Many Canadians choose to work or study abroad over the course of their lifetime, and may thereby find themselves faced with double taxation. As a Canadian citizen, you are able to work and live in another country. However, there may be tax implications depending on the country you travel to, your residency status, as well as your level of income. To prevent double taxation, Canada has a number of tax treaties with various countries.
What Is a Tax Treaty?
A tax treaty is an agreement between countries that is intended to resolve issues of double taxation and tax evasion. Tax treaties usually outline not only the taxes that are to be paid, but also whether or not a person is considered a resident and thus eligible to the benefits of the country under their tax system.
Treaties also list any special circumstances or exemptions whereby the income of an individual who is a resident in one country will be taxed in another country. As a general rule, if an individual pays taxes in one country, they will receive credit in the other country. However, every tax treaty is different, so it is important to familiarize yourself with the specifications of the treaty Canada has with the country you are living in.
Residency Status Triggers Tax Treaties
Canadian tax obligations are based on your residency status. Your residency status in Canada is determined on a case-by-case basis, meaning there are no strict rules, but instead guidelines that are subject to the interpretation of the Canada Revenue Agency. Classification as a factual or deemed resident of Canada requires the filing of taxes in Canada. A factual resident must file a Canadian income tax return every year to report worldwide income and to claim any entitlement to certain benefits. A deemed resident has similar tax requirements.
If you are considered to be a resident of another country according to a tax treaty, then you may be deemed a non-resident of Canada, which limits your reporting responsibilities. If you decide that your residency in another country must become a permanent move, you can sever your residential ties with Canada and may be considered a non-resident for Canadian tax purposes.
Countries With Which Canada Has Tax Treaties
There are a number of tax treaties that Canada has in place with other countries, each following into one of three possible levels of status:
- Treaties with countries that are in force;
- Treaties with countries that have been signed but are not yet in force;
- Treaties for countries that are currently under negotiation or renegotiation.
A full list of treaties, both in force and proposed, can be found by visiting the Department of Finance’s website.
