Canadian Non-Residents Tax Obligations: A Comprehensive Overview

In Canada, the tax system has specific rules for individuals who are no longer residents of the country, often referred to as tax non-residents.

A tax non-resident is an individual who does not have ties with Canada or has severed those ties. For Canadian residents who become non-residents, they may be subject to the departure tax (deemed disposition), which applies to certain types of assets. The tax rate varies based on individual income and location within Canada.

Non-residents of Canada are taxed only on income earned in Canada or from Canadian sources. However, when selling real estate in Canada, a certifier must keep 25% of the total sales amount to comply with Canadian tax laws. An alternative certification and withholding method, known as a clearance certificate, can be applied for to reduce the withholding tax to 25% of the taxable gain.

Income such as capital gains, interest, dividends, and rental income are all subject to inclusion as taxable income in Canada. Non-residents can choose to file a separate Canadian income tax return to report their Canadian rental income.

It's important to note that Canadian tax non-residents are subject to tax on all income accrued worldwide until they cease to be a resident. Determining when an individual ceases residency is not clearly defined within the Income Tax Act and is determined by the interpretation of the taxpayer's facts and circumstances by the tax authority.

To claim non-resident status for tax purposes, a person must demonstrate evidence of intention to permanently sever residential ties to Canada and show a degree of permanence to their stay abroad. Withdrawals from a Tax-Free Savings Account (TFSA) as a non-resident have no Canadian tax implications, but as a non-resident, you cannot make contributions to a TFSA.

Canada has entered into tax treaties with many countries to resolve situations where both countries determine an individual is a resident for tax purposes. These treaties can be used to reduce tax liability, especially on Canadian assets. Non-residents may also be entitled to claim foreign tax credits.

If you were a Quebec resident and earned income outside Quebec during the tax year, tax may have been deducted for a province or territory other than Quebec. If you repurpose a property from a principal residence to a business property, you can fill out a form called a 45(2) election to avoid usage change tax. If the home was always your principal residence, Form T2091 must be filed with your tax return.

In addition, countries such as the United Arab Emirates (Dubai), Panama, Switzerland, Italy, and Paraguay offer more favourable tax advantages for immigrants, particularly for entrepreneurs, digital nomads, high earners, and those seeking low bureaucracy and flexible living.

The Canada Revenue Agency (CRA) considers a person a resident of Canada if they have residential ties, such as owning a home or having a spouse living in the country. Determining residence by tax treaty is used in cases where both Canada and another country (treaty country) determine the individual is a resident for tax purposes.

In conclusion, understanding the tax implications for non-residents in Canada is crucial for individuals planning to leave the country or for those who have already done so. It's essential to consult with a tax professional to ensure compliance with the tax laws and to minimise any potential tax liabilities.