Taxes for non-residents and residents of Canada

18 May 2022 by National Bank
A woman who is a resident of Canada holds a Canadian flag in her hands.

Your tax obligations in Canada depend on your residency status, which is based on the nature of your ties with Canada, no matter what your nationality is. Your ties with Canada determine whether you’re required to pay tax here, even if you consider yourself to be a non-resident.

How to determine your residency status in Canada

To determine whether you’re a resident or non-resident, use the Canada Revenue Agency’s criteria to assess your ties with Canada. Because determinations are made on a case-by-case basis, there are no universally applicable rules. However, your country of residence will usually be the one that you have the closest ties with. 

If you’re unsure, ask yourself these questions:

  • Where is your home?
  • Where do your spouse and children live?
  • Where is your personal property located (e.g., your car)?
  • Where was your driver’s licence issued?
  • Where do you work?

Your residency status (external link) determines your tax obligations in Canada. If you are:

  • An individual who is resident in Canada (during a tax year): You will be subject to Canadian income tax on your worldwide income. This means that you’ll need to declare all your income, from all sources.
  • A non-resident individual: You’ll be subject to Canadian income tax on Canadian-source income only (as a general rule). 

Tax treaties for dual residents

Even after answering the questions above, you may not have a clear answer. In fact, it’s possible for a person to be a resident of two different countries at the same time. 

If there is a tax treaty between the two countries, this serves to clarify the situation. These treaties set out tie-breaker rules (external link) that determine the individual’s country of residence for tax purposes.

Good news: Thanks to tax treaties, you can avoid double taxation, which means that you won’t need to pay tax on all your income in two different countries simultaneously. 

A note about tax treaties

There are several countries that Canada doesn’t currently have a tax treaty with. It’s a good idea to do some research to avoid the problems that can arise from being a dual resident for tax purposes. 

Good to know: Foreign tax credit

If you’ve paid tax in another country (on income or profits from that country) and reported it in Canada, you may be eligible for the foreign tax credit.

What taxes do Canadian residents pay?

Manage your finances more confidently in Canada with our practical guide

Learn more about the financial system and how to make a personal budget, manage a bank account, your savings, and your investments.

For tax purposes, Canadian residents are divided into two broad categories: factual residents and deemed residents. 

Factual residents

You’re a factual resident for income tax purposes when you have significant residential ties with Canada. Example: You have a home in Canada or your family (such as your spouse, common-law partner or dependants) lives there. 

Note that the number and the nature of the factors used to conclude that a person has significant residential ties with Canada will vary from one person to the next. 

As if you never left Canada

If you’re a factual resident of Canada, you’ll also be considered a resident for tax purposes—even if you only visit the country occasionally or have moved away entirely. It’s just like you never left Canada. 

Obligations: You have to report all the income you receive during the year, from all sources (Canadian and foreign income). You can also claim all the deductions and tax credits (both federal and provincial) that apply in your situation.

Deemed residents

You’re a deemed resident of Canada if one of the following situations applies to you: 

  • You stayed in Canada for 183 days or more in the same year (without having significant residential ties) 
  • You’re an employee covered by the Income Tax Act (e.g., a government employee or a member of the Canadian Forces) or the family member of such an individual 

Obligations: Like factual residents, you have to report all the income you receive during the year, from all sources (Canadian and foreign income).

Important: You can only claim the federal tax credits and deductions that apply in your situation.

Comparing factual residents and deemed residents 

Factual residents and deemed residents:

Factual residents:

  • Can claim all federal and provincial tax credits

Deemed residents, on the other hand:

  • Can only claim federal tax credits 

Deemed residents also:

  • Have to pay federal tax and a federal surtax (rather than paying provincial or territorial tax)

What taxes do non-residents of Canada pay?

As a non-resident: You’re required to pay tax on income received from sources in Canada, and your obligations—particularly with respect to filing a tax return—depend on the type of income received and the applicable tax treaties.

Are you filing your tax return for the first time? Check out our article on How to do your taxes for the first time.

Good to know for former Canadian residents

If you were previously a resident of Canada, the tax authorities will consider you a resident again when you move back and re-establish your residential ties.

What about immigrants to Canada?

A person who arrives in Canada becomes a resident for tax purposes when they establish significant residential ties.

Have you recently moved to Canada? Check out our article on Understanding the Canadian Banking System.

The CRA also considers people who obtain permanent resident status and are covered under a provincial health insurance plan to be residents for tax purposes. 

Immigrants who haven’t established significant residential ties in Canada may be considered deemed residents of Canada if they stay in the country 183 days or more per year. 

Refer to these resources for more information: Newcomers to Canada (immigrants and returning residents) (external link) and Pamphlet T4055, Newcomers to Canada (external link).

You’re an international student in Canada

Studying in Canada doesn’t automatically make you a resident. Whatever your situation, your status is determined by your residential ties with Canada (external link). It doesn’t depend on your nationality or occupation.

Looking for advice on moving to Canada? Check out our article for 11 tips to help you get settled in Canada.

What happens if you leave Canada?

You’ll generally be considered an emigrant for income tax purposes—that is, a non-resident—if you fulfill both of the following conditions:

However, you may still be required to file a tax return for the year you leave Canada (covering the period up to the date on which you ceased to be a resident). 

There are also some other considerations to bear in mind if you sever your residential ties with Canada, such as departure tax (external link). You may have to pay tax on a deemed disposition of your assets. This means that you are taxed as if you had sold your property, even if you haven’t really sold it.

Don’t hesitate to contact a tax specialist for advice and assistance with this process. 

Refer to these resources for more information: Leaving Canada (emigrants) (external link) and Guide T4058, Non-Residents and Income Tax (external link).

It’s important to understand that your residency status for tax purposes doesn’t depend on your citizenship or the colour of your passport. To avoid unpleasant surprises and having to pay tax in two different countries, take the time to understand the Canada Revenue Agency’s rules. 

We’re here to answer your questions.

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