Top 5 Misconceptions and Myths About Canadian Taxes for Non-Residents

This short article is called ‘Canadian Taxes for Non Residents and the Top Five Myths’.  I am going to clear up some misconceptions and myths, so let’s get started.

Myth 1:

Canadian citizens living outside Canada have to file a Canadian tax return. This is false. Non resident Canadian citizens only have to file a Canadian tax return if, during the year, they:

1. Sold Canadian real estate
2. Earned rental income from a Canadian property
3. Carried on a business in Canada
4. Were employed in Canada during the year

Myth 2 – Canadian Taxes for Non Residents:

Canada doesn’t levy taxes on non Canadians who invest in Canada. This is also false. Many non Canadians happily invest in Canada because of the great returns available here. They must file a tax return to report their investment income earned during the year. Exceptions are for Canadian dividends, Canadian interest income, and selling shares of a Canadian public company.

Myth 3:

If you temporarily work in Canada, then you automatically become a tax resident of Canada. This is also false. You will become a deemed resident of Canada only if you stay in Canada for more than 183 days in any 12 month period. Deemed residents are required to pay Canadian taxes on their world wide income.  For more information on this point, please see our article regarding tax implications for becoming a non-resident of Canada.

Myth 4:

Canadian taxes for non residents are an absolute certainty for businesses that sell to Canadian customers. This is also false. Canada has tax treaties with many countries across the world and these treaties normally provide an exemption from Canadian income tax. The exemption basically works like this. If the non resident business doesn’t have a fixed place of business in Canada, like an office, then the business profits earned are not subject to Canadian income tax here in Canada.

Myth 5:

Americans working in Canada pay taxes twice, once to the CRA, and then again to the IRS. This is also false. American residents will receive a foreign tax credit for the Canadian taxes paid on their US income tax return. Since the Canadian rates are usually higher than the American tax rates, Americans will end up owing very little, if anything, to the IRS.

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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