Living or working outside Canada for part of the year can help you earn income and broaden your horizons. Nonetheless, before you take off, it’s important to understand that you may need to fulfill certain obligations to your federal and provincial/territorial government to retain your citizenship, like paying your income taxes on time.
If you’re relocating to another country, either temporarily or permanently, it’s crucial to understand your tax obligations. This knowledge will help you determine if you’re still considered a Canadian resident for tax purposes and avoid future issues with the Canada Revenue Agency (CRA). Continue reading to learn more.
Are You Considered A Resident Of Canada For Tax Purposes If You Live Outside Of Canada?
According to the terms of our country’s tax system, your obligations as a taxpayer will depend on what type of resident you qualify as.
Once your residential status is determined, you’ll know what your tax obligations are.
How Do You Determine Your Residency Status?
In Canada’s tax system, understanding your residency status and any tax implications requires an assessment of several key factors related to your citizenship. The CRA evaluates elements such as your residential ties, the duration and nature of your stay, and your intentions for staying in Canada. This information helps the CRA determine your residency status
Firstly, you’ll need to determine if you’ve created or maintained any official residential connections to the country during the length of your stay. Primary ties may include:
- A home located within Canadian borders
- Dependants who live in Canada (children, close family, etc.)
- A common-law partner or spouse who lives in Canada
Secondary properties in Canada may qualify as residential ties too, such as:
- A Canadian driver’s license and/or passport
- A health insurance policy with a specific province or territory
- Economic/financial connections (Canadian bank accounts, investment accounts like a RRSP or TFSA, loans, credit cards, etc.)
- Significant personal properties (vehicles, furniture, etc.)
- Social ties, like memberships to eligible Canadian religious or recreational groups
Check out all the ways you can immigrate to Canada.
Types Of Tax Residents In Canada
The next step in determining your tax obligations is to find out what type of tax resident you are. This part of your residency status is based on your total time in Canada.
Tax Obligations If You Leave Canada Temporarily
If you move abroad for a set period while maintaining certain connections to Canada, you could fall into one of three categories of tax residency
Residents who maintain significant residential ties (families, homes, etc.) while living outside of the country are typically categorized as factual residents. As a factual resident, you must file a yearly tax return and declare all global income. Luckily, you may be able to claim a credit if you pay foreign tax on that income.
Live Part-Time In The U.S.
If you spend part of the year in the U.S. for things like school or vacation but keep residential ties to Canada, you’ll likely stay a factual resident, which means you must file taxes as if you never left (similar rules exist if you live in other countries). However, these specific tax laws don’t apply to you if:
- You’re a citizen of the United States
- You have residential ties in a country other than Canada or the U.S.
- USCIS has given you a “green card” (i.e. you’ve been granted permanent resident status by the United States Citizenship and Immigration Services)
If you’re a government employee who has to work abroad, you’re usually considered a factual resident until you sever your residential ties. If you do, you may be considered a “deemed resident” for tax purposes. For a more detailed explanation of the tax obligations of government employees, please refer to this page on the Canadian Government website.
Do You Have To File Your Taxes If You Leave Canada Permanently?
Once you end all residential ties to Canada and move away, the CRA will likely consider you a “non-resident” or “emigrant” for income tax purposes. You will need to file a departure tax return (NR73) within the year you leave. This is to declare any final world income you made during your last days as a Canadian, like pensions or the sale of your home.
Keep in mind that there may be certain implications when filing your departure tax return, such as the deemed disposition of your assets (based on fair market value) and the allocation of the personal tax credits for your residency term.
When you leave Canada and become a non-resident, it’s important to be aware of the reporting requirements for foreign assets.
If at any time during the year, you held certain foreign property with a total cost of over $100,000, you must file Form T1135 (Foreign Income Verification Statement) along with your departure tax return.
This form is used to report details of foreign investments like bank accounts, shares in foreign companies, or real estate held outside Canada. Failing to accurately report these assets can result in significant penalties.
Will Becoming A Non-Resident Will Affect Your Retirement Accounts?
The status change to a non-resident also has important implications for Canadian retirement accounts like RRSPs (Registered Retirement Savings Plans) and TFSAs (Tax-Free Savings Accounts). As a non-resident, you can still hold these accounts, but the rules for contributions, withdrawals, and taxation may change.
For instance, any withdrawals from an RRSP while you are a non-resident are subject to Canadian withholding tax at varying rates depending on the amount and your country of residence. Similarly, you will no longer be able to contribute to or earn contribution room in a TFSA, although you may keep the account open and benefit from existing investments held.
Tax Obligations If You Live In Canada Temporarily
If you live in another country for most of the year but stay in Canada temporarily, you could also be classified under several types of tax residency, including:
Non-Resident Of Canada
As a Non-Resident of Canada, if you typically live outside of Canada, lack residential ties to the country, and/or stay in Canada for less than 183 days in a year, you are not considered a tax resident of Canada. However, it is important to note that you are still required to report any income earned in Canada. This income will be subjected to either Part XIII tax or Part I tax.
As mentioned, deemed residents often include government employees (missionaries can be eligible too). You may also qualify if you stay here for 183 days or more but don’t create residential ties and are not a resident of a country that has a tax treaty with Canada (only federal tax rules apply).
Non-Resident Of Canada With Rental Income
If you are a non-resident earning income from real or immovable property in Canada, it’s required that your payers, such as tenants, or agents, like property managers, withhold a 25% non-resident tax on the gross rental income paid or credited to you. The specific reporting rules for this tax can vary depending on individual circumstances.
Are you a landlord? Check out these tax deductions for landlords in Canada.
Various tax rules may also apply to seasonal agricultural workers, employers and the liaison officers who help them meet their Canadian tax obligations. These parties are to be considered as non-residents, deemed residents or deemed non-residents until they establish residential ties in Canada.
The Canadian Tax System
Our country’s tax system is administered by the Canada Revenue Agency (CRA) and dictates that a portion of each resident’s yearly income be paid if they’re living within Canadian borders. The CRA is responsible for collecting information about all taxes in Canada and residents must pay income taxes no matter where they are in the world.
However, while non-residents must still file a self-assessment tax return, they only need to pay taxes on the income they’ve earned within Canada from January 1 to December 31 of the appropriate tax year. So, according to the terms of our country’s tax system, your obligations as a taxpayer will depend on what type of resident you qualify as.
Federal Income Tax Rates For Residents (For 2024)
|Federal Tax Rate
|Federal Income Tax Brackets
|Applicable to taxable income up to $55,867
|Applicable to taxable income over $55,867 up to $111,733
|Applicable to taxable income over $111,733 up to $173,205
|Applicable to taxable income over $173,205 up to $246,752
|Applicable to taxable income over $246,752
Although federal tax rates for residents of Canada (Canadian citizens, permanent or temporary residents) fluctuate from year to year, non-residents are typically charged a flat rate of 25% on certain incomes such as dividends, pensions, and rental payments.
If you’re thinking about living or working outside Canada there may be important federal and provincial/territorial tax obligations that you must legally fulfill so that you don’t get penalized by the CRA. After all, you want to make the most of your journey abroad and that starts by protecting your finances.