Understanding Deemed Residents for Canadian Tax Purposes

Residency status is one of the most important factors in determining how an individual is taxed in Canada. Some individuals are considered deemed residents under the Income Tax Act, even if they have not established residential ties in Canada. Others may be considered non-residents and are taxed only on certain Canadian-source income.

Who Are Deemed Residents?

Deemed residents are individuals who are considered Canadian residents for tax purposes, even if they did not establish residential ties in Canada.

As a deemed resident, an individual must declare their worldwide income for the entire year.

Sojourners (Visitors)

An individual who sojourns (is temporarily present) in Canada for a total of 183 days or more during a calendar year is deemed by the Income Tax Act to be a resident of Canada for the entire year.

To qualify as a deemed resident under this rule, the individual must be a resident of another country.

The CRA considers any part of a day to be a "day" for the purpose of determining the number of days that an individual has sojourned in Canada during a calendar year.

Key Points

• Deemed residents must declare their worldwide income for the entire year.
• Sojourners are physically present in Canada and generally have no prior residential ties to Canada.
• Government personnel may be deemed residents even if they are not physically present in Canada because they have prior residential ties.

A resident of Canada who becomes a non-resident during the last half of a calendar year is not deemed to be a resident of Canada for the entire year.

Government Personnel and Prescribed Agencies

Employees of government and prescribed agencies are considered deemed residents even if they did not sojourn in Canada.

These categories include:

• Persons who were members of the Canadian Forces at any time during the year.
• Officers or servants of Canada or a province who were resident or deemed resident of Canada immediately before their appointment or employment by Canada or the province (for example, members of the Canadian Forces serving abroad).
• Individuals who perform services outside Canada under an international development assistance program of the Canadian International Development Agency.
• Members of the overseas Canadian Forces school staff.
• The spouse and dependant children of a person described above.

Part-Year Residents

An individual who takes up residency in Canada during the year, or leaves Canada during the year, will generally be taxed as a part-year resident.

Provincial Tax Treatment of Deemed Residents

A deemed resident is required to file a Canadian tax return. However, an individual who is deemed to be a resident of Canada is not considered a resident of a specific province for provincial tax purposes because they are not physically residing in Canada.

As a result:

• The individual will be required to pay the federal surtax, which may be higher or lower than the provincial tax that would otherwise apply if they were resident in a particular province.
• The individual will not be entitled to any provincial tax credits, whether refundable or otherwise.
• The individual will not be entitled to any direct tax-based provincial benefits, such as provincial payments in respect of dependant children or infirm family members.

Example

Ronilda and Sonia are visiting Canada to see their sister for three months.

Answer:

Ronilda and Sonia are in Canada for less than 183 days. As such, there are no tax implications.

Non-Residents of Canada

Non-residents are subject to taxation only on income received from Canadian sources and on the disposition of taxable Canadian property.

In most cases, non-resident tax is withheld at the source for various types of income.

Non-residents with the following types of income must file a Canadian tax return for the year in which the income is received:

• Income from employment in Canada.
• Income from a business carried on through a permanent establishment in Canada.
• Income from the disposition of taxable Canadian property.
• Income from investments such as rental property or publicly traded shares.

Example (a)

Mark Luis lives in Mexico and has investments of $1 million with Royal Bank of Canada. He received interest income of CDN $10,000.

Answer:

Mark needs to inform the financial institution that he is a non-resident of Canada. The financial institution will deduct non-resident withholding tax, which will serve as his final tax liability regarding Canadian taxes.

However, if Mark has other types of income, such as rental income or income from a business, he will need to file a Canadian Non-Resident Tax Return.

Example (b)

What if Mark had invested in real estate and earned rental income of $10,000?

Answer:

Mark would have to file a Canadian Non-Resident Tax Return.

Additional Information

This is a general overview of non-resident tax returns. This topic is complex and depends on an individual's specific circumstances.