Are you a non-resident of Canada for tax purposes?

For some people, it’s hard to understand whether they are residents of Canada, which can be a little confusing. We have broken it down for you to make it a little easier.

According to the CRA, you are a non-resident of Canada if the following situations apply to you:

  1. You live in Canada from time to time, but you do not have any residential ties in Canada.
  2. You stayed in Canada for less than 183 days in the previous year or
  3. You live outside Canada throughout the entire tax year.

What are the different types of residency status?

If you don’t qualify as a proper resident or an ‘ordinarily’ resident/deemed resident, you may fit into one of the other categories. You may either be a factual resident or a deemed non-resident.

Who is a factual resident?

A factual resident is a person who does not live in Canada (he/she is traveling, etc.) but at least maintains residential ties (house, family, etc.) with Canada. The residential ties are mentioned in detail later in this article.

For example, some people categorized as factual residents include individuals teaching, vacationing, studying, or working outside Canada.

Who is a deemed non-resident?

This is where most people get confused. A deemed resident of Canada or a Factual resident of Canada may be a person who maintains residential ties in Canada, and they are also considered a resident of a country that has made a tax treaty with Canada. So, if you have ties with a country that has made a treaty with Canada and have residential ties in Canada, then you may be considered a non-resident. A deemed non-resident generally follows the same tax rules as a regular non-resident.

Who is deemed a resident?

Anyone who lives in Canada for more than 183 days, even though he/she does not have ties with Canada, will become deemed a resident, and he/she will be subject to tax on Canadian and worldwide income.

To become a non-resident of Canada for tax purposes. It is important to note the following ties before filing the Departure Tax Returnor NR73.

  • Primary Ties:
  1. Primary Residence.
  2. ASpouse or Common-Law Partner living in Canada.
  3. Dependent living in Canada.
  • Secondary Ties
  1. Driver’s License
  2. Health Card
  3. Bank Account
  4. Furniture &Clothing
  5. Credit Card
  6. Vehicles
  7. Pets
  8. Memberships in clubs
  9. Pension Plan
  10. RRSP & TFAS
  11. Any other personal possessions.

A person doesn’t need to break off all secondary ties to be considered a non-resident. Secondary ties are a weighing scale, which means which country you have more ties with (Canada vs. any other country). For example, if you have more secondary ties with Canada than any other country, then you will be considered a resident of Canada for tax purposes.

What do I have to do to be considered a non-resident?

If it’s right for you, you can ask your accountant about the Determination of Residency Status Form (NR73 form) or file a departure form tax return. The benefit of filling out the NR73 form is the clarity about the residency status.

Once you fill out this form, the CRA can provide you with a notice that determines your residency status with them. However, there is a downside to filling it out. Sometimes, it may lead to the CRA investigating your file as they prefer that you remain a resident since that works in their favor when paying taxes.

To become a non-resident, a person can file a Departure Tax Return with the CRA before April 30 instead of the NR73 Form.

TAX IMPLICATIONS OF BECOMING A NON-RESIDENT OF CANADA

Not Eligible to Receive the Benefits:

After becoming a non-resident of Canada, you will not be eligible to receive Canada Child Benefit (CCB), Ontario Trillium Benefit (OTB), GST/HST Credit, or Climate Action Incentive Payment (CAIP).

Home Buyers Plan&Lifelong Learning Plan:

Within 60 days of leaving Canada, you must repay any amount you owe under the Home Buyers Plan (HBP) and Lifelong Learning Plan (LLP). If you fail, that amount will be added to your annual taxable income.

RRSP’s & TFSA’s:

It would be best to stop contributing to your RRSP&TFAS unless you expect to have a lot of income in your final Canadian tax return.

Canada Pension Plan& Old Age Security:

It would be best to inform your bank and the administrator of your pension so they can withhold 25% of your income tax. The 25% tax will be withheld from your Canada Pension Plan (CPP), Old Age Security, and Registered Pension Plans. After becoming a non-resident, If you don’t inform your financial institutions about your new residency status, and they keep giving you the gross amount of your income. You’ll have to file the Canadian tax return, and the final obligation will be determined. However, Canada’s Tax Treaty with your new country of residence can reduce this withholding tax.

Disclose Canadian Assets by the time of Departure:

When you become a non-resident of Canada,you must disclose all Canadian assets worth $25,000 or more by filing formT1161 (List of Properties by an Emigrant of Canada) to list all the properties inside and outside Canada. In case you fail to report your assets, CRA can make you pay a maximum of $2,500 asa penalty plus interest. If you are late in filing the form T1161, then a $2,500 penalty also applies. The due date is April 30.

Tip: To avoid penalty and interest, you can file a Voluntary Disclosures Program (VDP) with Departure Tax Return.

Residency after Leaving Canada:

If you sell your house after leaving Canada, a 25% tax will be implied by CRA on the gross selling amount of your home, which can be financially crucial. Fortunately, by opting for Section 116, you can reduce your tax to 25% of the gain, that is, the selling price minus the original purchase price of your house.

If you decide to rent your house instead of selling it, you should file Section 216 Return to report your rental income and expenses yearly.

Deemed Disposition of Assets:

After becoming a non-resident of Canada, you’re deemed to dispose of your assets at the fair market value and pay tax on gain. They call that “Departure Tax” to be paid at departure time.

Assets subjected to Departure Tax:

  1. Property situated outside Canada
  2. Company Stock (Private & Public)
  3. Foreign Trusts
  4. Funds (Mutual & Exchange Traded)
  5. Any Other Personal Property

Assets not subjected to Departure Tax:

  1. Property situated in Canada
  2. Certain property of a returning former resident who last emigrated after October 1, 1996. This will no longer be treated as having realized accrued gains on departure.
  3. Property of a short-term resident at the time of arrival in Canada or any property transferred through inheritance after that person became a resident of Canada.
  4. Future benefits and payments such as RPPs, IPPs, RRSPs, RRIFs, RESPs, DSPs, and RCAs.
  5. Owning a foreign life insurance policy is subjected to departure tax.

File Final Tax Return:

After becoming the non-resident of Canada, you should;

  1. File your final tax return for the year you leave Canada.
  2. Be clear about your departure date on the final tax return.
  3. Reduce your number of personal tax credits with the number of days outside Canada.
  4. Disclose all your properties and assets if they are worth $25,000.
  5. File to defer the departure tax or pay it.

Due date of departure tax return:

The due date to file the departure tax return is always April 30 by the following year, when you leave Canada.



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