Tax Tips for Canadians Working Abroad
Allan Madan, CA
If you are a Canadian who is working either permanently or temporarily abroad, there are many tax implications that you need to be aware of. Tax implications are important things to consider for Canadian citizens who are working outside of Canada.
Canadians Working Abroad Permanently
A Canadian who is permanently working abroad must determine their residency status. The CRA looks at three primary factors when determining residency status:
- The first is where your permanent home is located.
- The second, is where your partner and children live.
- The third is where you live.
Let’s take the example of George, who left Canada to work and live in the United States. His permanent home is in the United States. His wife and child are in the United States and George himself lives in the United States. In this case, George is clearly a non-resident of Canada.
The secondary factors that the CRA considers when determining residency status include:
- Bank accounts.
- Credit cards.
- Social ties.
- Personal possessions.
A single secondary tie, by itself, will not cause you to become or remain a resident. When examining the secondary ties and their impact on your Canadian residency status, you must evaluate the ties as a whole.
6 Things to Do Before You Leave Canada
1. File Departure Tax Return
On your departure tax return, it is important that you indicate the date that you emigrated from Canada.
2. Submit Form NR73
You could file form NR73 (determination of resident status upon leaving Canada). It’s not mandatory to file this form with the CRA, but you may want to complete this because then the CRA will give you a determination in writing as to whether you are a resident of Canada or a non-resident of Canada.
3. Stop Receiving Tax Credits
Canadians working abroad must tell the CRA that they no longer want to receive any payments or tax credits, such as for GST, the Canada child benefit, and more. If they continue to work abroad and receive these payments, they will end up having to pay all of that money back, plus interest and penalties, once the CRA finds out.
4. Disclose All Assets
Canadians working abroad must give the CRA a complete list of all Canadian and foreign assets they own as of their departure date. On this form, you must provide a description of your assets and their fair market when you leave. However, you are not required to file this form if the total value of all your assets is less than $25,000 when you leave Canada. If you don’t file this form the CRA will impose a significant penalty on you.
5. Pay Departure Tax
When you leave Canada and become a non-resident, you are deemed to have sold all of your assets at their fair market value and you must pay tax on the accrued gains. Certain assets are exempt from departure tax, like your principal residence, RSPs, and TFSAs.
6. Talk To Your Financial Adviser
You should tell your financial advisor that you have become a non-resident, the date you became a non-resident, and that you would like to receive non-resident tax slips from any financial institutions that you deal with. You should also tell your financial advisor that you no longer wish to contribute to your RRSP and the Tax-Free Savings Account, as you are no longer permitted to do so once you become a non-resident of Canada. There is a 1% per month penalty for contributions made to a TFSA after you become a non-resident.
Filing Tax Returns In Canada
As a Canadian permanently working abroad, you only have to file a tax return in three specific circumstances:
- You earned employment income in Canada.
- You carried on a business in Canada.
- You disposed of taxable Canadian property such as real estate property.
Withholding Tax For Canadians Living Abroad
After you leave Canada, you will be subject to withholding tax. Withholding tax is applied at a rate of 25% on the Canadian sourced income that you receive. This includes interest, dividends, CPP, old age security and pension, RSP income and rents from real estate property in Canada.
Let’s take an example: George has $10,000 in Canadian savings bonds that pay him 10% interest, or $1,000 per year. In this case, George’s Canadian Bank would be required to hold back 25% in taxes, or $250 from the 10% interest payment that he receives. This is known as a withholding tax.
You should look at the tax treaty that Canada has with the country you’re living in to see if you can get any kind of tax relief from withholding tax. For example, if you live in the United States, the withholding tax imposed on dividends is just 0%. Furthermore, the withholding tax on interest received from Canadian financial institutions is zero. You can receive Canada pension plan payments and the withholding tax rate is zero.
Canadians Living Temporarily Abroad
If you are temporarily living abroad, you are considered a factual resident of Canada so long as your residential and personal ties remain with Canada. You could also be a factual resident of Canada under the following circumstances:
- You worked temporarily outside of Canada.
- You teach or attend a school outside of Canada.
- You commute daily or weekly to work in the United States.
- You regularly vacation outside of Canada.
Tax Filing Obligations For Canadians Living Temporarily Outside of Canada.
As a Canadian working abroad, you still have to:
- File a regular personal tax return, which is due on April 30th of the following year.
- Pay tax on your worldwide income, which is income earned inside as well as outside of Canada.
- Claim all deductions and tax credits.
- Pay both Federal and Provincial tax to the CRA.
Let’s look at an example. George’s employer transfers him to Hong Kong for 18 months. He is leaving his spouse and child behind in Canada and he is still maintaining his permanent home in Canada. He is temporarily renting accommodations in Hong Kong, provided to him by his employer. In this case, George is clearly a factual resident of Canada, and he is, therefore, subject to income tax on his worldwide income: the income earned in both Hong Kong and Canada.
