Leaving Canada: Non-Residence vs. Dual Residence

In Canada, your tax obligations are based on your residency status. Only the Canada Revenue Agency can truly determine your residency status. This decision is based on various guidelines rather than strict rules, which are often open for interpretation by the CRA. Generally, you are either a resident or a non-resident.

A non-resident is an individual who is no longer considered to be a resident of Canada for income tax purposes. Non-residents have typically left the country and have severed significant residential ties to the country. Residential ties to Canada include maintaining things such as a permanent house or dwelling, having spouses or dependants in Canada, or continuing to maintain Canadian drivers licences, bank accounts, personal property, health cards, and social memberships.

Non-residents are only taxed on income that they receive from Canadian sources, such as pension, investment and other amounts. Non-residents are usually only required to pay withholding taxes on the amounts from Canadian sources. The payers (people or entities who pay you money) of the funds should be made aware that you are a non-resident, and as such, they usually will withhold income tax (Part XIII tax or Part I) of about 25 percent. You do not have to file a tax return unless you have elected to, and there are no further tax obligations.

A person can have a home in more than one country, and it’s also possible to be considered a resident of two (or even more) countries at the same time. Each country may have different definitions or conditions for residency. This could mean that an individual could be considered a dual resident of Canada and another country, and he could be required to file tax returns in both Canada and the other country.

Since Canadians that are classified as residents of Canada must file income taxes and report on their worldwide income, it is feasible that an individual could also have to do the same in another country — this would lead to double taxation.

To help avoid this, the Canadian government has entered into tax treaties to deal with these situations. The treaties usually contain details on which country should tax each individual and if an individual is required to pay tax in one country, how he can get credit for the taxes in another. Since each country may have different classifications for residency, each treaty is different and can also be interpreted differently. The treaties usually contain steps for appeal to the various governments if you do not agree on the residency status determinations.

You might be required to complete a questionnaire referred to as NR 73, Determination of Residency Status (Leaving Canada), and have the CRA make a determination of your residency status. Afterwards, if you disagree with the CRA determination, you may have your residency status further reviewed by a Canadian court.

References & Resources

• CRA “Leaving Canada: Non-Residence vs. Dual Residence”