Residence and Source of Income – Canada
A taxpayer who is a deemed resident or resident of Canada is taxed on all his / her income from sources inside or outside of Canada.
A non-resident is taxed only on income from Canadian sources.
Taxable Income:
Income tax is imposed on taxable income of residents of Canada or income of non-residents earned from Canadian sources. The tax is computed on the basis of:
- Computation of income.
- Computation of taxable income.
Residence:
A person who stays in Canada for 183 days or more in a year, a person who is member of the Canadian armed forces, and servants of the crown are deemed to be residents of Canada for the whole year.
Taxpayers who at any time during the year were members of Canadian forces School Staff overseas and they filed taxes as Canadian residents are considered to be residents in Canada throughout the year.
Citizenship or nationality are not considered to be a condition of liability for tax in Canada.
A taxpayer residing abroad can still be considered a resident of Canada if he / she :
- Visits Canada as regular habit during part of the year.
- Taxpayer keeps a place of abode ready for use in Canada.
If an individual leaves Canada and sets up a dwelling in a foreign is said to be not a resident of Canada anymore.
An individual who finishes all his relations with Canada is said to be not a resident of Canada any more even if he left his family for some technical reasons.
A U.S citizen who is a Canadian resident but files and pays U.S taxes should also file income tax return in Canada. Any U.S tax paid must be claimed as foreign tax credits.
Taxpayers who live in the United States but work in Canada and they have social and economic ties in Canada are considered residents of Canada for tax purposes.
If an individual is domiciled in Canada but he is physically not present in Canada and does not have a house in Canada is considered a non-resident of Canada.
If an individual is a resident in U.S and Canada, there are tie breaker rules under U.S and Canada tax treaty which help determine residence of this individual for tax purposes.
Canada and a country with which Canada has a tax treaty is compelled to determine Canadian residence for all Canadian tax purposes under the conditions of this treaty.
Non Residents in Canada:
If a non-resident is employed in Canada, or he / she operates a business in Canada or who sells a taxable Canadian property, is taxable.
If a non-resident company carries on business in Canada, it must pay a branch tax at the rate of 25% on its income.
If a non-resident professional person exercises a profession in Canada, he / she is liable to taxation in Canada.
Anyone who solicits orders or offers anything for sale in Canada through an agent or an employee is considered carrying a business in Canada.
Here are some examples of carrying a business in Canada:
- If someone is carrying a stock in Canada from which deliveries are made.
- Further processing or developing of goods in Canada.
- Investment bankers or brokers who maintain an office in Canada and who have hired agents or employees to do transactions.
- Any person who renders services in Canada to any other person who resides in Canada or runs a business in Canada.
- Any person who sells a taxable Canadian property.
CRA has a policy that a visiting teacher must have income tax and CPP deducted from his / her salary and he / she must file an income tax. Once he / she leaves Canada, he / she can apply for a refund of all income tax and CPP paid related to his / her teaching income. Taxpayer must be able to demonstrate that his / her teaching income was exempt from Canadian taxes under an applicable treaty.
If a resident of Canada hires someone and he sends his employee outside of Canada on a temporary assignment to perform services, such services are taxable in Canada.
Disclaimer:
This presentation is for educational purposes only. It does not constitute a legal advice or opinion of any kind. Please do not use any of its contents without seeking a professional advice.
References:
Canada Revenue Agency, Canadian Master Tax Guide by CCH, Taxtips.ca, Taxplanningguide.ca, Canadianinternational.gc.ca