February 18, 2022

Non-Resident Tax Obligation in Canada

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According to the Canada Revenue Agency (CRA), or, an accountant filing your taxes, the residency status of a taxpayer is determined by assessing one of the following:

  1. If a taxpayer routinely resides in another country, and are not considered a resident of Canada.
  2. Do not have residential ties in Canada based,
  3. living outside of Canada during the tax year,
  4. You stay in Canada for less than 183 days in the tax year.

The primary factors that determine an individual's "significant residential ties" to Canada are:

  1. Own a residential property (home, apartment, or other places of residence).
  2. Have a spouse or common-law partner in Canada.
  3. Have dependents in Canada (children, stepchild, brother, sister, or parent).

Ultimately, our accountants assess a taxpayer's residential status according to guidelines set by the CRA.

Income Tax Obligations for Non-Residents of Canada:

Once you have been assessed as a non-resident by either assessment from CRA or by an accountant at Ebrahimi Accounting, you will then be required to file an income tax return. As a non-resident of Canada, you are still obligated to pay taxes on your income from sources in Canada. The type of tax you pay, and the requirements when filing your income tax return depends on your income type.

Generally, income earned by a non-resident from sources in Canada are subject to Part I tax for employed or self-employed income, or, Part XIII tax. The rate of Part XIII tax is 25% and is the final tax obligation for non-residents.

Part I Tax

Part I tax is usually deducted from the income types listed below. However, if you operate a business in Canada, or sell/transfer property within Canada, you may be needed to pay an amount on account of tax:

Equally, if the payer deducts taxes from your income, or you have paid an amount of tax during the year, you may be obligated to file a Canadian income tax return when calculating your total tax obligations to Canada regarding:

  • income from employment in Canada or from businesses carried on in Canada
  • employment income from a Canadian resident to conduct employment within another country, however, if that is under the terms of a tax treaty between Canada and the country you reside in, you may be exempt from taxes that you're obligated to pay in your country of residence
  • various income from employment outside of Canada as a Canadian resident during the time of your duties
  • taxable Canadian scholarships, research grants, bursaries, and fellowships
  • capital gains subject to taxes refer to CRA's Disposing of Certain Canadian Property.
  • income through services provided in Canada not related to your regular employment.

Part XIII Tax

Part XIII tax is deducted from the income type listed below.

  • dividends,
  • rental and royalty payments,
  • pension payments,
  • old age security pension,
  • Canada Pension Plan benefits,
  • retirement allowances,
  • registered retirement saving play payments,
  • registered retirement income fund payments,
  • annuity payments,
  • management fees.

Some non-residents get overcharged for taxes, it is important to ensure that you inform your employers or others who pay you regarding your non-residency status within Canada for taxation purposes. Canada's non-resident tax is usually deducted at a rate of 25%, subject to change depending on the tax treaty between the country you reside in and Canada. If incorrect amounts of tax were deducted from your income, it is important to inform our accountants, and the CRA to request further investigation.

Filing Income Tax Returns as Non-Resident

Non-Residents must file their specific returns for non-residents, commonly known as 'Form 5013-R T1' (Income tax and Benefit Return for Non-Residents and Deemed Residents of Canada).

Taxpayers usually use their Social Insurance Numbers (SIN) on these forms, however, in cases that you do not have a SIN number, you may obtain an individual Tax Number Form T1261, depending on your type of income, usually, additional forms will be needed to complete.

You must file a Canadian income tax return if you:

  • require to pay tax
  • wish to claim a refund

For more information, you refer to CRA's Do You Have to File a Return?

Non-Resident Withholding Taxes / Elective Returns

It is a requirement that Canadian payers withhold tax on payments of certain types of income to non-residents. Regarding specific forms of income, non-0residents are required to file a non-resident income tax return which can allow a partial or full refund of withheld tax. As another option, non-residents are able to file an NR5 Application, for a reduction in the amount of non-resident tax withheld for the tax year. This application helps to determine whether filing section 217 elective return can be beneficial, once approved, the reeducation can be effective for 5 years.

Depending on these filings, and non-filing requirements, personal taxes are seen as complicated by many individuals, especially for non-residents who are not familiar with the regulations of Canada. It is beneficial to hire a professional accountant to complete these complicated, and delicate tasks. Contact one of our expert accountants at Ebrahimi Accounting, we offer a free consultation to simplify the complicated processes and guide you through the right steps.

Note to reader:

Please note that the information presented in this article is to help provide you with general information. This article does not take into account your personal circumstances and should not be utilized without first speaking with an accounting professional. Ebrahimi Accounting will not be liable for any issues that may arise from using the information presented within this article. Please contact Ebrahimi Accounting for more Info.