Non-Resident Tax filing
Canadian tax obligations are based on your residential status. If you are a non-resident, the requirements for filing can greatly differ from those for residents.
Non-residency is an individual classification that is used for tax purposes by the Canada Revenue Agency. According to the CRA, individuals who normally, customarily, or routinely live in another country, and are not considered a resident of Canada, may be classified as non-residents.
If you are classified as a non-resident of Canada, you are only obligated to pay tax on Canadian source income. Canadian source income may be subject to Part XIII tax or Part I tax.
Part XIII Tax: is applied to the following sources of income:
As a non-resident, it is your responsibility to notify the Canadian payers about your residency status and country of residence to ensure that the correct portion of tax is withheld and remitted to the CRA.
Part XIII tax rate is 25% unless there is tax treaty between Canada and your country of residence. Normally, this is supposed to be a final tax liability and you are not required to file an income tax return. However, if you elect under section 216 of the Income Tax Act, you may pay less tax.
Election under section 216: You can make an election under section 216 to report Canadian rental income from real or immovable properties or timber royalties. When you elect under section 216, you can send the Canada Revenue Agency (CRA) a separate Canadian tax return to report your rental income for the year (or part of the year) that you were a non-resident of Canada.
Election under section 217: If you are a non-resident of Canada, Canadian payers have to withhold non-resident tax from qualifying Canadian income paid to you. If the correct amount of tax has been deducted, this non-resident tax is your final tax obligation to Canada on this income. As such, this income is not required to be reported on a Canadian income tax return.
However, you can choose to include all of your qualifying Canadian income on a Canadian return and pay tax on this income using an alternative method. If this is the case, you are then "electing under section 217 of the Income Tax Act" and may receive a refund of some, or all, of the non-resident tax withheld on this income.
If you emigrated from Canada during the year, the section 217 election would apply to all qualifying Canadian income received after leaving Canada.
If you are thinking of electing under section 217, you should first determine if doing so will be to your benefit.
Part 1 Tax:
Even if the payer deducts tax from your income or you pay an amount of tax during the year, you may also have to file a Canadian income tax return to calculate your final tax obligation to Canada on employment, business income, capital gains or scholarship income.
If you stop being a resident during the year, you may also be required to file a Canadian income tax return to calculate your final tax obligations for the year that you ceased to be a resident.
Softron Tax has been serving Canadians since 1990. Whether or not to file a non-resident tax return can be a complicated determination. If you need advice as to whether filing a Canadian tax return may be beneficial to you as a non-resident, contact us at (905) 273-4444 or send us an email at softron@softrontax.com
Posted on 21 Oct 2021