Canadian Tax Obligations for Non-Residents

tax planning
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According to the Canada Revenue Agency 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; or
– do not have significant residential ties in Canada; and

                        – you live outside Canada throughout the tax year; or
                        – you stay in Canada for less than 183 days in the tax year.

There is tax paid on all income you receive from sources in Canada; however, the type of return for residents and non-residents is not the same. For non-residents, the type of tax that is paid and the requirements to file income tax returns depend on the income that you receive. If you are a non-resident and do not have a social insurance number, you are required to obtain an individual tax number (ITN). This can be obtained by completing Form T1261, “Application for a Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents.” This form can then be sent into CRA anytime in the year before the tax deadline, or can be sent in with your income tax return.

As a non-resident, you are subject to income and loss from employment in Canada and/or a business carried on in Canada, as well, you are subject to capital gains and losses from dispositions of taxable Canadian property.

The type of tax that this income is subject to is Part XIII tax or Part I tax.  In order, to ensure that the correct type of tax is being paid, you have to make sure that you tell Canadian payers that you are a non-resident for tax purposes and what is your country of residence.

The most common types of Canadian income subject to this 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.

You may also be subject to Part 1 tax if:

– you carry on a business in Canada;
– you sell or transfer, or plan to sell or transfer taxable Canadian property.

If the income of the non-resident is generated from passive types of income, such as dividends, and pension income, as well as other income such as rental income, tax is withheld at source by the payer when the amount is paid to the non- resident; the general rate of withholding tax is 25%, but the non-resident may be able to claim a foreign tax credit in their country of residence for Canadian taxes paid.

Ultimately, if you are a non-resident with Canadian-source income, you need to file an income tax return if you have to pay tax, or want to claim a refund. You may be entitled to claim certain deductions or credits. To ensure that your income tax return is filed correctly with all the correct obligations, it is recommended to consult with an accountant or a tax advisor.

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Nafees Chaudhry

Nafees Chaudhry is the founder of CNC. Providing accounting, tax, and consulting services to small businesses and individuals for 23+ years.

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