Becoming A Non-Resident & Taxes

by Tax Guy - Burlington Accountant on November 29, 2010 Print This Post Print This Post

You have left Canada to work in another country that does not have a tax treaty with Canada.  You have a wife who is seeking Canadian citizenship and must remain in Canada for a few years more to obtain citizenship. 

How do you become a non-resident of Canada for tax purposes to achieve your goal?

A recent visitor to Canadian Tax Resource posed such a question.  I have included the original e-mail (excluding personally identifiable information).

My situation seems complicated (on top of which I know very little about taxes). Here is some data:

  • I am a Canadian citizen and a resident of Ontario.
  • As of August 2008 I have been working abroad in a country with low taxes and no tax treaty with Canada.
  • My wife and my 15 month son are living with me abroad.
  • My wife is a landed immigrant and currently needs and must live in Canada for another year and a half in order to obtain citizenship.
  • We receive child tax benefits.
  • My wife and I are taking distance education university courses from a Canadian university and I have an OSAP student loan.
  • My wife has a Spousal RRSP that I have contributed to.
  • We do not own a home in Canada but are renting a portion of my parents home.

I would like to become a non-resident and thus avoid paying Canadian taxes. However, I need my wife to get her Canadian citizenship for which she will have to live in Canada (without me) for about 1.5 years sometime within the next 4 years before her permanent resident card expires.

How can I accomplish both my wife’s citizenship and non-residency?

I understand I can apply for non-residency later (i.e. after my wife gets her citizenship), and the status is back-dated to when I left Canada….but can they or how can they find out if my wife was actually living in Canada for the 1.5 year to get her citizenship? (which I assume would significantly hurt my non-residency bid).

  • Does having an RRSP hurt my chances of non-residency?
  • Does getting child tax benefit hurt my chances of non-residency?
  • Does having an OSAP loan hurt my chances of non-residency?
  • Does taking a distance university degree (either me or my wife) hurt my chances of non-residency?

If I were to purchase a house in Canada in the future (after my wife gets her citizenship), would it be advantageous to first declare non-residency then purchase the house OR vice versa? How would either scenario affect my chances of non-residency?

Thanks in advance for reading this…as you can tell, I really need help.

Analysis

The issue of immigration is outside my scope of taxation and requires the input from an immigration attorney.  Below outlines the general rules associated with the tax implications of emigrating from Canada.

Determining Residency

The CRA has an Interpretation Bulletin (IT-221R3) on this matter that may referred to directly.  According to the CRA, the most important factor in determining residency for tax purposes is whether or not the individual maintains residential ties with Canada while abroad.  The residential ties considered most significant are the existent of:

  • A residential dwelling in Canada whether owned or leased.  However, if the property were rented to an arms length party the dwelling would not generally be considered a residential tie but the CRA would look at the other facts in the circumstances to determine residency.
  • A spouse or common law partner in Canada.  If a spouse or common law partner remains in Canada then this would result in a significant residential tie. 
  • Dependents remain in Canada.  If the individuals’ dependents remain in Canada while the individual is abroad, then this would be considered a significant residential tie to Canada.

Note that even if the above have been met in terms of severing residency that there is no dwelling in Canada and the spouse and dependent have left with the individual, other, secondary factors may be considered to determine residency.

Secondary are viewed as a whole to determine if any one tie is significant.  The existence of a single secondary residential tie would not normally result in residency for tax purposes but taken with other ties may result in residency in fact.  Such secondary ties include:

  • personal property in Canada (such as furniture, clothing, automobiles and recreational vehicles),
  • social ties with Canada (such as memberships in Canadian recreational and religious organizations),
  • economic ties with Canada (such as employment with a Canadian employer and active involvement in a Canadian business, and Canadian bank accounts, retirement savings plans, credit cards, and securities accounts),
  • landed immigrant status or appropriate work permits in Canada,
  • hospitalization and medical insurance coverage from a province or territory of Canada,
  • a driver’s license from a province or territory of Canada,
  • a vehicle registered in a province or territory of Canada,
  • a seasonal dwelling place in Canada or a leased dwelling place referred to in ¶ 6,
  • a Canadian passport, and
  • memberships in Canadian unions or professional organizations.

Other factors may also be considered in some circumstances.  These can include magazine subscriptions or safe deposit boxes.

The CRA will also consider the regularity with which the individual visits Canada.  Occasional visits are typically not considered but if the visits are more than occasional and secondary residential ties are maintained then this may result in residency for tax purposes.

It is advisable to get a determination from the CRA on residential status when leaving Canada.  This may be obtained from the International Tax Services Office.

Consequences of Severing Residency

The rules for a deemed disposition upon emigration from Canada can be complex and professional advice is strongly recommended.

