Tax Return Preparation for Non-Residents in Canada

Non-residents that have any connection (business, employment, investment, real estate) with Canada should be aware of their Canadian tax reporting requirements and liability for tax in Canada.

This short article summarizes the most common situations that cause a liability for tax in Canada for non residents or or that cause a non-resident to file a Canadian tax return.

While this article is helpful, you should still consult an Accountant for Non Resident Canada Tax Return Preparation for advice.

Factual Resident of Canada – tax

Residents of Canada are subject to tax in Canada on their world wide income.

Ties that establish Canadian residency in fact include:

• Principal residence (i.e. house) in Canada;
• Children and/or a spouse in Canada;
• Personal assets in Canada, including a vehicle, furniture, major appliances, etc.;
• Communal ties in Canada, e.g. membership in clubs, participation in Canadian organizations;
• Driver’s license in Canada; and
• Bank accounts at a Canadian financial institution, and/or credit cards from Canadian credit card companies.

Deemed Resident of Canada – tax

You are deemed to be a resident of Canada if you resided in Canada for 183 days or more in a given year.

Deemed residents are also subject to tax in Canada on their world wide income.

When are non-residents liable for tax in Canada?

If you are not a factual resident of Canada or a deemed resident of Canada, then you are considered to be a non resident of Canada. Non-residents of Canada only need to pay Canadian income tax in limited circumstances.

Non residents are liable for tax in Canada if they:

1. Were employed in Canada
2. Carried on business in Canada
3. Disposed of taxable Canadian property (e.g. Canadian real estate)

If any of these 3 situations apply, you should consult an accountant experienced in Non-Resident Canada Tax Return Preparation.  

Upon emigration of Canada as a non-resident, you must also disclose all of your Canadian assets or you may be hit with tax implications.  For more information on this and additional tax implications for non-residents of Canada, please see our article on becoming a non-resident of Canada.

­Non resident Canada tax return preparation – EMPLOYED

Non residents that earned employment income in Canada must pay Canadian income tax on that employment income. Canadian employment income is subject to tax to a graduated tax, where the rate of tax increases as the employment income received increases. For Canadian personal income tax rates and Canadian tax brackets, please see Canadian personal income tax rates.

Non-resident Canada tax return preparation – BUSINESS CANADA

Non residents that are carrying on business in Canada must file a Canadian tax return. If the non-resident business also has a permanent establishment in Canada, then the non-resident business must pay tax on the profits earned through the Canadian permanent establishment. For more information on the tax implications for non-residents carrying on business in Canada, please see Permanent Establishment in Canada

Non-resident Canada tax return preparation – Real Estate

Non residents that dispose of Canadian real estate are liable for tax in Canada on the profits realized on the disposition / sale of that real estate.

Investment in Canada is taxed favorably. As such, only half of the profit (i.e. capital gain) realized on the sale of real estate in Canada is taxable. To determine the tax rate applicable on the taxable portion of the gain, please see Canadian personal income tax rates

Personal tax credits available for non residents

Non-resident tax return preparation involves determining the tax credits that non-residents can claim on their Canadian tax return.

Nonresident individuals that earned 90% or more of their world wide income in Canada are allowed to claim all personal tax credits available to them (just as if they were a Canadian resident). Please see Personal Tax Credits – CRA for all of the available tax credits.

Where less that 90% of a non-resident’s world-wide income is from Canada, a non-resident can only claim the following personal tax credits:

– Disability amount

– Interest paid on student loans

– Tuition paid

– Donations and gifts

Non-residents entering Canada – tax return preparation

Non residents that immigrate to Canada must file a personal income tax return for the part of the year the year that they were resident in Canada. In addition, they must report all of their world wide income (i.e. income earned inside Canada and income in other countries) on their personal tax return.

When preparing tax returns for non-residents immigrating to Canada, personal tax credits are prorated by the number of days that the non-resident resided in Canada for the year. For example, if a person arrived in Canada in October, he would only be entitled for 3/12ths of any personal tax credits available.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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