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Taxation in Canada vs taxation in Israel

July 27, 2023 253 Time to read: 8 min.

We know that many of you periodically think about changing your place of residence. Moving to a new country is a responsible and decisive step, but it can be much easier if you study all the nuances and details of your future life in another country in advance.

Before you plan your move to another country, you should study the cultural and economic features. Today we will talk about the latter. Let’s take a closer look at the taxation system of two countries that are attractive for moving and compare them.

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    Taxation in Canada

    Canada attracts people from all over the world to move. It is easy to adapt to it, the climate is very mild, and the economy is at a very good level. The country also has a high level of security. There are really many advantages. Let’s see how things are with taxation.

    Who pays taxes

    Here things are standard. Taxes are paid by those who are residents, as well as all those individuals who receive income in the country. In this case, the status of a tax resident can be determined individually.

    If a person stays in the country for more than 183 days a year, he automatically becomes a resident for this period. In other cases, a whole range of links with Canada can be taken into account: from the presence of real estate for living to membership in various clubs.

    Many mistakenly believe that the immigration status of an individual is a decisive factor in determining tax residency. This is wrong. Immigration status is just one of many factors in determining Canadian tax residency. A person can be a Canadian citizen and not be a Canadian tax resident and vice versa.

    Income Tax

    Probably, first of all, thinking about moving, you will take care to find out how much income tax is. Income tax is the main tax for individuals and individual entrepreneurs, which is subject to all net income. The tax is levied on a progressive scale at two levels: federal and provincial, and therefore has a combined rate.

    Federal tax rate varies from 15 to 33 %. Based on income level. Provincial tax varies by location. There are 10 provinces and 3 territories in Canada, each with its own rates.

    Social contributions

    Canada’s social security system is provided by insurance contributions from individuals and companies. The Canadian Pension Plan and Employment Insurance Fund contributions are deducted from employees’ salaries, and then employer’s allowances are applied to them.

    A pension contribution is mandatory for those employed between the ages of 18 and 65, then you can choose whether to stop contributions or not. The upper threshold for contributions is 70 years.

    Taxes for non-residents

    Non-residents are taxed at a 25% tax rate on certain types of Canadian-sourced income. It applies to interest, dividends, royalties, pension payments and rental income. In the presence of an agreement on the avoidance of double taxation, the tax rate can be reduced to 15, 10 or even 5%.

    Benefits and compensation

    Despite high tax rates, Canada has quite a lot of federal and provincial exemptions and deductions that allow you to pay less taxes.

    Individuals with an income of less than $7,500 per year are completely exempt from tax. Tax deductions are available for low incomes: up to a maximum of $1,381 for single people with an income of $24,573 or less, up to $2,379 for families with an income of $37,173 or less.

    Compensation is also provided to the following categories of individuals:

    • containing disabled people or pensioners;
    • families with children (in the calculator you can calculate what benefits you are entitled to);
    • with a non-working spouse;
    • first home buyers;
    • with spending on medicine more than 3% of income.
    For some taxpayers, there is a VAT deduction. Including for the “newcamers” – new residents who recently emigrated to Canada. Newcomers can only claim the deduction in the first tax year.

    Taxation in Israel

    Every year, hundreds of thousands of people from all over the world seek to repatriate and immigrate to Israel. Israel warmly welcomes new citizens. The friendly population helps to adapt easily, special programs for repatriates make it possible to quickly learn the language and find a place to study / work. And of course, everyone is attracted by the favorable climate, delicious food, the culture of the country and a high standard of living.

    Who pays taxes

    The Hebrew word for income tax is mas-ahnasa. It is relevant for tax residents. Here things are going the same way with Canada. Tax residents are individuals who receive income in the country. This tax must be paid by persons legally staying in the territory of this state for 183 days within 12 months.

    Foreign professionals and employees who are in Israel on a B-1 visa are not treated as residents by the tax authorities and are subject to taxation as non-residents.Residents are taxed on income received both in the country and abroad. Non-residents are required to pay taxes in Israel only on income from local sources.

    Income Tax

    Income tax in Israel – personal income tax, or mas akhnasa – is required to pay only those who are employed or self-employed.

    Income tax applies to all personal income of individuals: wages, income from doing business (except for agricultural production), pension benefits and others. The income tax rate is progressive and ranges from 10 to 47%: the higher the income, the higher the rate.

    Social contributions

    All Israelis from the age of 18 pay a contribution to the National Insurance Institute (Bituah Leumi), which consists of two parts: a health tax and a social security tax. Contributions are collected at a progressive rate:

    • For the 60% share of the average wage: 3.5% paid by the employee and 3.55% paid by the employer.
    • For the portion of income above 60% of the average wage: 12% paid by the employee and 7.6% paid by the employer.

    The payment of insurance premiums to the National Insurance Institute and health insurance premiums is calculated depending on the amount of income that the insured person has both from work and not from work, as well as in accordance with the status established for him:

    • Wage-earners;
    • Private entrepreneurs;
    • Non-working.

    Taxes for non-residents

    If a repatriate does not live and earn in Israel, his income is not subject to income tax. In this case, the tax on health insurance will be charged. These costs can be avoided by notifying Bituah Leumi of the change of residence status. We help our clients with this – we process the waiver of residence quickly and with minimal participation from you.

    Benefits and compensation

    In this table, we have compared the costs of regular taxes in Israel and Canada:

    Tax type Israel Canada
    Income tax 10 – 50% 15 – 33%
    VAT 17% 5 – 15%
    Business tax 23% 15 – 38%

    Israel has a system of preferential tax units – nekudot zikuy. Each tax unit allows you to reduce income tax by 218 shekels per month. For example, 2.25 units are awarded for Israeli citizenship, 1 unit for employees aged 16 to 18, and 0.5 units for all women. Through this system, every citizen can reduce their income tax by at least NIS 5,886 per year.

    Some categories of foreign specialists enjoy tax benefits in Israel. This applies in particular to visiting professors or lecturers and qualified experts in their field. During the first 12 months of their stay in Israel, such expats can deduct from their taxable income the approved costs of renting an apartment or per diem – up to 340 shekels per day or up to 50% of gross salary, whichever is less.

    Both countries have well developed economies. The average salary is at a similar level and is about $50,000 per year. At the same time, each of the countries has its own nuances: pros and cons.

    For example, in both countries, easy adaptation. However, if you are interested in a warmer climate, and especially warm winters, you should take a closer look at Israel. It is worth noting the high level of development of medicine. People from all over the world go for the services of doctors in Israel, because their qualifications are considered one of the best in the world.

    Let’s see how much tax expenses per month the average teacher in Tel Aviv and Ontario will spend and how much money he will have left for expenses (amounts are in USD):

    Israel Canada
    Salary: $3630 $3151
    Income tax (or payroll tax): -10% ($363) -15% ($472)
    Total: $3267 $2679

    In this article, we compared the taxation system in two attractive countries. Study carefully all the details and then you will be able to understand which of the countries looks more attractive to you.


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