Residence status is one of the main determinants of your tax obligations to Canada. For this reason, it's always advisable to check your residence status if you plan to live or work abroad. This is because, depending on your residence status, you may still need to pay income tax even if you live or work abroad.
The Canadian Revenue Agency determines your residency status based on whether you intend to leave the country permanently or temporarily.
There are two types of residency status in Canada:
● Resident
● Non-resident
Resident Status
If the CRA establishes your residence status as a Canadian resident, you'll pay income tax on income earned anywhere in the world. Even if you spend some time working outside Canada, you'll still be liable to pay federal and territorial tax. The amount of money you pay as a tax depends on what you earn.
As a Canadian resident, you'll need to file a T1 tax return covering your income and expenses from Jan 1 to Dec 31 each year. Note that the set deadline for filing tax returns and payment of income tax each year is 30th April.
If you're a resident, you need to declare your income earned outside of Canada when filing your tax returns. This is because the income will be taxed in Canada, but you can claim it as a foreign tax credit if you already paid tax outside Canada.
Non-Resident Status
You would be considered a non-resident if you don’t maintain strong residential ties with Canada and are not a deemed resident
Even if you're a non-resident, you'll still be liable to pay withholding tax from net income sourced in Canada, e.g. company pension plans and investment income, Old Age Security and Canada pension payments, etc.
Non-residents leaving Canada permanently are likely to pay a departure tax calculated as the marginal rate on the taxable capital gains earned if they sold all their Canadian assets. In addition, they'll be required to file theT1243or departure tax return form.
The form is for people who ceased to be a resident of Canada in the year and were deemed to have disposed of the property when they left Canada.
The form contains details of capital gains (or losses) for the properties non-residents were deemed to have disposed of. Note that paying a departure tax does not have any implications on your citizenship. But it is advisable to consult a professional tax lawyer before deciding whether or not to keep residential ties with Canada.
If you're aCanadian living abroad, taxesregulations require you to declare the net income earned outside of Canada when filing your tax returns to avail your non-refundable tax credits. So even though you won't be paying income tax, the amount of non-refundable tax credits you can claim in Canada will be affected.
Suppose you're a non-resident and 90% of your income was sourced in Canada and 10% from outside Canada. In that case, you'reeligible for a tax-free incomeof up to $12,069. But you won't be eligible for the tax-free income if you sourced more than 10% of your total income from outside Canada.
If you're a non-resident and earn income from property, dividends, royalties and gross rents in Canada, the income is subject to 25% federal tax. However, the CRA can reduce the tax rate depending on Canada's applicable tax treaty with your country of residence.
Canadian residents fall into the following categories:
Deemed Resident
Deemed residents of Canada are individuals who sojourn in Canada for not less than 183 days and are not a resident of another country. They may not have significant residential ties but are still considered to be residents of Canada. Tie-breaker rule will apply if the individual is also a resident of another country with which Canada has a tax treaty.
Factual Resident
Factual residents of Canada have significant residential ties with Canada even when they travel abroad. For instance, the CRA considers you a factual resident if you're amongCanadians working overseasfor four months and spending the rest of the year in Canada.
Note that members of the Canadian armed forces and government employees stationed abroad retain their resident status regardless of their time in Canada or their residential ties.
Factors Involved in Determining Residency Status
The CRA considers several factors when assessing an individual's residency status, they include:
● If you have a home in Canada
● If you have a Canadian spouse or common-law partner
● If you have Canadian dependents
● If you have personal property in Canada
● If you have a Canadian passport, bank account, driver's license, and health insurance
● The amount of time spent in Canada
● Your travel intentions
● Your preferred permanent location
Below are a fewCanadian tax tipsthat you should know to meet your tax obligations:
Foreign Tax Relief
Generally, any tax you pay as foreign tax in Canada is allowed as credits. This is to reduce double taxation if you've already paid foreign tax. However, the foreign tax credit varies depending on the foreign country you're residing in.
