If you’ve decided to take the plunge and explore opportunities outside of Canada, know that whether for school or work, you’re still required by law to report your financial activities to the Canada Revenue Agency (CRA). How you report your activities, if you’re required to pay Canadian taxes, and how much you pay depend on how the CRA classifies your Canadian residency when you are living abroad.
Classification is separated into two main categories: Residents and Non-Residents. The criteria for classification are based on your specific circumstances and are discussed in this post. It’s always best, however, to have a conversation with licensed tax accountants who will clarify your obligations and provide you with tax-planning advice on lowering your tax bill while staying compliant with Canadian tax laws.
When you are moving out of Canada, before you leave, you may be required to pay the Canadian government a departure tax because they assume you have sold capital property such as jewelry, shares, or paintings, even if you haven’t. Another compelling reason for advice from a tax professional before you leave.
Definition of Non-Resident for Tax Purposes
For Canadians living abroad, determining non-resident status for tax purposes involves examining various criteria set by the CRA.
Determining Non-Resident Status
- Significant Residential Ties. Being classified as a non-resident hinges largely on your residential ties to Canada. Significant ties include owning a home in Canada, having a spouse or common-law partner, and dependents in Canada.
- Secondary Residential Ties: These may include owning personal property (like a car or furniture), social ties (memberships in Canadian organizations), economic ties (Canadian bank accounts or credit cards), holding a Canadian driver’s license or passport, or having a provincial health card.
- Other Considerations. The length of your stay outside Canada, your intentions of returning, and establishing a permanent home in another country are also taken into account.
If you live outside Canada throughout the tax year or stay in Canada for less than 183 days in the tax year, don’t have residential ties in Canada, and are considered a resident of a country Canada has a tax treaty with, you are likely considered a non-resident.
To officially determine your residency status as a Canadian abroad, you may need to fill out Form NR73 (Determination of Residency Status (Leaving Canada) and send it to the CRA. They will provide an opinion based on the information you provide.
Tax Obligations for Canadian Non-Residents
As a non-resident, you’re taxed only on income received from Canadian sources. This could include rent from Canadian property, income from Canadian businesses, or investments situated in Canada. Specific types of income, such as dividends, rental and royalty payments, and pension payments, are subject to Part XIII tax, which is deducted at the source by Canadian payers. The usual rate for Part XIII tax is 25%, though it can be lower if a tax treaty between Canada and your country of residence applies.
Failing to do so could leave you open to the consequences of having unfiled tax returns.
Canadians Living Abroad Who are ‘Deemed Residents’ According to the CRA
If you spend more than 183 days in a tax year outside the country working for the federal or provincial government, the Canadian Armed Forces, or Global Affairs Canada, you (and potentially your family who are also outside Canada) are a deemed resident for income tax purposes.
You are also likely to be considered a deemed resident if you live outside Canada for more than 183 days in a tax year, do not have residential ties, but are not considered a resident of another country under a tax treaty with Canada.
Deemed Residents and Tax Obligations
While you do not pay the same taxes as regular, or ‘factual residents,’ as a deemed resident of Canada, you are required to report all your global income from all sources worldwide, you are subject to federal tax, and you must pay a federal surtax in lieu of provincial taxes.
However, you can claim all deductions and non-refundable tax credits you’re eligible for, all federal tax credits (but not provincial or territorial tax credits), and you can apply for the GST/HST credit.
Tax Treaties and Their Impact on Taxation
Tax treaties play a pivotal role in defining the tax obligations of Canadians living abroad. These agreements, established between Canada and other countries, aim to avoid double taxation and prevent tax evasion. For Canadians abroad, understanding the nuances of these treaties is crucial for tax planning and compliance.
Tax Treaty Impacts on Taxation
- Residency Determination. Tax treaties can influence how residency is determined for tax purposes, potentially impacting your tax status and liabilities in both Canada and the treaty country.
- Reduced Withholding Taxes. Many tax treaties lower the withholding tax rates on dividends, interest, and royalties paid from residents of a treaty country to the other.
- Limit Taxation. Tax treaties can limit taxation of the non-resident country on your business income.
Implications for Canadian Non-Residents
Navigating tax treaties requires a detailed understanding of both the treaty itself and the tax laws of the countries involved. As a Canadian expat, you are encouraged to consult with tax professionals who specialize in international tax law to ensure compliance and optimize your tax position.
Filing Requirements for Non-Residents and Deemed Residents
Deemed residents and non-residents are required to file the relevant documents in the Income Tax Package for Non-Residents and Deemed Residents of Canada. Use this guide to help you file non-resident tax returns, as the package contains income tax return forms and numerous schedules.
Here are some key considerations regarding non-resident and deemed resident tax returns:
- Filing Deadlines. Typically, the tax filing deadline for Canadians is April 30. However, if you’re self-employed, or the spouse or common-law partner of someone who is, the deadline extends to June 15. Notably, any taxes owed must still be paid by April 30 to avoid interest charges.
- Required Documentation. Expatriates should gather global income statements, documents pertaining to Canadian-source income, information on taxes paid abroad, and any relevant financial statements from foreign bank accounts. Also, specific forms might be required if you’re claiming relief under a tax treaty or if you’ve earned income from Canadian property.
- Submitting Your Return. You are required to mail your return to the CRA. There are two different mailing addresses depending on where you reside. You can find them here.
