Non-resident Tax issues in Canada – A Primer

by | Jul 25, 2011 | Taxation, Uncategorized | 0 comments

Many people have heard of the idea of becoming non-resident for Canadian tax purposes.  Since the Canadian tax system is based on your residency becoming a non-resident means avoiding Canadian taxes in most, but not all, situations.  This blog does not address the steps needed to make yourself non-resident if you are currently a resident of Canada, but rather focuses on potential tax liability of non-residents in Canada.

First of all a non-resident for tax purposes is generally considered to be anyone who has spent less than 183 days inside Canada in the calendar year, has no residential ties in Canada and routinely lives in a country outside Canada.  If you spend 183 or more days in Canada in a year you may be considered a sojourner and become a deemed resident for Canadian tax purposes unless excluded by the relevant tax treaty with your country of origin.

Full non-residents are still subject to Canadian tax reporting for all Canadian-source income earned while in-country, whether from employment, business, property or capital gains from disposition of taxable Canadian property (ie. real estate).

Non-residents who dispose of real property in Canada must also obtain a clearance certificate and file a Canadian tax return in the year they dispose of the property.  Until a clearance certificate is obtained an amount equal to 25% of the value of the property disposed must be remitted to the Canada Revenue Agency by the purchaser.  The difference between the actual tax due and the amount remitted may be recovered by filing a tax return.  If in joint ownership each individual must file a return.

If the property in Canada is rented then the renter is obligated to remit a portion of the monthly rent directly to the CRA (the general rate is 25% unless otherwise specified by treaty).  This may also be typically handled by an agent of the non-resident owner who acts to ensure all necessary tax reporting is filed.

Income from business or employment is also subject to Canadian tax unless modified by tax treaty with your country of origin.

For example, under the Canada-US tax treaty a non-resident American resident is exempt from Canadian tax if they are an entertainer (movie industry, radio, television, theatre etc….) or an athlete on the first $15,000 of income earned in Canada.

Business profits earned by an American resident business in Canada will be exempt to Canadian tax if they do not maintain a “permanent establishment” in Canada and earn income in Canada for less than 183 days in the year.  Permanent establishment is defined within the treaty.  Otherwise it may be necessary to pay Canadian tax on an amount of income that is reasonably attributable to Canada.

Double taxation is generaly eliminate through the use of foreign tax credits availbale to offset any tax paid in the other jurisdiction when filing your domestic taxes.  This will vary and is also governed by your tax treaty in force.

As you can see the tax issues related to non-residents in Canada are complex and it is highly advisable to seek professional assistance in order to avoid penalties for failure to comply with Canadian tax laws.

Canadian tax treaties my be accessed here:

Canadian tax treaties

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