Becoming Tax Non-Resident in Canada
I previously wrote on the issue of being a perpetual traveler here –
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 –
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.
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:
- 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:
- Canadian rental income from real or immovable properties or timber royalties (see T4144, Income Tax Guide for Electing Under Section 216)
- certain Canadian pension income (Electing under section 217)
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:
- if you carry on a business in Canada, see Guide T4002 Self-employed Business, Professional, Commission, Farming, and Fishing Income, to find out if you must pay tax by instalments
- if you sell or transfer, or plan to sell or transfer taxable Canadian property, see Disposing of or acquiring certain Canadian property
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