Some clients often ask us: I’m a non-resident of Canada, do I still need to file taxes in Canada? I thought only residents are obligated to pay tax?
That’s not necessarily the case, non-residents of Canada who have income from Canada are also required to pay tax in Canada.
According to Canada Tax regulation and requirements, Canadian income received by a non-resident is subject to Part XIII tax or Part I tax.
The usual Part XIII tax rate is 25%, unless a tax treaty between Canada and your home country reduces the rate. Withholding tax must be paid to the CRA as soon as the income is generated. When tax rate applied under treaty mentioned above is greater than the tax rate under Canadian domestic law, then tax rate under Canada law is applied.
As non-residents of Canada, income in the following categories are subject to Part XIII tax are:
- dividends
- rental and royalty payments
- pension payments
- old age security pension
- Canada Pension Plan and Quebec Pension Plan benefits
- retiring allowances
- registered retirement savings plan payments
- registered retirement income fund payments
- annuity payments
- management fees
Non-residents receiving above incomes must inform their Canadian payers (such as banks) that you are non-resident of Canada and provide information about your country of residence in order to deduct applicable taxes from your income.
Interest income from bank or other unaffiliated party are generally tax exempt from withholding tax in Canada. For more information regarding withholding tax rate, please refer to Non-resident tax calculator on CRA website.
If all income received by non-residents from Canada has been charged with a withholding tax, it is not required for you to declare such incomes from CRA any more since such taxes has been paid and are non-refundable. However, if you have received pension income for the tax year, a pension income request form may need to be filed.
For non-tax residents, the payer usually deducts Part I tax from the types of income listed below income from employment in Canada or from a business carried on in Canada:
- employment income from a Canadian resident for your employment in another country if, under the terms of a tax treaty between Canada and your country of residence, the income is exempt from tax in your country of residence
- certain income from employment outside Canada, if you were a resident of Canada when the duties were performed
- taxable part of Canadian scholarships, fellowships, bursaries, and research grants
- taxable capital gains from Disposing of certain Canadian property
- income from providing services in Canada other than in the course of regular and continuous employment
Even if the payer deducts tax from your income or you pay an amount of tax during the year, you may also have to file a Canadian income tax return to calculate your final tax obligation to Canada on the above income.
To summarize, if you have paid all your tax obligations under Part XIII for your Canadian income, you are not obligated to file an income tax return.
There are two situations in which you can elect to file a Canadian income tax return for income from which Part XIII tax was deducted:
- when you receive Canadian rental income from real or immovable properties or timber royalties
- when you receive certain Canadian pension income
if you choose to file income tax return in Canada, you can request partial or full income tax deduction for income tax paid under Part XIII. If you have received rental income or pension income, T1 form is generally not required when filing personal income tax, other tax form for non-residents of Canada under T1-NR depending on income brackets is more suitable in this case (for instance Section 216, Section 216, etc.).
However, if you carry on a business in Canada, or sell or transfer taxable Canadian property, you may have to pay an amount on account of tax:
- If you carry on a business in Canada,
- If you sell or transfer, or plan to sell or transfer taxable Canadian property
Non-residents (individual of cooperation) operating business in Canada have to pay Canadian income tax for its income just like any other businesses in general under the same requirements unless there are tax treaties. When taxable Canadian properties (TCP) are disposed by non-residents of Canada, a complete tax record showing tax payment completion is required and a 25% withholding tax is applied when disposing TCP in Canada.
Tax planning for Non-resident can be a completed issue, in regard to whether a non-resident is required to file income tax is determined under various circumstances. Please contact our firm at 604-232-1070 for more information.