Tax returns: The obligation for filing your taxes in Canada is primarily based upon an individual’s residency status. However, a non-tax resident’s requirements are different from those of a resident.
Below are some of the factors that are taken into consideration for the determination of a taxpayer’s residency status as a non-resident:
- When a taxpayer normally resides in another country
- The lack of significant residential ties in Canada
- Having a dwelling place (i.e. a home) in Canada,
- A spouse or common-law partner in Canada, and
- Dependents in Canada
- Residence outside of Canada throughout a tax year
- Residence within Canada in a tax year is less than 183 days
Further, below are some of the secondary residential factors to also take into consideration:
- Personal-use property in Canada
- Certain social and/or economic ties via memberships in Canadian organizations or Canadian bank accounts
- Canadian valid driver’s license and/or passport
- Canadian health insurance
Income Tax Obligations for Non-Residents of Canada:
If you have been classified as a non-resident, there are still several circumstances in which you may need to file income tax returns and be responsible for paying taxes, such as the following:
- Income from employment in Canada
- Income from a business carried on in Canada
- Sold a taxable Canadian property
- Canadian scholarships, fellowships, bursaries, and research grants
The Canadian taxes for non-residents generally include Part I tax for self-employed or employed income, or Part XIII tax for dividends, rental income, pensions, income from retirement, and annuity payments along with other investment income sources.
Part XIII tax is at the rate of 25% and is generally considered to be the final tax obligation for non-residents.
Part I tax is deducted for specific types of income:
These sources of income can include income from employment or business. It also includes Canadian scholarships and research grants, or any income earned from selling a property in Canada. This type of tax is generally deducted at the source by the payer. Your tax obligations at the end of the year may vary depending on various factors and you are required to file a tax return reporting these payments.
Part XIII tax is applicable to incomes from:
- Dividends
- Rental and royalty payments
- Pension payments
- Old Age Security pension
- Canada Pension Plan and Quebec Pension Plan benefits
- Retiring allowances
- RRSP payments
- Registered Retirement Income Fund payments
- Annuity payments
- Management fees
It is crucial that you let your employers or anybody else who pays you know that you are a non-resident of Canada for tax purposes in order to prevent being overcharged for the tax you owe. In Canada, non-resident taxes are typically subtracted at a rate of 25% unless your nation and Canada have tax treaties in place. Mostly this kind of tax is non-refundable, and it is not mandatory to file a tax return. If an incorrect amount of tax was deducted from your income you can contact the CRA to request further investigation.
Filing Non-Resident Tax Returns
Non-Residents will need to file the specific return viz “Form 5013-R T1” (Income Tax and Benefit Return for Non-Residents and Deemed Residents of Canada).
Mostly, taxpayers use their Social Insurance Numbers on these forms but in the case that you do not have one, you may obtain an Individual Tax Number using “Form T1261”.
Non-Resident Withholding Taxes/Elective Returns
When paying certain forms of income to non-residents, Canadian payers are required to deduct tax. Non-residents must file a non-resident income tax return for some specific categories of income in order to be eligible for a refund of all or a portion of the withheld tax.
Another option can be to file an NR5 Application by a Non-Resident of Canada for a Reduction in the Amount of Non-Resident Tax Required to be withheld for the Tax Year. This application helps in determining whether filing a Section 217 elective return will be beneficial and once approved the reduction may be effective for 5 years.
At 4i Advisory, we provide business and income tax returns, accounting, audit support, direct tax, private equity, payroll, assurance, US-India tax and sales tax services to just name a few in the United States of America. To know more please contact us (Urvesh Patel – urvesh.patel@4iadvisory.com) and we would be happy to assist you.
