Difference Between Factual and Deemed Tax Residency in Canada & Tax Implications

Canadian Resident for tax purposes

Navigating the complex world of taxation in Canada can be challenging, especially when dealing with residency status and its implications on your tax obligations.

If you’re a resident, you have to declare your worldwide income and pay taxes on it. If you’re a non-resident, you’re taxed only on your Canadian-sourced income. Therefore, it is essential to determine your official residency status according to the rules of the Canada Revenue Agency (CRA), so you can file your taxes the right way without over- or underpaying.

Determining your residency status isn’t always straightforward since you could be considering many factors. In this article, we will discuss the difference between factual and deemed residence and how it affects cross-border taxes. We will explain what a deemed and factual residency in Canada is, the circumstances that may lead to a particular status, and the tax implications associated with it.

Basic Set of Rules to Determine Residency Status

First up, let’s talk about being a resident. This means you “live in Canada” for tax purposes, whether or not you actually sleep in a bed on Canadian soil and have to file and pay income tax as a resident of Canada. CRA determines resident status case-by-case, but some common factors may give you a clue about your residency status for tax purposes.

 It would help if you considered the following question to determine it:

  • Where is your home located?
  • Where do your spouse and children live?
  • Where is your personal property, such as your car, located?
  • Where was your driver's license issued?
  • Where do you work?

The combination of these and some other factors is thoroughly reviewed. The factors that signify your closest ties determine the country of your residence.

What is a Factual or Deemed Non-Resident of Canada?

Factual or deemed non-residents, from the CRA’s point of view, are people who have some kind of tie to Canada but are considered non-residents for tax purposes. Factual or deemed residents are both categories of residents; the difference is how taxes are filed for each.

For instance, you might have a Canadian passport, but you’ve been living and working in another country for years and don’t have any significant residential ties to Canada anymore. Or, you might have some residential ties, but because of a tax treaty with another country, the CRA considers you a resident of that country—and a deemed non-resident of Canada.

Factual Resident of Canada and Tax Implications

As a factual resident, you’re taxed as if you’ve never left the country, even if you spend time living or working abroad.

When you file your taxes, you:

  • Must report your Canadian-sourced income and the income you earn elsewhere.
  • Can claim all your credits and deductions.
  • Can claim federal and provincial non-refundable tax credits and refundable tax credits.
  • Can apply for the GST/HST credit and receive the Canada child benefit (CCB) if you have children who live in Canada.

One factor that matters is what the CRA calls “significant residential ties.” If any of these apply to you, you might be a factual resident.

  • Have a home in Canada.
  • Have a spouse or common-law partner in Canada.
  • Have dependants in Canada.
  • Own property in Canada
  • Are you a member of a Canadian recreational or religious organization?
  • Are employed by a Canadian business.
  • Have Canadian bank accounts.
  • Have a Registered Retirement Savings Plan (RRSP)
  • Have a Canadian driver’s license.

Deemed Resident of Canada and Tax Implications

Deemed residents are people who aren’t factual residents of Canada, but still have enough ties to Canada that the CRA decides to make things official.

There are two categories of deemed residents:

  1. Canadians working abroad in an official role, such as for the Canadian Forces or as a government employee, as well as their family members.

  1. People who aren’t factual residents but spent 183 or more days of the year in Canada (unless they’re deemed a non-resident because of a tax treaty)

If you’re a deemed resident of Canada, you file your taxes with the 5013-G Income Tax and Benefit Guide for Non-Residents and Deemed Residents of Canada. That means a few things:

  • You will be subject to a federal surtax instead of provincial tax, as you can’t claim provincial or territorial tax credits.
  • You have to report your entire world income.
  • You can claim any deductions or non-refundable tax credits that apply to you.

Are international students factual or deemed residents of Canada?

International students in Canada have to follow the same rules as everyone else. You are a resident of Canada if you have significant residential ties, or if you spend 183 or more days a year in the country. Depending on your situation, you could be a deemed resident or a factual resident.

Cross Border Taxes

Many individuals residing on either side of the border may be employed and are performing duties in other countries. Filing cross-border taxes can be a chore,  these are complicated matters and it would be best if you contact an accounting firm that has experience in cross-border taxes so they can take care of it all and leave you free to take care of your business.

The team of tax expert accountants at Filing Taxes is dedicated to providing the CRA with accurate and transparent corporation nil tax returns for your company - for as many years as you need. We work with you throughout the year, not just during tax season, to fully leverage our expertise to benefit your business and help you grow. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances and ensure you comply with CRA reporting and payroll deductions.

Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.

Written By:
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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