Ontario Income Tax Guide for New Residents

Last updated on August 16th, 2024 at 03:32 pm

As a new resident of Ontario, you’ll enjoy access to a vibrant economy and benefit from unique tax advantages. This Remitly guide will introduce you to the Ontario and Canadian tax systems. It will explore tax rates and credits to help you start preparing for tax time.

Introduction to Ontario’s Tax System

Both long-time Canadian residents and immigrants who just moved to Canada are responsible for paying taxes. Ontario has two main types of personal taxes: income tax and sales tax. Here’s a quick overview of these taxes.

Income tax in Ontario

You pay income tax on money you receive from your job, self-employment, investments, selling assets, and other sources. Most Ontario residents must file both federal and provincial personal income tax returns once annually.

Sales tax in Ontario

You pay sales tax as a part of the total amount when you pay for things. Most goods and services in Ontario are subject to sales tax, but there are exemptions for:

• Basic groceries
• Agricultural products
• Most farm livestock
• Most fishery products
• Prescription drugs and drug-dispensing services
• Some medical devices
• Feminine hygiene products
• International transportation services

Ontario has just one sales tax, the Harmonized Sales Tax, or HST. It includes a 5% federal Goods and Services Tax and a provincial tax. As of April 2024, the HST for Ontario was 13%.

Key tax considerations when moving to Ontario

For tax purposes, the federal and provincial governments consider you a resident of Ontario if you were living in the province as of December 31st of the tax year. This means that if you moved to Ontario any time during 2023 and were living there as of December 31, 2023, you’ll file a combined 2023 federal and Ontario provincial tax return with the CRA in 2024.

In some cases, people who recently immigrated to Canada may still owe income taxes in their home countries. If you’re unsure about your foreign tax obligations, seek the help of a knowledgeable tax professional.

Understanding income tax rates in Ontario

Three components contribute to your federal and Ontario income tax obligations: your income, your tax rate, and what tax credits and deductions you qualify for. Read on to explore each of these considerations.

Calculating income for federal and Ontario provincial taxes

The following things contribute to your income for federal and Ontario provincial tax purposes:

Employment income

Employment income is money that you receive for your job or occupation, such as:

• Wages
• Commissions
• Research grants
• Clergy housing allowance
• Foreign employment income
• Royalties
• Self-employment income

Capital gains

When you sell an asset, such as an investment or property, you may make a profit, known as a capital gain. In Canada and Ontario, you typically add 50% of capital gains to your income for tax purposes.

The exception is if the capital gain came from the sale of your principal residence. In most cases, capital gains that come from selling your primary home are exempt from income calculations for tax purposes.

Investment income

If you own investments, any interest, dividends, or other income that you receive from them is investment income.

You’ll usually add 100% of the interest received to your income for tax purposes. With dividends, the amount you add varies based on the dividend type:

• Eligible dividends, which are taxed at a higher rate at the corporate level: Multiply the actual dividend amount by 138%.
• Non-eligible dividends, which are taxed at a lower rate at the corporate level: Multiply the actual dividend amount by 115%.

Other income

Based on your financial situation, you may have additional forms of income, including:

• Pension plan income
• Savings plan income
• EI benefit income
• Worker’s compensation
• Social assistance payments
• Rental income

Federal and provincial tax rates

Canada and Ontario have graduated tax rates, so the tax rate gets higher as you earn more income. Refer to the table below for more information about 2024 federal and provincial tax rates.

As you can see from the above table, different tax rates apply to portions of your income. To calculate your tax obligation, you progress through the applicable brackets. The highest bracket you reach is your marginal tax rate, the tax rate at which the next dollar you earn will be assessed.

Let’s perform a sample calculation, assuming that you earned $100,000 in 2023. Your marginal tax rates would be 20.50% at the federal level and 9.15% at the provincial level.

First, you calculate your federal income tax obligation.

Consulting the table above, you see that the first $55,867 that you earned has a 15% tax rate, so you would perform the following calculation:

$55,867 x .15 = $8380.05.

In 2023, $100,000 income falls within the second level of the tax rates, meaning the rest of your income will be taxed at 20.5%.

The first step to performing this calculation is to determine how much of your annual income remains, so you’ll do the following calculation:

$100,000 – $55,867 = $44,133.

You now know that $44,133 of your salary gets taxed at 20.5%, so you perform this calculation:

$44,133 x .205 = $9,047.27

You round the result up to $9,047.27. Now, you simply need to add the two amounts together to get your total:

$8380.05 + $9,047.27 = $17,427.32

The total amount of federal taxes due would be $17,427.32.