Provincial Foreign Tax Credit Relief
This type of tax credit is limited to any foreign tax paid that exceeds the amount of tax allowed for non-business foreign income taxes.
Double Tax Treaties
Many developed and developing countries have negotiated a tax treaty with Canada. The treaties adhere to the Organization for Economic Cooperation and Development (OECD) model treaty except those signed before 1971. Currently, there are approximately 95 countries that have negotiated a double tax treaty with Canada.
How To File Canadian Taxes Abroad
For aCanadian working abroad, taxobligations such as filing returns remain the same. However, there are various ways to file your Canadian tax returns abroad. They include:
● Using the CRA-certified tax software to file your tax returns electronically.
● Filing the paper forms found on the official CRA website and mailing them to a tax office near you.
● If you're a low or fixed-income earner, you can use 'File My Return' to file your taxes by phone or visit a community tax clinic to file your taxes.
Remember to provide your personal information and report all untaxed income when filing your tax returns. You can also claim deductions and credits to reduce your tax bill.
Canadians Living in the US
If you're aCanadian working in the USA, taxobligations may differ depending on the time spent in the country. Here's how to calculate the amount of taxes owed, assuming you began working in the US three years ago.
● Each day you spent in the US. for the first year counts as 1/6 of a day.
● Each day you spent in the US for the second year counts as 1/3 of a day.
● Each you spent in the US for the third or current year counts as one day.
Suppose the total number of days is 183 or more, and you've spent not less than 31 days in the current calendar year. In that case, you'll be considered a US resident for tax purposes and liable to pay US taxes.
Are you a resident of Canada living or working abroad and are unsure how to file your taxes? Get in touch withPrasad & Company LLP, a professional accounting firm based in Toronto, for all your tax and accounting needs!
FAQs
Resident Status
If the CRA establishes your residence status as a Canadian resident, you'll pay income tax on income earned anywhere in the world. Even if you spend some time working outside Canada, you'll still be liable to pay federal and territorial tax.
Do Canadian citizens have to pay taxes if they live abroad? ›
Resident Status
If the CRA establishes your residence status as a Canadian resident, you'll pay income tax on income earned anywhere in the world. Even if you spend some time working outside Canada, you'll still be liable to pay federal and territorial tax.
What happens if I leave Canada for more than 6 months? ›
In actual fact, you can be absent from Canada as long as you want. The Canadian government recognizes that citizens may travel extensively, work or study abroad. You will always maintain your Canadian citizenship. What absentia may affect is your Canadian health care coverage and income tax.
Do Canadians pay taxes on worldwide income? ›
Individuals resident in Canada are subject to Canadian income tax on worldwide income. Relief from double taxation is provided through Canada's international tax treaties, as well as via foreign tax credits and deductions for foreign taxes paid on income derived from non-Canadian sources.
How long can a Canadian citizen live outside Canada? ›
How long are you welcome to visit another country? A Canadian can stay for up to 182 days per calendar year (without paying U.S. income tax).
How do I keep my Canadian residency while living abroad? ›
To keep your permanent resident status, you must have been in Canada for at least 730 days during the last five years. These 730 days don't need to be continuous. Some of your time abroad may count towards the 730 days.
Do you pay tax in Canada if you are living in USA? ›
Do expats pay taxes in Canada? As a U.S. citizen working and living in Canada, yes, you may also have to file Canadian taxes: Canadian tax residents are taxed on all income, regardless of where it's earned.
Can you collect CPP and OAS if you live outside Canada? ›
You can qualify to receive Old Age Security pension payments while living outside of Canada if one if these reasons applies to you: you lived in Canada for at least 20 years after turning 18. you lived and worked in a country that has a social security agreement with Canada.
How long can you leave Canada without losing permanent residency? ›
Yes, you can lose your permanent resident (PR) status. If you haven't been in Canada for at least 730 days during the last five years, you may lose your PR status.
