Although we Iranians are familiar with the concept of taxes and pay them, we are not very accustomed to hearing the word ‘tax’ frequently! Meanwhile, in societies like Canada, the term tax is intertwined with money and is a very serious matter. This raises questions in the minds of immigrants or those who are newly planning to migrate to Canada, including whether transferring money to Canada is subject to tax.
In this article from Hafez Exchange, we intend to briefly, yet comprehensively, discuss the money transfer tax in Canada and all the steps you need to take before and after migration in this regard, and answer your most common questions. If you are planning to migrate to Canada, we highly recommend you stay with us.
Are bank accounts in Canada subject to tax?
In Canada, there are income and asset taxes, but bank accounts are indirectly subject to tax. In other words, the amount in your bank account in Canada is not directly taxed, but the interest earned on that amount as income from the bank will be subject to tax.
Interest on checking and savings accounts in Canada
It doesn’t matter whether the account you opened in the bank is a checking or savings account; all bank interests in Canada are subject to tax. At the end of the year (tax period), government officials calculate the interest earned from all your bank accounts in various banks and inform you of the tax rate on them.
Tax on investment accounts in Canada
Investment accounts are no exception, and like all other accounts, their interest is subject to tax. However, the difference is that depending on the type of investment, the amount of tax applied to the earned interest will vary.
Tax return in Canada
Many of the tax mechanisms in Canada are similar to those in Iran. In Canada, it’s not like in the movies where a tax officer comes to your place every year to review all the invoices from the past year and forcibly collect the tax from you. Instead, there is a logical system called a tax return.
A tax return is essentially an annual tax report that you need to prepare yourself. All legal entities or individuals who own a business in Canada are required to prepare and submit their tax return annually to the Canada Revenue Agency (CRA).
In this tax return, you must accurately record all your direct income along with all expenses incurred (salaries, rent, repairs and maintenance, etc.) during the past year.
The Canada Revenue Agency reviews the accuracy of this return and, upon approval, calculates and notifies you of your annual tax amount accordingly.
Additionally, individuals in Canada must also submit a tax return for their personal income.
Also read: Guide to transferring money to Canada via cryptocurrency
Important Points on Taxation of Money Transfer to Canada
Transferring money to Canada is subject to its own specific tax laws. Therefore, if you intend to immigrate to this country and transfer funds, it’s important to be familiar with key considerations in this regard:
- Before transferring any money to Canada (for investment in real estate, business establishment, or even purchasing stocks, forex, etc.), it is essential to speak with a professional accountant familiar with Canadian tax laws and seek their advice.
- Keep in mind that due to Western banking sanctions against Iran, direct transfer of money via banks from Iran to Canada (and vice versa) is not possible.
- For accurate information and updates in this field, rely only on official and reputable sources.
There are various methods available today for transferring money to Canada. However, using services from reputable Iranian/Canadian exchanges (such as Hafez Exchange) remains the best and safest option for you
Types of Income Taxable for Students in Canada
Whether you are an immigrant student, hold a temporary visa, or have not obtained permanent residency, as long as you are legally present in Canada and engaged in studies, all your direct and indirect income is subject to taxation and must be reported in your tax return.
Students in Canada typically engage in part-time jobs within or outside of their universities and earn wages, or if financially capable, they may earn interest from investments in banks or financial institutions. However, regardless of the income source, all earnings from employment or investments by students in Canada are taxable, similar to ordinary citizens, and must be reported in their tax return
Capital Gains Tax in Forex Trading
Forex trading in Canada is akin to the stock market in Iran. Many individuals engage in forex trading professionally, but most participants are ordinary citizens who invest in forex to secure capital and earn income.
Regardless of how you participate in forex trading, all income derived from forex investments in Canada is subject to taxation. However, if you are not engaged in forex trading as a business or profession, you will only be subject to capital gains tax on your investment returns. The biggest advantage of capital gains taxation in forex is that there is a 50% capital gains inclusion rate, meaning only 50% of your capital gains are taxable.
It’s important to note that incomes below $200 (Canadian dollars) from forex trading in Canada are exempt from tax. Additionally, apart from income levels, the method you use to declare your income also affects the final tax payable
Benefits of Capital Gains Tax
In Canada, you don’t necessarily need to trade forex professionally to achieve significant income from the forex market. Positive economic indicators in the country often create high-income earning opportunities from investment returns.