Now, let’s move on to your provincial taxes. Looking at the above table, you see that the first $51,446 of your income carries a 5.05% tax rate, leading to the following calculator:

$51,446 x .0505 = $2,598.02

The remainder of your $100,000 income carries a 9.15% tax. First, you need to figure out how much the remainder is by performing this calculation:

$100,000 – $51,446 = $48,554

Now, you apply the 9.15% tax rate to the remainder of $48,554:

 $48,554 x .0915 = $4,442.69

To finish up, you add together the two amounts:

$2,598.02 + $4,442.69 = $7,040.71

Your total Ontario provincial tax obligation works out to $7,040.71.

Tax credits and deductions for Ontario

Ontario and Canada both offer ways for you to save on your taxes, such as:

• Tax deductions: You subtract a deduction from your income before you apply the applicable tax rates.
• Tax credits: You subtract a tax credit from your income after you have applied tax rates, reducing your tax obligation.

There are two main types of tax credits:

• Refundable tax credits: A refundable tax credit can reduce your tax obligation to below zero, potentially qualifying you for a tax refund.
• Non-refundable tax credits: A non-refundable tax credit can only reduce your tax obligation to zero, so you won’t receive a refund based solely on the credit.

Since there are many federal and Ontario tax deductions and credits, you may wish to consult a tax professional who can help you identify which ones you’re eligible for. For information purposes, we have included the following list and table of the most common federal and provincial tax deductions and credits.

Basic personal amount

Nearly all taxpayers qualify for the basic personal amount, a non-refundable tax credit available at both the federal and Ontario provincial levels. The size of the credit depends on your income.

Spousal amount

The spousal amount is a non-refundable tax credit available at the federal and provincial levels for taxpayers who financially support their spouses and common-law partners. To qualify, your spouse’s net income must usually be less than your basic personal amount.

Canada Child Benefit

To help residents pay for basic needs, the federal government offers the Canada Child Benefit to eligible families with children under the age of 18.

The program provides tax-free monthly payments. If you’re eligible, you can sign up for the program through the CRA website.

Disability tax credit

Taxpayers with eligible disabilities may qualify for non-refundable tax credits at both the federal and Ontario provincial levels.

Dividend tax credit

Available at the Ontario and federal levels, the dividend tax credit helps offset some of the taxes associated with dividends paid by Canadian companies. To qualify, you must typically meet eligibility requirements, including owning the investment for a minimum number of days.

Canada Workers Benefit

Through the Canada Workers Benefit, low-income people who are currently working may qualify for a refundable tax credit. To be eligible, you must:

• Have lived in Canada for the entire tax year
• Be required to pay income taxes in Canada
• Meet income requirements
• Be at least 19 years old unless you live with a spouse or common-law partner
• Not be incarcerated or classified as a full-time student

RRSP tax deduction

To encourage people to save for retirement, the federal government offers the RRSP tax deduction to taxpayers who contributed to registered retirement savings plans (RRSPs) during the tax year and meet other eligibility requirements.

Ontario tax reduction credit

The Ontario tax reduction credit is a refundable tax credit available to eligible taxpayers who claim children or disabled adults as dependents. To qualify for the credit, you must typically have lived in Canada as of January 1st of the tax year and resided in Ontario as of December 31st of the tax year and meet additional requirements.

Ontario Child Benefit

The Ontario Child Benefit offers monthly tax-free payments to qualified low- and moderate-income families with children under the age of 18. You don’t need to apply to receive the benefit. If you’re eligible, the CRA will notify Ontario, and you’ll be enrolled automatically.

Ontario Seniors Care at Home Tax Credit

The Ontario Seniors Care at Home Tax Credit is a refundable provincial tax credit that helps cover the cost of qualified medical expenses and allows eligible people aged 70 and older to age in place at home. It can help pay for things like assistant care, walking aids, and bathroom safety equipment.

Ontario Seniors’ Public Transit Tax Credit

The Ontario Seniors’ Public Transit Tax Credit is a refundable tax credit available for eligible seniors aged 65 and over. It can help offset the cost of qualified public transportation expenses and specialized transport services.

Low-Income Workers Tax Credit

The Low-Income Workers Tax Credit is a non-refundable Ontario provincial tax credit for working taxpayers who meet eligibility requirements, such as:

• Living in Canada for the full tax year
• Qualifying as an Ontario resident for tax purposes
• Owing income tax
• Meeting income requirements
• Not having spent more than 6 months in prison during the tax year

Special considerations for tax filers in Ontario

Some people have special considerations to take into account when filing their income tax returns. Let’s take a look at two unique situations: self-employment and recent immigration.

Self-employment

Whether self-employment is your main income source or a side hustle, you’ll typically need to file additional forms with your federal and Ontario returns. You may also be able to take advantage of business expense deductions to save money on your taxes.