How to avoid Canada departure tax? ›
Tax-Free Savings Account (TFSA), Home Buyers' Plan (HBP), and Lifelong Learning Plan (LLP) If you hold a TFSA when you leave Canada, you can keep it and continue to benefit from the exemption from Canadian tax on investment income and withdrawals.
Note: You can keep a Canadian bank account and it can be really useful while living in the U.S. or overseas to have one! But change your address on this account to your new non-Canadian address. Do not change it to a family member's address in Canada, even though it may seem convenient to do so.
Do dual citizens pay taxes in both countries? ›
Being a dual citizen means that a person is considered a citizen/national of two countries at the same time, and is subject to both country's tax laws. Something to remember is that each country has its own laws dictating who qualifies as a citizen.
Are taxes higher in Canada or USA? ›
While the US and Canada have similar income tax rates, the Canadian government has a higher rate than the US. As a result, if you are an American, you may have to pay a higher rate in Canada than in the US.
Can you lose your Canadian citizenship if you don t live in Canada? ›
A simple answer is no.
Does Canada allow dual citizenship? ›
Canadians are allowed to take foreign citizenship while keeping their Canadian citizenship. Ask the embassy of your country of citizenship about its rules before applying for Canadian citizenship.
Can you be Canadian citizen and not live in Canada? ›
To be eligible to become a Canadian citizen, you must: be a permanent resident. have lived in Canada for 3 out of the last 5 years.
Can I live in Canada and remain a US citizen? ›
3) Can I live in Canada as an American citizen? Yes, if you are an American citizen, you may live in Canada. If your stay exceeds 180 days, you will most likely need a visa. You will also need a visa or work permit if you intend to work in Canada.
What is the 183 day rule for residency Canada? ›
Your residency status if you entered Canada
You may be considered a deemed resident of Canada if you have not established significant residential ties with Canada to be considered a factual resident, but you stayed in Canada for 183 or more days in the year.
Can I lose my residency if I live abroad? ›
Even if you have a green card, you cannot maintain your permanent resident status if you live outside the United States indefinitely and return only for visits. Extended absences will eventually lead port-of-entry staff to question whether you have abandoned your permanent residence.
Are US citizens double taxed in Canada? ›
Taxes: As a US expat in Canada, you'll need to file a US tax return each year and a Canadian tax return if you have Canadian income. However, the US and Canada have a tax treaty to avoid double taxation.
The U.S./Canada tax treaty helps prevent U.S. expats living in Canada from paying taxes twice on the same income. Learn more about this treaty and how it can help. The U.S. and Canada have historically had a great relationship, and that relationship extends to taxes within each other's borders.
Do I have to declare Canadian income on US tax return? ›
Expats are required to report all types of income arising in Canada on their US tax return on the relevant part of Form 1040, such as earned income on the main form, interest and dividends on Schedule B, business profits on Schedule C (and foreign registered businesses may have other US reporting requirements too), and ...
Can I get my Canadian pension if I live in the US? ›
Because CPP is a "member contributed plan" it will always be yours, regardless of where you live in the world. If you paid in at least 1 CPP contribution, you are entitled to a benefit.
Do you lose Social Security benefits if you move to another country? ›
If you are a U.S. citizen, you may receive your Social Security payments outside the U.S. as long as you are eligible for them.
Can Canadians retire in the US? ›
If you want to move to the United States permanently, you must become a legal permanent resident of the United States – whether you are retiring or not. In this case, you will have to apply to become a permanent resident, or get a green card.
Can I stay out of Canada for more than 6 months as a permanent resident? ›
As a permanent resident, you may travel outside Canada after you arrive. However, you must meet certain residency obligations to maintain your status as a permanent resident. To meet these residency obligations, you must be physically present in Canada for at least 730 days (2 years) in every 5-year period.
Can you have permanent residency in two countries? ›
FAQ Transcript: The question here is can I have permanent residency in more than one country? Yes. You can.
