Navigating Taxes as a Non-Residency Considerations in Canada: Exploring Your Obligations

Taxes evoke a mix of emotions among Canadians. While no one relishes seeing their hard-earned money diminish, we also appreciate the presence of healthcare and social programs that support our fellow citizens and communities. However, if you find yourself in Canada without holding non-residency considerations status but living or working here, you might wonder whether you are obligated to contribute to provincial or federal taxes. The answer to this question is not straightforward and varies depending on individual circumstances.

Understanding Deemed Residency and Tax Obligations in Canada

Deemed Residency:

In Canada, we have a rule known as the “183 days rule.” Essentially, if you spend 183 days or more in Canada during one tax year, you are deemed a resident and are required to pay taxes. However, there are situations where you may not be a factual resident but still have ties to the country, such as owning a house, having a spouse or child here. In such cases, you are not completely exempt from tax obligations.

Tax Obligations for Deemed Residents:

As a deemed resident, you are required to report your worldwide income from all sources, whether inside or outside Canada, for the entire tax year. You can also claim applicable deductions and non-refundable tax credits. In this scenario, you are subject to federal tax, and instead of paying provincial or territorial tax, you will pay a federal surtax. While you can claim federal tax credits, you are not eligible to claim provincial or territorial tax credits. It’s important to note that the rules may differ if you were previously living in Quebec before leaving Canada. Additionally, as a deemed resident, you may still be eligible for certain credits and benefits, such as the GST/HST credit or the Canada Child Benefit.

Understanding Tax Obligations for Non-Residents and Deemed Non-Residents

Non-Resident Tax Withholding: For most types of income, non-residents are subject to tax withholding at a rate of 25%, unless a tax treaty between Canada and your country of residence specifies a lower rate. This applies to various forms of income, including pensions and investment income. However, if there is a tax treaty in place, such as with the UK, the withholding rate may be reduced to zero for certain types of income like pensions received from Canada.

Non-Resident Tax Calculator: If you’re unsure about the appropriate withholding amount based on your specific income and country of residence, you can utilize the non-resident tax calculator provided by the CRA on their website. This tool helps determine the correct withholding amount.

Filing Requirements for Non-Residents:

If your income is subject to non-resident tax withholding (referred to as Part XIII tax by the CRA), you are generally not required to file a Canadian tax return. Filing a Canadian tax return is mandatory only if your income is subject to Part I tax, which includes income from a Canadian employer, owning a business in Canada, or capital gains from taxable Canadian property. However, it’s important to note that publicly traded Canadian securities or mutual funds do not fall under this category.

Filing Options for Income Subject to non-residency considerations Tax Withholding: If you receive income that is subject to non-resident tax withholding, there are ways to file a return that can be advantageous for you. For instance, if you’re a non-resident with rental income, you can file a return under Section 216 to report your net rental income and have it taxed at the usual graduated rates instead of the 25% withholding rate. Similarly, for pension income, you can use Section 217 to report your pension income and benefit from the graduated rates. This can potentially save you money, but it’s important to consider any taxes that may apply in your country of origin.

Tax Considerations for Digital Nomads Working in Canada

The Rise of Digital Nomads: A popular trend that has emerged is the ability to work remotely from anywhere, whether it’s your home, a vacation spot, or a hotel. If you have chosen Canada as your location to work as a digital nomad, you may have tax obligations in Canada, but it ultimately depends on your specific circumstances.

Tax Treaties and the 183-Day Rule:

Canada has tax treaties with many countries, and these treaties often include a provision known as the 183-day rule. According to this rule, if you adhere to certain conditions such as staying in Canada for less than 183 days in a tax year, working for an employer in your home country, and your employer does not have a permanent establishment in Canada, you may be exempt from paying taxes in Canada. However, if you are working for a Canadian employer, you will likely be required to file a tax return in Canada. It’s advisable to retain your Notice of Assessment as your home country may allow you to claim a foreign tax credit.

Foreign Tax Credit:

In some cases, your home country may allow you to claim a foreign tax credit for taxes paid to Canada for non-residency considerations. This means that you can offset the taxes paid in Canada against your tax liability in your home country. It’s important to consult with a tax professional or refer to the tax laws of your home country to understand the specific provisions and eligibility criteria for claiming a foreign tax credit.

Considering these factors, if you are a digital nomad working in Canada, it’s crucial to assess your tax obligations based on your residency status, the nature of your employment, and the tax treaties between Canada and your home country. Seeking professional advice can help ensure compliance with tax laws and optimize your tax situation.

Filing Deadline: When is it?

When do I have to pay my taxes owing?

If you owe money to the federal government this year, the deadline to pay your balance is April 30, 2022. However, since this date falls on a Saturday in 2022, you have until the next business day, which would be May 2 (or June 15 if you’re self-employed), to make the payment.

It’s generally recommended to file your returns with both Revenu Québec and the CRA at the same time.

I’m self-employed, what’s my deadline?

If you’re self-employed, such as a freelancer or a small business owner, your deadline to file is June 15, 2022. If you and your spouse or common-law partner are filing your returns together and only one of you is self-employed, you can still file both returns by June 15, 2022.

Please keep in mind that if you owe federal taxes, your payment is still due on April 30, 2021, and if you owe Québec taxes, your payment is still due on May 31, 2021.

I moved away from Canada, what’s my deadline?

If you were a Canadian resident in 2021, your deadline to file is May 2 (or June 15 if you were self-employed), even if you have moved away.

If you are filing your return by mail, consider the time it might take for your return to reach Canada. Depending on your current location, this could take anywhere from a few days to a few weeks for Non-Residency Considerations.

If you moved before December 31, 2021, you may also need to file a return in the country where you currently reside. Visit your country’s government website or consult a local tax professional to learn about the local tax laws.

Will there be an extension to file my return again this year?

Revenu Québec allows 2021 returns to be filed until May 31, 2022, without incurring late-filing penalties or interest on unpaid taxes. If you are self-employed, your deadline to file remains June 15, 2022.

There are currently no plans for the CRA to extend the federal filing deadline again.