The Ultimate Tax Guide For Non-Residents

What does residency status mean

The CRA determines residency status case-by-case. 

To evaluate if you’re a Canadian resident or not for tax purposes, the CRA considers your Canadian residential ties, including:

• Owning or leasing a home in Canada for a long term
• A spouse or common-law partner who lives in Canada
• Dependents in Canada

Other factors they may consider are:

• The amount of time you spend in Canada
• Your plans for future travel or permanent location
• Whether you have Canadian bank accounts, a driver’s license, passport and provincial health insurance

Whether you are travelling, working, or live part-time abroad, the CRA will group you into one of the following categories of residency status:

• Non-resident
• Dual resident
• Factual resident
• Deemed resident
• Deemed non-resident

Non-resident

If you are a non-resident that means you are no longer a resident of Canada for income tax purposes. Usually, non-residents leave Canada and cut significant residential ties to the country. 

Dual Resident

A dual resident is typically someone who has a home in more than one country and is considered a resident for two countries. In this case, you will likely be required to file a tax return in Canada and the other country you are a resident in, which could lead to double taxation. 

To avoid this, the Canadian government has entered tax treaties to determine which country should tax dual residents and if you are required to pay tax in one country, how you can receive tax credits in another.

Factual Resident

Even if you are not physically within Canadian borders, it is still possible to maintain significant residential ties to Canada, which makes you a factual resident. Some cases where you may be considered a factual resident include:

• working temporarily outside Canada
• teaching or attending school in another country
• commuting (going back and forth daily or weekly) from Canada to your place of work in the United States (U.S.)
• vacationing outside Canada
• living part-time in the U.S.

If you’re a factual resident of Canada, you’re taxed as if you never left Canada. So you must file an income tax return and report all of your Canadian and world income.

Deemed Resident

You’re considered a deemed resident if you:

• Don’t have significant residential ties  to Canada, 
• Were in Canada for 183 days or more during the tax year, 
• And aren’t considered a resident of any other country under the tax treaty terms between Canada and that country

If you work for the government, are a member of the Canadian Forces, or work under a Global Affairs Canada Assistance program and lived outside Canada during the tax year and have no significant residential ties to Canada you’re also a deemed resident. 

As a deemed resident, you have the same tax obligations as a resident. 

• You must report all of your Canadian and world income and can claim all of the applicable federal deductions and credits.
• You cannot claim provincial or territorial credits or benefits, but you don’t have to pay provincial or territorial tax, either. You will, however, incur a federal surtax.

Deemed non-resident

If you’re considered a resident of another country, you’re deemed non-resident. In this case you are subject to Canadian tax on Canadian income sources, unless exempted by a treaty provision. You are also required to pay provincial/territorial tax if you have earned income from a business with a permanent establishment in Canada.

The tax rules for deemed non-residents are the same as those of non-resident of Canada.

How do I determine my residency status?

Although residency is determined on a case-by-case basis by the CRA, there are some questions that can help you determine your status and residential ties, including: 

• Where is your home located?
• Where do your spouse and children live?
• Where is your personal property, such as your car, located?
• Where was your driver’s license issued?
• Where do you work?

It is always a good idea to contact CRA prior to filing your return to ensure you are declaring the proper status. You can visit the CRA website or complete the NR74 Determination of Residency Status (entering Canada) form or the NR73 Determination of Residency Status (leaving Canada) form and send it to the International tax and non-resident enquiries office to get an opinion from the CRA about your residency status.

Do non-residents need to file a Canadian tax return?

Usually, non-residents who receive a Canadian income have to pay either Part I tax or Part XIII tax.

• Part I tax is typically paid by the person who pays you the income.
• Part XIII tax is a non-refundable withholding tax on certain types of income such as dividends, rental payments and pension. 

A lot of non-residents don’t need to file a Canadian tax return if they pay withholding tax on their Canadian-sourced income. 

But if you receive rental, acting or pension income you may be able to choose to file a return and pay tax on taxable income instead of paying the withholding tax on gross income. 

How much are non-residents taxed?

Non-residents are taxed at the current federal tax rates, plus a surtax of 48% of the federal tax. (If your income is earned from a business with a permanent establishment in Canada, you pay the provincial or territorial tax instead of the surtax.)

You’re also subject to a 25% withholding tax on certain types of income such as dividends, rental payments, pension and OAS payments, and RRSP payments in Canada.

You should let your Canadian payers know that you are a non-resident and what your country of residence is to make sure they deduct the right amount of taxes from your Canadian income.

What do I need to report on my return?

If you’re a non-resident, you need to report these types of income:

• Any employment income in Canada
• Any other Canadian-sourced income, such as scholarships, fellowships, bursaries, research grants
• Income from a business that is located in Canada 
• Capital gains from selling Canadian property
• Net partnership income (limited and non-active partners only)

You don’t need to report other types of income but must enter them on your tax return in Schedule A – Statement of World Income. 

How do I file my Canadian taxes as a non-resident?

To file your Canadian non-resident tax return, you need your Social Insurance Number, but if you don’t have one, you need to apply for an Individual Tax Number using Form T1261 (Application for a CRA ITN for Non-Residents). 

To get all the forms and schedules you need, use the Income Tax and Benefit Package for Non-Residents and Deemed Residents of Canada for 2020.

If you’re a non-resident or a deemed non-resident of Canada, you will not be able to NETFILE your tax return. You will have to print and mail or fax it to the CRA. (Fax is a temporary measure due to the long international mail delays).

If you are filing more than one person’s tax return, send each person’s tax return separately. But if you are filing multiple years’ tax returns for one person, you can put them all in one envelope.

Since Quebec residents are the only ones in Canada that have to file 2 tax returns, one federal and one provincial, there are specific tax obligations of non-residents to the Quebec government.