In Canada, your income tax obligations as an individual are based on your residency status. If you are a non-resident, the requirements for filing can greatly differ from those for residents.
Non-residency is an individual classification that is used for tax purposes by the Canada Revenue Agency. According to the CRA, individuals who normally, customarily, or routinely live in another country, and are not considered a resident of Canada, may be classified as non-residents.
Other factors that the CRA considers to determine status include:
- Lack of significant residential ties to Canada
- Living outside Canada throughout the tax year
- Staying in Canada for less than 183 days during the tax year
- Significant residential ties can include a home or permanent residence, a spouse or dependants, and various personal property in Canada.
- Personal property can include furniture, a vehicle or other items that the CRA chooses to classify.
- Additional ties can include social memberships, provincial medical cards, a driver’s license and bank accounts based in Canada.
Ultimately, only the CRA can determine your residency status. There are no strict rules; just guidelines and interpretations by the agency regarding your residency.
If you are classified as a non-resident of Canada, you are only obligated to pay tax on income you receive from sources in Canada. Generally, this includes Part XIII tax or Part I tax.
Part XIII tax is applied to common sources of income such as:
- rental and royalty payments
- pension payments
- Old Age Security pension
- Canada Pension Plan and Quebec Pension Plan benefits
- retiring allowances
- RRSP payments
- Registered Retirement Income Fund payments
- annuity payments
- management fees
To ensure that the correct portion of tax is deducted by your Canadian payers — people, employers or other entities who pay you money — you should notify them that you are a non-resident of Canada for tax purposes, as well as your country of residence. This allows the payers to deduct the Part XIII tax when income is paid to you, usually at a rate of 25 percent unless there is a tax treaty between Canada and your country of residence. These amounts are non-refundable, and you do not have to file a Canadian tax return to report the income unless you choose to. Usually, individuals elect to file a return if they had Canadian rental income or certain types of pension income. If you believe an incorrect amount of Part XIII tax was deducted, you can contact the CRA directly to request further investigation.
Part I tax is usually deducted by the payer for certain types of income as well.
These types of income can include employment income and income from a business. If you stop being a resident during the year, you may also be required to file a Canadian income tax return to calculate your final tax obligations for the year that you ceased to be a resident.
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