It may be surprising for many people to learn that the requirement to pay income tax to the Canadian government has nothing to do with whether or not you are a Canadian citizen, or with your immigration status. Instead, an individual’s obligation to file a Canadian tax return has everything to do with their residency status for tax purposes. Sounds straightforward? Not necessarily. To make this issue even more complex, an individual can be characterized as ordinarily (or factually) resident, as a deemed resident, as a non-resident or deemed non-resident, or resident by international tax treaty (applicable for individuals who have dual residency in two or more countries at the same time). So, just because you are living abroad, doesn’t mean you don’t have to file your taxes.
Key factors in determining your tax residency status include the residential ties you have in Canada, the reasons and permanence of your stays away from Canada, and what residential ties you establish or maintain away from Canada. The Canada Revenue Agency considers significant or secondary residential ties to Canada to include (but not limited to):
- A home in Canada
- Family members living in Canada (spouse or partner, and/or dependents)
- Personal property in Canada (a vehicle or home furnishings)
- Social ties in Canada (belonging to Canadian recreational or religious groups)
- Economic ties in Canada (bank accounts or credit cards)
- Being registered with a Canadian passport, a Canadian driver’s license, or covered by health insurance administered by a Canadian province or territory.
The general rule is that an individual who is resident in Canada will be subject to Canadian tax on their worldwide income, while a non-resident pays tax only on income received from Canadian sources. However, residency status as it relates to tax law is anything but straightforward. Other factors to be considered in establishing an individual’s requirement to file the appropriate Canadian tax return, to report the necessary income, and to pay the applicable type of Canadian tax may include (but not limited to):
- The type of Canadian income received by a non-resident
- The reasons, length of time, and circumstances under which an individual is leaving or entering Canada
- The existence of tax treaties in place between Canada and many other countries
- The ability to take advantage of certain tax elections for very specific circumstances
Many people have complicated circumstances and require assistance in determining their residency status. If an individual wants the Canada Revenue Agency’s opinion on their residency, they can complete a form for Determination of Residency Status – Form NR74 (for entering Canada), or Form NR73 (for leaving Canada), and send it to the International Tax Services Office in Ottawa. Of course, the taxpayer always has the right to disagree, and can dispute the Canada Revenue Agency’s determination.
Any individual planning a change on where they live or where they work (outside of Canada) should consult a knowledgeable professional – getting informed on what your tax obligations are to the Canada Revenue Agency can help you avoid unexpected tax bills and penalties.
Want to get issues straightened out? Call Tax Solutions Canada today at 1-888-868-1400.