Tax Obligations for a Non-Resident of Canada

Filing Taxes | Tax Obligations for a Non-Resident of Canada

Are you a Non-Resident of Canada?

You’re a non-resident of Canada for tax purposes if you: normally, customarily, or routinely live in another country and are not considered a resident of Canada. You don’t have significant residential ties in Canada, or you lived outside Canada throughout the year, or your stay in Canada was less than 183 days. 

Significant residential ties with Canada include:

  • a home in Canada.
  • a spouse or common-law partner in Canada.
  • dependents in Canada.

Secondary residential ties that may be relevant include:

  • personal property in Canada, such as a car or furniture
  • social ties in Canada, such as memberships in Canadian recreational organizations
  • economic ties in Canada, such as Canadian bank accounts and credit cards
  • a Canadian driving license
  • a Canadian passport
  • health insurance with a Canadian province and territory

The information mentioned is general. For further clarity on residential ties to determine your status for tax purposes, see Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status. 

Declaration of your Residency Status

Under Canada’s tax system, your income tax obligations to Canada are based on your residency status. Understanding your residency status is preliminary to determining your filing requirements for Canada. A non-resident must share his residency status with the Canadian payers so that an accurate tax amount can be deducted.

 

Filing Taxes | Tax Obligations for a Non-Resident of Canada

 

Tax Obligations for a Non-Resident of Canada

A non-resident of Canada is only liable to pay tax on income or gains from Canadian sources. For example, Canadian employment income and income from businesses operating in Canada.

Canadian income received by a non-resident is subject to Part I tax or PART XIII tax.

Part I Tax

As a non-resident of Canada, if you receive any of the following income from sources in Canada, your income is subject to part I tax deduction:

  • Employment income in Canada or income from a business operating in Canada.
  • Employment income from a Canadian resident for your employment in another country.
  • Certain income from employment outside Canada, if you were a resident of Canada when the duties were performed.
  • The taxable part of Canadian scholarships, fellowships, bursaries, and research grants.
  • Taxable capital gains from disposing of certain Canadian property.
  • Income from providing services to Canada other than in the course of regular and continuous employment.

Part XIII Tax

As a non-resident of Canada, if you receive any of the following income from sources in Canada, your income is subject to part XIII tax deduction:

  • Dividends.
  • Rental or royalty payments
  • Pension payments and Canadian Pension Plan (CPP)/ Quebec Pension Plan (QPP) benefits.
  • Old age security.
  • Retiring allowances.
  • Registered Retirement Saving Plan (RRSP).
  • Registered Retirement Income Fund (RRIF).
  • Annuity payment.
  • Management fees.

Obligation to file a Tax Return for a Non-Resident of Canada

If you paid Part I tax, you must file a Canadian income tax return if:

1. You carry on a business in Canada or

2. You sell or transfer, or plan to sell or transfer taxable Canadian property.

Even if your payer has deducted Part I tax from your other income, you have to file a Canadian income tax return to determine your final tax obligation to Canada.

If you paid Part XIII tax on your Canadian income, there is no need to file an income tax return as the tax obligation is already met. Note that Part XIII tax is not refundable.

However, as a non-resident, you can elect to file a Canadian tax return on income from which Part XIII tax was deducted if you received:

1. Canadian rental income real or immovable properties or timber royalties. 

2. Certain Canadian pension income.

If you elect to file a Canadian tax return, you may be able to claim a refund on a portion or all of Part XIII tax paid. If you received rental or pension income, you won’t be filing a general T1 but will be elected under section 216 and section 217 of the Income Tax Act, respectively. 

Whether or not to file a non-resident tax return can be a complicated decision. There are situations in which a non-resident must file a tax return and there are situations when he can elect to file. Filing taxes is there to advise you on whether filing a Canadian Tax return may be beneficial to you as a non-resident. 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.

Frequently Asked Questions - FAQ’s

  •   Do non-residents have to pay Canadian taxes?

If you are classified as a non-resident of Canada, you are subject to Canadian income tax on income you receive from sources in Canada during the year unless all or part of it is exempt under a tax treaty.

  •   What is the tax rate for non-resident Canada?

The general Canadian non-resident withholding tax rate is 25% for financial institutions and other payers. This applies to certain Canadian-source income paid or credited to non-residents of Canada. However, the provisions of an income tax treaty between Canada and your country of residence may provide for a reduced withholding tax rate.

  •  How are non-residents taxed in Canada?

Generally, Canadian income received by a non-resident is subject to Part XIII tax or Part I tax. If you own a business in Canada or if you earn money from a job in Canada, your income is subjected to part I tax. Part XIII tax applies to dividends, rental payments, old age pensions, retirement income payments and annuity payments as well as other types of investment income.

  • How can a non-resident file a tax return?

If you are a non-resident, you need to file a special tax return – Form 5013-R T1 (Income Tax and Benefit Return for Non-Residents and Deemed Residents of Canada). Most filers use their Social Insurance Number on these forms, but if you don’t have one, obtain an Individual Tax Number using Form T1261 (Application for a CRA ITN for Non-Residents). You may have to file additional forms depending on the type of income you earn.

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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