As the world gets smaller and more interconnected, it becomes more common for people to work remotely for Canadian companies from outside of the country. They join the significant numbers in the Canadian diaspora who may be required to file a Canadian tax return and pay non-resident tax in Canada.
Taxes are levied by the CRA on individuals who earn income in Canada but are not considered residents for tax purposes. This can include Canadians who are living abroad and foreign nationals who don’t live in Canada that have received Canadian-sourced income such as employment earnings, rental proceeds, and investment revenue earned in Canada.
If you are unsure about whether you are considered a non-resident, what documentation you need, or how to file your non-resident tax return, it’s crucial to seek tax help from professionals. They can help you navigate the complex world of Canadian tax law and ensure that you are in compliance with all relevant regulations. They can also provide you with legal strategies for reducing your taxes.
Who is Considered a Non-Resident of Canada for Tax Purposes?
The CRA considers you a non-resident of Canada for tax purposes if you “normally, customarily, or routinely” live outside of Canada, are not considered a resident, don’t have residential ties in Canada, and you either live outside of Canada through the tax year or your stay in Canada is less than 183 days of the tax year.
Significant Canadian residential ties include owning a home in Canada or having a spouse, common-law partner or dependants living in Canada. Other ties that may be relevant (referred to as secondary ties) include:
- Owning other property in Canada, like a car or furniture.
- A Canadian driver’s licence or passport.
- Canadian bank account(s), credit card(s) or other economic ties.
- Provincial, territorial or federal health insurance.
- Membership in Canadian-based religious or social groups or other social ties.
If you’ve left Canada, severed your residential ties and established a permanent home in another country, terminating your status as a Canadian resident in the tax year, you may be considered an emigrant. If so, you would only have to file a return if you owe taxes or want to receive a refund for paying too much tax in a tax year.
On the other hand, if you spent more than 183 days in Canada during the tax year, but don’t have significant residential ties in Canada, and you are not considered a resident of another country under the terms of a tax treaty between Canada and that country, see deemed residents of Canada for the rules that apply to you. See also this page on non-resident employers for the tax implications on non-residents who work for non-resident employers.
How Do I Know if I’m a Non-Resident for Canadian Tax Purposes?
If you have no significant residential ties to Canada and the following conditions were met:
- During the entire year, you resided outside of Canada (except if you were a deemed resident of Canada)
- You were in the country for fewer than 183 days during the tax year.
You may be considered a non-resident for Canadian tax purposes. You can apply to the CRA for an assessment of your resident status by filling out Form NR74, Determination of Residency Status (Entering Canada), or Form NR73, Determination of Residency Status (Leaving Canada), depending on your circumstances.
What Are the Tax Obligations of Non-Canadian Residents?
As a non-resident of Canada, you are only taxed on your Canadian-sourced income and revenue from the sale of taxable Canadian property. The requirement to file a return and the type of tax you pay depends on the type(s) of income you receive.
The two most common types of non-resident tax in Canada are Part XIII and Part I taxes.
Part XII Tax for Non-Residents
It’s essential to inform Canadian payers of the following income types that you are a non-resident for Canadian tax purposes and your country of residence so that they deduct Part XII tax accordingly on taxable income sources such as:
- Management fees, rental and royalty payments.
- Pension payments from sources such as CPP, QPP, old age security, RRSPs and other retirement allowances and payments.
If you receive Canadian income subject to Part XIII tax, Canadian payers must deduct this tax when the income is paid or credited to you. The usual Part XIII tax rate is 25%, and this tax is not refundable. You do not need to file a Canadian tax return unless you elect to file a return for receiving timber royalties or rental income from Canadian real or immovable properties or income from certain Canadian pension payments.
Canadian Non-Resident Part I Tax
Examples of Canadian taxable income for non-residents under Part I tax include:
- Canadian employment income or revenues from a business operating in Canada.
- Capital gains from disposing of taxable Canadian property.
- Taxable Canadian scholarships, fellowships, bursaries and research grants.
- Earnings from employment outside of Canada paid by a resident employer.
- Certain types of employment income earned outside of Canada while you were a resident.
While the payer usually deducts Part I tax from these revenue sources, you may still be required to file a Canadian tax return.
How Do Non-Residents File Taxes in Canada?
If you’re a non-resident living in Canada or are filing taxes while living abroad, it is crucial to know whether you need to file a return and which forms to file.
If you are required to pay non-resident tax in Canada, or you wish to claim a refund, your tax return must be filed on or before:
- April 30th of the year after the tax year
- June 15th of the year after the tax year – if you or your spouse/common-law partner operated a business in Canada (unless the business’s expenses are mostly related to a tax shelter.)
Canadian Non-Resident Tax Packages
If your only source of income was from employment or a business, use the income tax package for the province or territory where the income was earned in conjunction with Guide T4058, Non-Residents and Income Tax.
If you had other streams of Canadian-based income from sources such as capital gains, taxable scholarships, fellowships, bursaries, or research grants, you must also complete Form T2203, Provincial and Territorial Taxes for Multiple Jurisdictions. If these were your only sources of income, or you received funds from a business that does not have a permanent Canadian establishment, you must use the Income Tax and Benefit Package for Non-Residents and Deemed Residents of Canada.
Final Thoughts on Filing Non-Resident Tax Returns in Canada
In conclusion, non-resident tax in Canada can be complex, and it’s important to understand your tax obligations if you are a non-resident.
If you need assistance with your tax return or have any questions, don’t take chances on filing an inaccurate return or paying more in taxes than you should. Take advantage of tax consulting services from an experienced professional who is on your side.