The thriving economy has led to capital gains from forex trading being taxable in Canada. However, the capital gains tax applied to ordinary citizens is often subject to exemptions and tax incentives, making a substantial portion of their investment returns from this market eligible for tax breaks.
The Canadian government categorizes income from capital gains in forex trading for ordinary citizens as an indirect income and calculates taxes with a simplified approach. These simplifications are aimed at encouraging more investment in forex among the general population
How to Reduce Bank Account Taxes:
Bank accounts in Canada themselves are not subject to taxation, but the income derived from them (in the form of interest paid by the bank) is taxable. Interestingly, if you open a TFSA (Tax-Free Savings Account) at a bank, the investment income from it is also exempt from taxes. TFSA is essentially a tax-exempt savings account where bank interest earnings are not taxed.
This type of bank account typically serves long-term savings goals rather than income generation. For example, many Canadian parents use such accounts to save capital for their children’s future needs
Tax on Money Transfers Before Immigration
Note that Canada does not impose a tax on your capital funds, but only taxes the income generated from them. In many cases, immigrants who choose Canada as their destination need to transfer a certain amount of personal capital to the country before their arrival. This amount might be for purposes such as paying university tuition, purchasing or renting housing, setting up a business office, and so on.
Fortunately, the Canadian government considers the money transferred before immigration as personal capital and, except under certain conditions, does not subject it to tax.
Before finalizing your immigration to Canada and obtaining your entry visa, almost none of the funds you transfer will be subject to tax.
Taxation After Immigration
After arriving in Canada and obtaining your citizenship card (permanent or temporary), the situation changes. Now you have accepted all the laws of Canada and reside in the country as a citizen. One of these laws is taxation.
Immediately after immigrating to Canada, all your direct and indirect income will be subject to tax and must be reported in your annual tax return. In case of any tax violations, you may face financial penalties, bank account freezes, and legal prosecution. If your residency documents are not permanent, there is even a chance of deportation.
Also read: Paying Canadian university tuition fees through exchange offices
Forex Taxation in Canada
Forex trading has become very popular among Iranians in recent years, and its name has reached everyone. Please note that any income from Forex trading in Canada is subject to taxation (although the amount depends on various conditions). Therefore, before blindly entering this market and making small or large investments, we recommend consulting with accounting specialists and experienced Forex investment advisors.
Be aware that if the Canadian government suspects you of evading taxes on Forex profits, it can easily freeze or confiscate all your capital!
Bank Account Taxation in Canada
Bank accounts in Canada are not subject to taxation, but any income earned as interest from these accounts will be taxed. It does not matter whether your account is a checking, savings, or investment account; any income generated from the capital held in the bank is subject to tax.
However, there are some long-term savings accounts that are considered tax-exempt, though they do not provide substantial interest earnings.
How is the Tax System in Canada?
Taxation in Canada is a serious matter, and the government enforces strict measures to ensure its collection. Generally, there are three types of taxes in Canada that every citizen (whether immigrant or non-immigrant) is required to pay:
Income Tax
In Canada, all income earned directly or indirectly is subject to taxation. The majority of this tax is collected by the central or federal government, with a smaller portion allocated to the provincial government. All forms of income, including investment returns, monthly salaries, sales commissions, and freelance earnings, must be reported in your tax return and taxed accordingly.
One of the appealing aspects of Canada’s tax laws is the progressive nature of income tax. As your income increases, the amount of tax you pay also increases progressively. This system ensures that economically stronger individuals pay more in taxes compared to those with lower incomes, promoting a sense of fairness and equity.
Sales Tax – GST (Goods and Services Tax), HST (Harmonized Sales Tax), and PST (Provincial Sales Tax)
This type of tax is essentially a consumption tax or sales tax, similar to the value-added tax (VAT) in Iran. In Canada, for every item you purchase, you must pay a certain amount of tax. This includes everything from buying a pack of gum or a cup of coffee to purchasing property or making large economic investments.
