government of Canada - Deemed residents of Canada
2. HSBC Expat - Tax in Canada
3. PwC - Taxes on personal income
4. Taxback - Non-resident tax returns
5. Xero - Understanding small business tax rates in Canada
6. Government of Canada - Tax rates and income brackets for individuals
7. Government of Canada - Tax for non-residents of Canada

Sources last checked on date: 17-Mar-2024