Do you live in Canada, or don’t you? It sounds like a funny question. But when it comes to taxes, it’s not as simple as you might think.
Why does this matter? If you’re a resident, you have to declare your worldwide income and pay taxes on it. If you’re a non-resident, you’re taxed only on your Canadian-sourced income. You need to know your official residency status according to the rules of the Canada Revenue Agency (CRA), so you can file your taxes the right way without over- or underpaying.
The thing is, knowing your residency status isn’t always straightforward since you could be considered many things, including a factual or deemed non-resident as well as a factual or deemed resident. So the question is, are you a resident for tax purposes, or aren’t you? Here’s how to find out.
- It’s important to understand your residency status so you file your taxes the right way —without over- or underpaying.
- There are two types of residency: deemed resident and factual resident.
- Your residency status in Canada affects how you pay taxes, how much you pay, and whether you’re eligible for benefits, credits, and deductions.
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What is a factual or deemed non-resident of Canada?
Obviously, there are billions of people around the world who are non-residents of Canada and have never even thought about it. But that’s not who we’re talking about here. Factual or deemed non-residents, from the CRA’s point of view, are people who have some kind of tie to Canada but are considered non-residents for tax purposes.
For instance, you might have a Canadian passport, but you’ve been living and working in another country for years and don’t have any significant residential ties to Canada anymore. Or, you might have some residential ties, but because of a tax treaty with another country, the CRA considers you a resident of that country—and a deemed non-resident of Canada. Pretty clear, right? Well, here’s more.
What is a factual or deemed resident of Canada?
First up, let’s talk about being a resident. This means you “live in Canada” for tax purposes, whether or not you actually sleep in a bed on Canadian soil, and have to file and pay income tax as a resident of Canada. Factual or deemed residents are both categories of resident; the difference is how taxes are filed for each.
Factual resident: explained
As a factual resident, you’re taxed as if you’ve never left the country, even if you spend time living or working abroad.
When you file your taxes, you:
- Must report your Canadian-sourced income and income you earn elsewhere
- Can claim all your credits and deductions
- Can claim federal and provincial non-refundable tax credits and refundable tax credits
- Can apply for the GST/HST credit and receive the Canada child benefit (CCB) if you have children who live in Canada
One factor that matters is what the CRA calls “significant residential ties.” If any of these apply to you, you might be a factual resident.
- Have a home in Canada
- Have a spouse or common-law partner in Canada
- Have dependants in Canada
- Own property in Canada
- Are a member of a Canadian recreational or religious organization
- Are employed by a Canadian business
- Have Canadian bank accounts
- Have a Registered Retirement Savings Plan (RRSP)
- Have a Canadian driver’s license
Deemed resident: explained
Deemed residents are people who aren’t factual residents of Canada, but still have enough ties to Canada that the CRA decides to make things official.
There are basically two categories of deemed residents:
- Canadians working abroad in an official role, such as for the Canadian Forces or as a government employee, as well as their family members
- People who aren’t factual residents but spent 183 or more days of the year in Canada (unless they’re a deemed a non-resident because of a tax treaty)
If you’re a deemed resident of Canada, you file your taxes with the 5013-G Income Tax and Benefit Guide for Non-Residents and Deemed Residents of Canada. That means a few things:
- You will be subject to a federal surtax instead of provincial tax, as you can’t claim provincial or territorial tax credits.
- You have to report your entire world income.
- You can claim any deductions or non-refundable tax credits that apply to you.
Are international students factual or deemed residents of Canada?
If you’re an international student, are you a resident of Canada? In some ways, it’s a question for philosophy class. But even philosophers have to pay income tax, and international students have to follow the same rules as everyone else.
In other words, you’re a resident of Canada if you have significant residential ties, or if you spend 183 or more days a year in the country. Depending on your situation, you could be a deemed resident or a factual resident. That means moving out of the dorm and in with your boyfriend could have tax consequences. (And other ones, too. Have fun, but don’t forget to do your homework!)
Now that you better understand your residency status, the next step is to file your taxes. The forms can be a chore, but preparing and filing online with TurboTax can make it easier.
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