Review the CRA guide to self-employment for more information.

Recent immigrants

Federal and provincial tax laws place limits on how much recent immigrants can claim on some credits and deductions in their first tax returns.

Check out the official tax guide for newcomers for tips to help you correctly complete your tax returns.

How to file your Ontario taxes

To avoid penalties, you’ll likely need to file your 2023 federal and Ontario tax returns by April 30, 2024.

The federal and provincial governments grant extensions to individuals who are self-employed and/or have self-employed spouses. For these taxpayers, the filing deadline is June 15, 2024. However, any taxes owed remain due on April 30th.

Gather required documents

Gathering documents and receipts will make it easier to complete your tax return. Depending on your situation, you may need:

• Social Security number
• T4 Statement of Remuneration Paid
• T5 Statement of Investment Income
• T3 Statement of Trust Income Allocations and Designations
• T5008 Statement of Securities Transactions
• T4A Statement of Pension, Retirement, Annuity, and Other Income
• T4A(P) Statement of Canada Pension Plan Benefits
• T4RSP Statement of RRSP Income
• T4RIF Statement of Income from a Registered Retirement Income Fund
• T4E Statement of Employment Insurance and Other Benefits
• T5007 Statement of Benefits–Workers Compensation or Social Assistance benefits
• T2200 Employment expenses
• Last year’s notice of assessment from the CRA, if applicable
• RRSP deduction limit and unused amounts
• Any other income slips or income documentation received
• Receipts for childcare expenses
• Receipts for adoption expenses
• Receipts for support payments made
• Receipts for moving expenses
• Receipts for tuition
• Receipts for student loan interest paid
• Receipts for charitable donations
• Receipts for medical expenses
• Payment information for taxes owed
• Bank account information for direct deposit of refunds

Complete your tax return online or on paper

With all the necessary paperwork gathered, you’re ready to begin work on your federal and Ontario tax returns. Begin with Form T1, the federal tax return, and then complete Form ON428 for your Ontario return.

There are a few ways to complete your tax returns:

• Certified tax software: Using free and fee-based programs can save you time and reduce the risk of errors because they walk you through the process and perform calculations for you.
• Authorized representative: A tax professional or other trusted person can serve as your authorized representative and complete your tax returns for you.
• Tax clinics: Low and moderate-income taxpayers can attend free tax clinics to get help completing their returns.
• Paper return: If you wish to perform calculations yourself, download and print the necessary forms.

Submit your return

Both your federal and Ontario provincial tax returns get filed with the CRA. Depending on how you completed your tax returns, you may be able to file:

• Electronically: Tax software and some tax professionals can submit your returns online, allowing for faster processing.
• By mail: If you have completed the paper forms, you can mail them to the CRA address for Ontario residents.

Options for paying taxes or getting a refund in Ontario

If you’re due a refund from Ontario or the federal government, you’ll receive a paper check unless you sign up for direct deposit into a Canadian bank account through the CRA. To learn how to do so, visit this site.

The CRA collects taxes owed to both Ontario and the federal government and offers the following payment methods:

• Direct debit from a Canadian bank account
• Debit or credit card
• Check
• Money transfer platforms, such as PayPal or Interac
• Wire transfer
• Cash

Head to the CRA website to explore these payment options.

Taxes in Ontario vs. other provinces

As a resident of Ontario, you’ll enjoy some tax advantages:

• Unique tax benefits for seniors: Credits like the Ontario Seniors Care at Home Tax Credit and the Ontario Seniors’ Public Transit Tax Credit make the province a more affordable place for seniors to call home.

• Lowest initial marginal tax rate: Ontario’s marginal tax rate for the lowest-income taxpayers is lower than that of all other provinces and territories.

• Unique tax credits for low-income taxpayers: Lower-income taxpayers can benefit from various provincial tax credits and the Ontario Child Benefit.
• Low maximum marginal tax rate: Ontario also has one of the lowest marginal tax rates for the highest-income taxpayers.

Review the table below to compare 2023 income tax and sales tax rates for Ontario versus other provinces and territories.

Additional Resources and Tools

Explore these resources if you need extra help or still have questions about your federal or Ontario provincial tax returns.

Ontario Tax Calculator

Tax calculators can save you time and help you avoid errors when completing your tax returns. Wealthsimple offers easy-to-use federal and Ontario income tax calculators for your convenience.

Contact Information for Ontario’s Tax Services and CRA

The CRA can answer questions about federal and Ontario income taxes. The agency’s contact information is here.

Now that you’ve finished reading our tax guide, we hope you feel better prepared to file your taxes in Ontario for the first time. To prepare for your return, consider consulting a tax professional who can give you custom-tailored advice based on your unique financial situation.