Generally, on the date residency is officially severed and the individual has left Canada all accrued tax liabilities must be brought up to date.  In technical terms this is called a deemed disposition and all of your assets are deemed to have been sold immediately before you left Canada.  All accrued income and gains are realized and taxes must be paid upon departure. 

Note that certain types of property are exempt from this deemed disposition and include such things as real property situated in Canada and pensions, stock options, RRSPs, and rights in a trust. 

The issue with a deemed disposition is that there is no factual sale of property and a hefty tax bill may result with no real cash inflow.  The ITA thus allows a taxpayer to provide security in lieu of paying the resulting tax.

Re-Establishing Residency In Future

It is possible to unwind the deemed disposition if at a later date the individual returns to Canada and establishes residency.  The tax that was paid would be refunded and the adjusted cost base restored.

Conclusion

Since the wife wishes to obtain Canadian citizenship and must reside in Canada for the next 1.5 years it would appear that the individual will not be able to sever residency until after citizenship has been obtained.

Once the wife has obtained citizenship she and the dependent children would need to leave Canada to reside with the Husband abroad.  In addition, it would not be advisable to purchase a home in Canada unless the intent was to rent the property to a third party who was at arms length.  Thus you would not be able to purchase a home and have your parents rent the property from you.

On their own, the RRSP, the OSAP loan, the distance education courses, and paying your parents rent do not necessarily result in residency.  However, taken together may result in residency.  It is advisable to present all of the fact to the CRA to obtain a ruling on residency.

Finally, be aware that upon departure or severing residency there will be a deemed disposition and any accrued taxes must be paid or security provided.  Severing residency would also result in a loss of the child tax benefit and you would no longer be eligible for Canada Student Loans or OSAP.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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{ 38 comments }

Mark & Janet Orge February 2, 2009 at 8:09 pm

Imay have an opportunity to relocate abroad and take my wife and daughter with me, all costs covered by my employer (via overseas branch)

My question and #1 concern is, assuming I sever all other ties as you have mentioned above, is it possible to aquire tax free status for the duration of my stay abroad WITHOUT having to sell our home? My 25 year old son could stay and look after the place and we would not charge rent. He could place the utilities in his name etc. Also, is it possible for CRA to committ to us having tax free status based on a proposal or application PRIOR to us accepting the position?

Your input is greatly appreciated,

Mark

Tax Admin February 2, 2009 at 10:28 pm

You should read the CRA bulletin Interpretation Bulletin (IT-221R3) carefully and seek the assistance of a professional.

You must sever significant residential ties. Significant residential ties include the status of the dwelling place, the location of the spouse or the location of dependents. Paragraph 6 of the above bulletin goes into detail as to whether they will consider you to have left for tax purposes.

It would appear that if you lease it to a family member, that the CRA may still consider you a resident.

Ideally, your company should also provide you with assistance with dealing with these matters as well. Speak to your employer.

S.Khan February 20, 2009 at 2:42 pm

me and my wife are non-resident canadian, living in saudi arabia. my 18 year daughter plans to attend a university in ontario, canada. does this affects my non-residency?
appreciate your input

Tax Admin February 20, 2009 at 3:36 pm

It should not affect your residency. Residency is based on more than one single factor. If you had a family home, your spouse, bank accounts, club memberships all in Canada you would likely be considered a resident.

A child studying in Canada alone does not constitute residency for you. Although it would for your daughter who would be a resident after 183 days.

Keith Oliver April 11, 2009 at 11:16 am

My daughter is living and working in France. She has been a non-resident of Canada for the past 3 years. She has been accepted to a master’s program at an Alberta University and will need financial assistance. Are there any Canadian, Albertan or BC (her last permanent residence in Canada) student loan or bursary programs available to assist her? She will not be residing in Canada during the program, as she can complete all of the courses remotely.
thank you for any assistance you can provide.

Tax Guy April 11, 2009 at 9:56 pm

@ Keith:

I am not familiar with all of the student financial aid packages. I would suggest that your daughter first contact the Financial Aid Office of the university to find out.

You can also contact Canada Student Loans & Grants at http://www.hrsdc.gc.ca/eng/learning/index.shtml.

latoya April 15, 2009 at 11:28 am

i am currently living in jamaica and i want to file my taxes so i would like to know where and how can i accomplish this task.

Tax Guy April 15, 2009 at 1:24 pm

@ Latoya

Assuming you are still a resident of Canada, go to the CRA site and obtain a tax package and mail I t to the CRA.

Cynthia Paige July 14, 2009 at 7:23 am

I am going overseas on a company work transfer to the UK for two years. We have a residence that we will be renting to third parties, and the entire family will be moving to the UK. I understand that Canada has a tax treaty with the UK and thus, for the duration of our overseas work assignment, the entire family will be deemed non-residents of Canada.
However, my husband and I withdrew the maximum allowable amount from our RRSP under the HBP to purchase our residence (combined $40,000). Our tax advisors have told us that this amount will have to be repaid within 60 days of our date of deemed non-residency, or it will be taxed in income. Is there any way to appeal this requirement given that I am going overseas for a set period of time and will become a resident of Canada subsequent to my return?