Foreign Tax Credits
As a Canadian who is temporarily working abroad, you might be worried about double taxation: having to pay taxes in the country where you are currently working, as well as having to pay taxes in Canada. Fortunately, the Canadian Income Tax Act can provide tax relief through a foreign tax credit. You can claim a foreign tax credit for the taxes that you paid in a foreign country.
The foreign tax credit is the lesser of two amounts:
The income tax you paid to the foreign country, or:
The Canadian tax is payable on the foreign source of income.
So if you’re working in a country that has a very low tax rate, you will most likely get all the foreign taxes credited back to you on your Canadian personal income tax return.
Overseas Employment Tax Credit For Canadians Working Outside Canada
Canadians temporarily working abroad should consider the overseas employment tax credit. To qualify for this credit you must be working for a Canadian employer, and you must be working overseas for a period of more than six months. In order to qualify, you must be working in one of the following industries.
- Exploring for petroleum, natural gas, minerals, or similar resources
- Construction, installation, agriculture, or engineering work
- Working for the United Nations.
It is important to note that this credit is being phased out, so please take advantage of it while you can.
Remember that when you leave Canada to work abroad, your tax obligations come with you. Thank you for watching. Please remember to like, comment, and subscribe. You can also follow us on Facebook and Twitter for more tax tips.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
I am Canadian just started work outside Canada,i have a house in Canada and my children and wife are still there.
i wonder if there is any lawyers or accountants abroad that can help in this matter,
Hi Firas, can you please email further details of your situation to me? My email address is firstname.lastname@example.org.
If a Canadian Resident with ties in Canada works outside (US or middle east), and keeps travelling back to Canada to his family, reports world income on his Canadian tax return, can he also claim travel expenses under employment expense or somewhere on his Canadian Tax return?
Hi Brij, in this case, travel expenses would be non-deductible. Travel expenses can be deducted if you are not reimbursed by your employer and you are travelling to meet with a client, colleague or supplier.
Hi I will permanently leave Canada soon, but my child will stay in Canada to finish his university education. Will I still be considered a resident as dependent is in Canada? Thanks
Hi Eric, if you are financially supporting your adult child while he stays in Canada, then your adult child will be treated as your dependent. If you have a dependent in Canada, then you are classified as a tax resident of Canada. However, you should check the tax treaty between Canada and your new home country to see if you can get-out of being a Canadian tax resident.
Hi Madan; you mentioned children, would that include adult children over 18 years old?
If you have adult children (18 or older) who are living in Canada, and you are financially supporting them, then they will be considered as your dependents. As a result, you will have a primary tie to Canada and you will be taxable in Canada on your worldwide income.
Hello, I will be leaving Ontario to teach in Egypt this September and I was wondering about the GST and Trilium tax credits I just received. I read below from the CRA website for factual residents:
As a factual resident, your income is taxed as if you never left Canada. As such, you will continue to:
report all income you receive from sources inside and outside Canada for the year and claim all deductions that apply to you
claim all federal and provincial or territorial non-refundable tax credits that apply to you
pay federal tax and provincial or territorial tax for the province or territory where you keep residential ties
claim any federal and provincial or territorial refundable tax credits that apply to you
be eligible for the GST/HST credit (goods and services tax/harmonized sales tax), and Canada child benefit
It says I am eligible for the GST/HST credit, but the video above said that I have to notify the CRA to stop the GST credits when I leave. Just looking for clarification on this. Thank you.
If you remain a factual resident of Canada because of your strong primary and secondary ties to Canada, then you will be eligible to apply for the GST/HST credit. Non-residents of Canada are not able to collect the GST/HST credit.
Hi. I have a home in Canada which my mother lives in. I do not receive rent for my home. The home is under both my brothers and my name (he is the primary). I also have bank accounts, drivers license, credit cards and I pay insurance for my home and car. I have been working in China for 8 years and will continue for another year. I am currently in Canada due to covid 19 and have been here for 5 months until the border opens up again. My family come with me to China while I am there. Would this make me a factual resident or non resident? Do I need to file my world income each year? I haven’t been for 8 years. Also if I work full time here until I go back (summer job) do I have to file my world income or just my Canadian income for the work I did? Any information you can provide will be appreciated.
According to the tax treaty between Canada and China, you are a resident of the country where your permanent home is located. It appears that you have a permanent home in both China and Canada. If you have a home in both Canada and China, then you are a resident of the country where your personal and economic ties are strongest. You have several ties to Canada, but I suspect that your ties to China would be stronger since you have been living in China for 8 years and are temporarily living in Canada due to Covid-19. However, if your personal and economic ties to both countries are equal, then you are a resident of the country where you ordinarily live. It appears that you ordinarily live in China, which would make you a tax resident of China and a non-resident of Canada.