Becoming a Non-Resident of Canada

February 23, 2018

International Tax Accountant Toronto

You may have to leave Canada often due to work, family obligations or any other personal reasons. In this case, you may be considered a non-resident of Canada. Understanding your residency is very critical if you want to avoid hefty interests and penalties from the CRA. Below, we will help you to better understand your income tax obligations if you are considered a non-resident of Canada.

Are You a Non-Resident of Canada?

There are a number of tests given by the CRA that can help you to determine your residency status. First, they need to determine if you have any primary or secondary ties to Canada. Primary ties are such as if you have a primary residence in Canada, the areas of residence of your spouse or partner as well as your dependents. These are the most significant ties and if you have one or two of these, you will easily be considered a resident of Canada by the CRA.

There’s a longer list for the secondary ties and the common factors that will be considered in this case are:

  • 1. If you own any personal property in Canada (from vehicles to furniture, boats and even clothing)
  • 2. If you have a Canadian driver’s license and passport
  • 3. If you are a member in any Canadian organization
  • 4. If you have health and medical coverage in Canada
  • 5. If you have a Canadian bank account, credit card, and other securities account
  • 6. If you are working for a Canadian employer.

The secondary ties carry a little less significance than the primary ties but if you have many of these, you can still be considered a resident of Canada by the CRA. Work with a reliable tax accountant who will analyze your unique situation and advice on how to lower your tax bill.

What Happens If You Leave Canada and Become a Non-Resident?

Upon leaving Canada, you may have to pay departure taxes for things such as real estate outside Canada, some portfolio investments and mutual funds both in and outside of the country. One option would be to defer the departure tax until you have disposed of the assets.

Non-residents who rent out their primary residence upon leaving the country will have to pay 25% withholding tax of the gross rent that is collected every month. If you however choose to sell your primary residence after leaving Canada, you will need to pay a withholding tax of 25% of the selling price. This amount can be significant and one way to reduce it is to file a section 116 tax clearance certificate.

Non-residents are also required to list all their Canadian assets and their fair market value if it exceeds a total of $25,000. You should also expect certain Canadian benefits to stop once you become a non-resident of Canada for tax purposes. For instance, any payments paid out to you in form of GST/HST credits will no longer be made when you become a non-resident. If you receive any income from Canada as a non-resident, you will have to pay a withholding tax for it.