Becoming Tax Non-Resident in Canada

I previously wrote on the issue of being a perpetual traveler
here –

http://www.mooresrowland.tax/2019/10/perpetual-nomad-is-it-possible-to-pay.html

It would be useful to read that article first.  Using Australia as a case study, I believe
that it represents an emerging trend.  I
also discuss CRS in that article as well.

Now let’s talk about Canada.

If  you visit the CRA
website, this is what you find –

https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/non-residents-canada.html

I have reproduced the text in part below but essentially it
talks about the 183 day rule and “significant ties” which is reasonably similar
to the UK from whose laws, this is taken. 
So because of “significant ties, you can be non resident (from an
immigration perspective) but be a “Deemed resident” of Canada for tax purposes.

Read more about this here – https://travel.gc.ca/travelling/living-abroad/taxation

But let’s cut to the chase. 
By far, the leading Canadian decision in this area is that of the
Supreme Court of Canada in Thomson v. M.N.R, 2 DTC 812.  In that
oft-quoted decision, which is heavily influenced by UK case law, the court
indicated that to be “resident” in a place meant to “dwell permanently or for a
considerable time, to have one’s settled or usual abode, to live, in or at a
particular place”.

In addition, with respect to being “ordinary resident”, the
decision contained the following frequently quoted passages:

“one is ‘ordinarily resident’ in the place where in the
settled routine of his life he regularly, normally or customarily lives.”.

What about the perpetual travelers? Can that individual
still be considered a non-resident?  Unfortunately,
the answer is far from clear, no reported Canadian tax case has specifically
addressed this issue.

Here is the CRA’s position –

“Where an individual leaves Canada and purports to become a
non-resident, but does not establish significant
residential ties
 outside Canada, the individual’s remaining
residential ties with Canada, if any, may take on greater significance and the
individual may continue to be resident in Canada.”

However, a requirement to establish residence elsewhere, as
a prerequisite to ceasing to be Canadian resident, is sometimes taken as being
implied in the following passage from Thomson:

“For the purpose of income tax legislation, it must be
assumed that every person has at all times a residence.”

This passage, and the inherent assumption it contains, was
incorporated in the recent decision of the Tax Court of Canada in Mullen
v. The Queen, 2012 DTC 1154.

So in short – it is easier to make the case for being tax
nonresident, if someone is tax resident elsewhere. Again, for those unqualified keyboard warriors stating otherwise?  Be careful.

—————————————–

Residency status

Non-residents

You are a non-resident for tax
purposes
 if you:

  • normally, customarily, or
    routinely live in another country and are not considered a resident of
    Canada
  • do not have significant residential ties in Canada
    • you live outside Canada
      throughout the tax year
    • you stay in Canada for less
      than 183 days in the tax year

Your tax obligations

As a non-resident of Canada, you pay tax on
income you receive from sources in Canada. The type of tax you pay and the
requirement to file an income tax return depend on the type of income you
receive.

Generally, Canadian income received by a
non-resident is subject to Part XIII tax or Part I tax.

Part XIII tax

Part XIII tax is deducted from the types of
income listed below. To make sure the correct amount is deducted, it’s
important to tell Canadian payers:

  • that you’re a non-resident of
    Canada for tax purposes
  • your country of residence

The most common types of Canadian income subject to Part XIII
tax are:

  • dividends
  • rental and royalty payments
  • pension payments
  • old age security pension
  • Canada Pension Plan and Quebec
    Pension Plan benefits
  • retiring allowances
  • registered retirement savings
    plan payments
  • registered retirement income
    fund payments
  • annuity payments
  • management fees

If you receive Canadian income that is subject
to Part XIII tax:

  • Canadian payers, including
    financial institutions, must deduct Part XIII tax when the income is paid
    or credited to you
  • The Part XIII tax deducted is
    your final tax obligation to Canada on this income (if the correct amount
    is deducted)
  • The usual Part XIII tax rate is
    25% (unless a tax treaty between Canada and your
    home country reduces the rate)
  • Part XIII tax is not
    refundable. Therefore, do not file a Canadian tax return
    to report the income unless you elect to file a return because you
    receive either:

If you think an incorrect amount of
Part XIII tax has been deducted from your income, contact the Canada Revenue Agency.

For more information about Part XIII tax,
see Information Circular IC77-16, Non-Resident Income
Tax
.

Part I tax

The payer usually deducts Part I tax from the
types of income listed below. However, if you carry on a business in Canada, or
sell or transfer taxable Canadian property, you may have to pay an amount on
account of tax:

Even if the payer deducts tax from your income
or you pay an amount of tax during the year, you may also have to file a
Canadian income tax return to calculate your final tax obligation to Canada on:

  • income from employment in Canada
    or from a business carried on in Canada
  • employment income from a
    Canadian resident for your employment in another country if, under the
    terms of a tax treaty between Canada and your
    country of residence, the income is exempt from tax in your country of
    residence
  • certain income from employment
    outside Canada, if you were a resident of Canada when the duties were
    performed
  • taxable part of Canadian
    scholarships, fellowships, bursaries, and research grants
  • taxable capital gains
    from Disposing of certain Canadian property
  • income from providing services in Canada other
    than in the course of regular and continuous employment

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