The obligation for filing your taxes in Canada is primarily based upon an individual’s residency status. The tax obligations of a non-resident however differ from those of a resident.

Filing tax return in Canada - Non-Residents

The obligation for filing your taxes in Canada is primarily based upon an individual’s residency status. The tax obligations of a non-resident however differ from those of a resident. Below are some of the factors that are taken into consideration for determination of a taxpayer’s residency status as a non-resident:
  1. When a taxpayer normally resides in another country
  2. 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
  3. Residence outside of Canada throughout a tax year
  4. Residence within Canada in a tax year being less than 183 days
Further, below are some of the secondary residential factors to also take into consideration:
  1. Personal-use property in Canada
  2. Certain social and/or economic ties via memberships in Canadian organizations or Canadian bank accounts
  3. Canadian valid driver’s license and/or passport
  4. Canadian health insurance

Income Tax Obligations for Non-Residents of Canada:

In the case you have been assessed as a non-resident, you may still require filing income tax returns and be liable for taxes under certain conditions, such as under the following:

  1. Income from employment in Canada
  2. Income from a business carried on in Canada
  3. Sold a taxable Canadian property
  4. 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 obligations 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 source by the payer. Your tax obligations at the end of the year may vary depending upon 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
To ensure that you are not overcharged for tax you owe it is important that you notify your employers or others who pay you considering that you are a non-resident of Canada for taxation purposes. Non-Resident Tax in Canada is usually deducted at a rate of 25% unless your country has a tax treaty with Canada. 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

Canadian payers are required to withhold tax on payment of certain types of income to non-residents. For some specific types of incomes, non-residents are required to file a non-resident income tax return which may allow refund of part or all 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 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 return, 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.

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