Can I return to Canada after 6 months? ›
Most visitors can stay for up to 6 months in Canada. If you're allowed to enter Canada, the border services officer may allow you to stay for less or more than 6 months. If so, they'll put the date you need to leave by in your passport. They might also give you a document.
Do I need to pay Canadian taxes if I don't live in Canada? ›
As a non-resident of Canada, you pay tax on income you receive from sources in Canada. The type of tax you pay and the requirement to file an income tax return depend on the type of income you receive. Generally, Canadian income received by a non-resident is subject to Part XIII tax or Part I tax.
Do I have to declare money leaving Canada? ›
Any time you enter or leave Canada, you must declare any money or monetary instruments, such as stocks, bond or cheques, you are carrying valued at $10,000 or more.
You must declare goods purchased at a Canadian or foreign duty-free shop, and any repairs or alterations you made to your vehicle, vessel or aircraft while you were out of the country. If you are unsure whether to declare an item, or whether an item may be inadmissible, always declare it to the border services officer.
Can I keep a US bank account from Canada? ›
Yes, you can. The process might be a bit complicated for non-citizens, but it's not impossible. Whether it's for business, travel, or personal reasons, setting up a US bank account will be worth the trouble. Banking in the US has many advantages.
Can I have a Canadian bank account with a US address? ›
Can an American citizen open a bank account in Canada? Yes. If you're not a Canadian citizen or not residing in Canada, it is possible to open a bank account provided that you can present the required documents for identification which will be discussed shortly.
Can a Canadian keep a US bank account? ›
Can I open a US bank account from Canada? Yes. There are several ways to open a US bank account as a Canadian citizen, whether for business or individual use.
What is the downside of dual citizenship? ›
Drawbacks of being a dual citizen include the potential for double taxation, the long and expensive process for obtaining dual citizenship, and the fact that you become bound by the laws of two nations.
Can you collect Social Security with dual citizenship? ›
The United States generally considers a person with dual U.S. and foreign citizenship a U.S. citizen for Social Security purposes. This does not apply if you are a U.S. citizen and a citizen of a country the United States has an international social security agreement with. This excludes Canada and Italy.
Do you get taxed twice as a dual citizen? ›
Being a dual citizen means that a person is considered a citizen/national of two countries at the same time, and is subject to both country's tax laws.
Is it cheaper to live in Canada or the US? ›
Overall, both Canada and the US are fairly expensive to live in. Canada has much higher housing costs but healthcare costs are much more expensive in the US. While US salaries are slightly higher, Canadians have a much easier time making a higher salary with less education.
Is it worth moving to Canada from USA? ›
Migrating to Canada is a great opportunity to start anew. There are many reasons why it may be worth it for you and your family. Canada's multicultural society and high quality of life make the country a perfect place for immigrants. However, deciding to move from one country to another can be challenging.
Is Canada the highest taxed country in the world? ›
What country has the lowest taxes ? Who pays the most taxes ?
...
Tax Rates by Country.
| # | 25 |
|---|
| Country | Canada |
|---|
| Tax Burden | 33.45% |
|---|
| Corporate Tax Rate | 26.47% |
|---|
| Income Tax Rate | 33% |
|---|
89 more columnsHow long are you welcome to visit another country? A Canadian can stay for up to 182 days per calendar year (without paying U.S. income tax).
How long can I be out of Canada as a Canadian citizen? ›
In actual fact, you can be absent from Canada as long as you want. The Canadian government recognizes that citizens may travel extensively, work or study abroad. You will always maintain your Canadian citizenship. What absentia may affect is your Canadian health care coverage and income tax.
How often do you have to come back to Canada to keep citizenship? ›
To keep your permanent resident status, you must have been in Canada for at least 730 days during the last five years. These 730 days don't need to be continuous. Some of your time abroad may count towards the 730 days.
Do you lose Canadian citizenship when you become an American? ›
A Canadian will not lose their citizenship if they take on another nationality or nationalities. If they are naturalized as a citizen, they will retain their original citizenship in addition to their Canadian citizenship, provided that the other country also allows dual citizenship.
