Determining your Canadian Residency for Tax

The Canadian tax system determines an individual’s tax obligations based on their residency as opposed to their citizenship in the country. This is an important distinction to understand; for example, you may be a Canadian resident for tax purposes while not a Canadian citizen or immigrant. You can be a Canadian citizen but not a Canadian resident. This article outlines the conditions required for an individual to be deemed a Canadian resident and the tax implications of their determined status.

Determining Residency

The CRA assesses residency on an individual basis using residential ties that a person maintains in Canada. There are two main types of residential ties in Canada: significant and secondary ties. For an individual to be a resident of Canada, they must meet one of the three significant residential ties. The secondary ties are used to complement the significant ones and help the CRA paint an accurate picture; on their own, however, they are not sufficient to establish Canadian residency. Below is a listing of the significant and secondary ties.

Significant ties to Canada:

• A home or dwelling in Canada
• A spouse or common-law partner in Canada
• Dependents in Canada

Secondary ties to Canada that may be relevant:

• Personal property in Canada, such as a vehicle
• Social ties in Canada, such as membership in a recreational or religious organization
• Economic ties in Canada, such as a bank account
• A Canadian driver’s license
• A Canadian passport
• Health insurance with a Canadian province or territory

Taxpayer Categories

The CRA splits up taxpayers into two main categories: residents and non-residents. The tax obligations for each category are as follows:

Resident

As a resident of Canada, you must report all worldwide income (income that you receive from inside and outside of Canada) in your income tax return. You must also pay federal and provincial/territorial taxes that apply to the location where you hold your significant residential ties.

Factual Resident

A factual resident of Canada is an individual who is not currently living in Canada either for schooling, work, vacation, etc. but they still maintain their significant residential ties in the country. In this situation, the tax obligations of a resident apply.

Deemed Resident

A deemed resident of Canada is different in that they do not hold significant residential ties in Canada. However, they still fall under the category of residents because they spend 183 days or more in Canada during the tax year, as per the 183-day rule. They are also not considered residents in the country where they currently reside. Deemed residents must still report world income but they only have to pay the federal income tax and an additional federal surtax. An international corporation may also be considered under this category under the condition that it was incorporated in Canada.

Non-Resident

‍An individual is considered a non-resident when normally, customarily, or routinely living in another country. This implies that they are living outside of Canada during the tax year and that they spend less than 183 days of the tax year in the country. The individual is taxed only on Canadian-sourced income, which includes employment income in Canada, income from a business carried on in Canada, or income from disposal of taxable Canadian property. On the date one ceases to be a resident of Canada, an individual is deemed to have disposed of most assets at the fair value of those assets

Deemed Non-Resident

A deemed non-resident describes an individual that has left Canada and has become a resident in the country where they currently reside. In this case, the tax obligations of a non-resident apply to them.

Another important case worth mentioning is the resident that decides to emigrate at some point during the tax year. Up until the date when they sever ties with Canada, the individual must still be taxed on worldwide income for the part of the year they were resident. The non-resident obligations would apply after they leave the country.

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For more information, visit the Determining your residency status web page provided by the Government of Canada.

References:

Determining your residency status, Government of Canada. CRA. January 21, 2020

Factual residents – Temporarily outside of Canada, Government of Canada. January 21, 2020