Consumption tax differs from the main income tax recorded in tax returns and is automatically applied to the price of goods and services offered. However, much like in Iran, some items in Canada are exempt from this tax, such as certain medications, healthcare services, and others.
Property Tax
Property tax applies to land, real estate, and substantial assets such as vehicles, among others.
How Long Does It Take to Transfer Money to Canada via Exchange Services?
Using exchange services is the best method for transferring money to Canada. Small or less reputable exchange services typically take between 2 to 5 business days to transfer your funds from Iran to Canada. However, reputable exchange services like Hafez usually only need 1 to 2 business days to complete the dollar transfer.
How Much Money Can Be Taken Out of Iran?
The amount of money you can take out of Iran depends on the method you intend to use. If you plan to carry cash as a traveler, Iranian airports typically do not permit individuals to carry more than 5,000 euros per person. However, using international financial institutions like Western Union (though their services are sanctioned in Iran), you can transfer up to 10,000 USD per day.
Transferring money through exchange services, on the other hand, has no such restrictions, and you can transfer any amount you desire on a daily basis.
Can Money be Transferred to Canada through Iranian Banks?
Iran has been under extensive banking sanctions from Western countries for many years. Consequently, it is generally not possible to transfer money directly to Canada through Iranian banking systems. It is advisable to use exchange services for transferring funds instead.
Taxation for Students in Canada
Students in Canada are not required to pay taxes on tuition fees, dormitory costs, and similar expenses. However, if they are employed (either within Canada or abroad) or earn income from investments, they must pay taxes on that income. Additionally, like all other citizens, they also pay consumption taxes which are included in the prices of goods.
On the other hand, if Canadian immigrant students receive financial assistance from their parents in Iran, this amount is not considered taxable income. However, they are required to declare this amount to the Canadian Revenue Agency upon receipt to ensure it is not counted as part of their taxable income.
Taxation Status for Forex in Canada
Income from forex trading in Canada is subject to taxation. If you are engaged in forex trading as a profession, your income can be taxed at rates that may exceed 60%. However, if you earn income solely from capital gains in this market and the amount exceeds 200 Canadian dollars, you will be subject to lighter tax rates, which max out at 50%.
Individuals who are unaware of forex tax laws often become frustrated by the requirement to pay taxes on their earnings in this field or may risk losing their capital due to negligence in tax payments.
Tax Exemptions for Students
All individuals reaching legal age in Canada are generally required to pay taxes. However, some international students with specific conditions may be exempt from paying income taxes.
Tax Declaration for Students
In Canada, students, like regular individuals, are required to fill out and submit tax returns. In this tax declaration, you must report all your income and expenses (note that some expenses are tax-deductible and reduce your net income, while others are not deductible and are not considered in the calculation of net income).
If you are immigrating to Canada as a student, it is essential to familiarize yourself with the country’s tax laws to avoid overpaying taxes or facing accusations of tax evasion.
Also read: Dollar transfers to Canada – Money transfers to Iran
Importance of Canada’s Tax System
The tax system in Canada holds significant importance as it constitutes the primary source of income for both federal and provincial governments. Through taxation, the Canadian government can provide essential public services to its citizens. The substantial reliance on tax revenues underscores the government’s stringent approach to tax compliance. Therefore, all residents, whether immigrants or non-immigrants, are obligated to respect Canadian tax laws and fulfill their tax obligations diligently.
Summary
In this article, we aimed to provide concise and practical insights into Canada’s tax laws and the taxation of money transfers in Canada. We hope this information has been useful to you.
Frequently Asked Questions About Money Transfer Taxes in Canada
Is transferring money to Canada subject to taxes?
Yes, transferring money to Canada may be subject to taxes depending on the source and amount of the money.
How much money can be transferred to Canada without taxes?
There is no specific ceiling for transferring money to Canada tax-free, but amounts over $10,000 must be reported to authorities.
Is money transferred from outside Canada subject to income tax?
If the money is earned income from abroad, it may be subject to income tax.
What documents are required to transfer money to Canada?
You will need identification documents, proof of the source of funds, and destination bank account information to transfer money to Canada.
Is transferring money from Canada to abroad subject to taxation?
Transferring money from Canada to abroad generally is not subject to taxation, but you should consider the tax regulations of the destination country as well.