How strong is a Canadian passport? ›
The Canadian passport is currently ranked 6th among global passports, according to the Guide Passport Ranking Index.
Can a Canadian citizen become a U.S. citizen? ›
U.S. Citizenship for Canadians. Unless born abroad to U.S. citizen parents, Canadian citizens cannot just apply for U.S. citizenship. Instead, Canadians usually have to be a permanent resident (green card holder) and reside in the United States for a certain period of time before they are eligible to naturalize.
Is there an exit tax in Canada? ›
When you leave Canada, you are considered to have sold certain types of property (even if you have not sold them) at their fair market value (FMV) and to have immediately reacquired them for the same amount. This is called a deemed disposition and you may have to report a capital gain (also known as departure tax).
Do I have to declare myself as a non resident of Canada? ›
If you're a non-resident, you need to report these types of income: Any employment income in Canada. Any other Canadian-sourced income, such as scholarships, fellowships, bursaries, research grants. Income from a business that is located in Canada.
Can a Canadian citizen live outside of Canada? ›
The simple answer is that a Canadian citizen can live in another country as long as they wish.
Does Canada tax on residency or citizenship? ›
Under Canada's tax system, your income tax obligations to Canada are based on your residency status. You need to know your residency status before you can know what your tax responsibilities and filing requirements to Canada are.
In general, no extensions are allowed. If you're a dual citizen living in Canada, taxes go both ways — so you may end up having to file not only U.S. taxes but also Canadian taxes.
Does Canada tax based on citizenship or residency? ›
In Canada, your income tax obligations are based on your residency status, not your citizenship or immigration status.
How long can I be out of Canada without losing benefits? ›
Your provincial or territorial health plan will cover only part, if any, of medical expenses outside Canada and will not pay up front. Furthermore, it will become invalid if you live elsewhere beyond a certain length of time – generally six to eight months, depending on your province or territory.
What is the 183 day rule for Canada tax? ›
You stayed in Canada for 183 days or more (the 183-day rule) in the tax year, do not have significant residential ties with Canada, and are not considered a resident of another country under the terms of a tax treaty between Canada and that country.
Do I have to declare myself as a non-resident of Canada? ›
If you're a non-resident, you need to report these types of income: Any employment income in Canada. Any other Canadian-sourced income, such as scholarships, fellowships, bursaries, research grants. Income from a business that is located in Canada.
Who is a non-resident of Canada for tax purposes? ›
Non-resident of Canada. You are a non-resident of Canada for tax purposes if any of the following applies: You did not have significant residential ties in Canada and lived outside Canada throughout the year, except if you were a deemed resident of Canada.
Can I live in Canada and keep my U.S. citizenship? ›
Yes, you can live in Canada if you are a U.S. citizen—and actually, unless you actually apply for citizenship in Canada, you will still be considered an American citizen, even if you are a permanent resident of Canada.
Why do I have to pay U.S. taxes if I live in Canada? ›
Income Tax
If you're considered a resident of Canada, you will be taxed on your worldwide income. However, Canada has tax treaties with many countries, including the US, to avoid double taxation. Peripheral benefits from employment—such as low-interest or interest-free loans—are taxed as employment income in Canada.
Do I lose my Canadian citizenship if I become an American? ›
A Canadian will not lose their citizenship if they take on another nationality or nationalities. If they are naturalized as a citizen, they will retain their original citizenship in addition to their Canadian citizenship, provided that the other country also allows dual citizenship.
Do Canadian citizens need to file a US tax return? ›
Canadian individuals without U.S. wages are generally required to file U.S. tax returns (Form 1040-NR) by June 15th. Further six-month extension can be requested by filing with the IRS Form 4868. The U.S. tax return filing deadline is April 15th for those Canadians who have U.S. wages.
Being a dual citizen means that a person is considered a citizen/national of two countries at the same time, and is subject to both country's tax laws. Something to remember is that each country has its own laws dictating who qualifies as a citizen.