Tax Guy July 14, 2009 at 9:24 am

@ Cynthia:

Unfortunately, when you become a non-resident of Canada you must either repay the balance of funds you withdrew from your RRSP under the HBP before the date you file your tax return or no later than 60 after you cease to be a resident of Canada, whichever is earlier.

A Khan September 6, 2009 at 5:00 am

I have been offered a job in Saudi Arabia, my wife and children will remain in Canada while I will obviously be located in Saudi Arabia. Appreciate if you you could let me know the tax implications of this arrangement. Many thanks

Tax Guy September 8, 2009 at 8:42 am

@ A Khan:

One of the key variables in determining if you are a resident of Canada for tax purposes is whether you have your spouse and children residing in Canada. From my perspective, you will be liable for Canadian income tax on your worldwide income.

You should take a read through the following CRA document and consider hiring an international tax specialist (PriceWaterhouseCoopers or Ernst & Young have such services):

http://www.cra-arc.gc.ca/E/pub/tp/it221r3-consolid/README.html

See also:

http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/rsdncy-eng.html

rick bowden September 16, 2009 at 5:45 pm

I have lived overseas since 1996. Have no CDN residence, dependent children or employer. But have kept passport, driver licence and credit card due to me working all over world. Can I buy a cottage and still keep non-resident status?

Tax Guy September 16, 2009 at 8:25 pm

@ Rick

Although a cottage is considered a significant residential tie, on its own does not necessarily mean someone is a resident for tax purposes, and the CRA would look at other factors to determine if you are a resident.

The fact that you have a drivers license and credit card in Canada combined with owning a cottage starts you down the path towards being a resident even if you are in Canada less than 183 days.

It is advisable that you seek the a ruling from the CRA before purchasing a cottage.

S Eww October 18, 2009 at 2:56 pm

Hi Tax Guy,
In your ‘becoming a non-residant’ articla, you mentioned;
‘Note that certain types of property are exempt from this deemed disposition and include such things as real property situated in Canada and pensions, stock options, RRSPs, and rights in a trust.’

If a parent wants to become a non-resident and the only tie is a rental property, can this parent gives the property to his or her adult child at Adjusted Cost Base without deemed deposition and attracts capital gain?

Thanks.

Tax Guy October 19, 2009 at 12:17 pm

There is a deemed disposition on the earler of the date of the gift or the date they ceased to be a resident. No tax is payable on the disposition.

Monica November 30, 2009 at 8:03 am

HI Tax Guy,

I’m in a bit of a disagreement with my fiance, hopefully you can solve this for us!! We are both non-residents living abroad for 5 years now. I had contact CRA before leaving to find out if I needed to file a non-residency form, however I did not have enough ties and they said that I would just be deemed a non-resident. My fiance filed the forms as he had his own business etc.
I still have RRSP’s that have not been touched since leaving. I have a Canadian bank account that we just recently opened and have begun transferring money back home. I have a canadian credit card that has been used very rarely and only for necessary emergency type transactions. Mainly kept it to maintain credit as we hope to return home soon and buy a house. The country we currently live in is tax-free. I am also enrolled (as a non-resident) in a Canadian University online program.

Firstly, will we be taxed on the money that we have been putting into the Canadian bank account once we return? Is there a maximum amount we can transfer?

Secondly, will I be audited for the use of the credit card here and there? I have generally paid it off using cash in hand at the branch, however recently I used our new account to pay it off. This issue has come up as I have used it more in the last three months than I usually would in a year (about 4 transactions using the new account to pay it off) and now we’re curious as to the implications, if any.

Thanks.

Tax Guy November 30, 2009 at 8:29 am

@ Monica:

First, if you are a resident of Canada you are taxed on your worldwide income. Second, if you are not a resident of Canada, any income you earn (other than capital gains or income earned inside an RRSP) is subject to non-resident withholding tax.

When you leave Canada, you are deemed to have disposed of your assets at their fair market value and would need to pay the tax thereof if you had any taxable gains when you became a non-resident. Any interest earned inside the bank account would be subject to non-resident withholding tax.

When you become a resident of Canada, you are deemed to have acquired all of your assets at their fair market value on the date you became a resident.

In either case, the money placed in the account would not, itself, be taxed but rather the income earned is taxed. Which tax applies, depends on your residency status.

In determining residency, the CRA looks at your overall situation and not the status of one particular item by itself. If you have a credit card, bank account, and an RRSP and the CRA has said you are still not a resident, then you are not a resident. If you establish other ties to Canada, you may move yourselves closer to becoming residents (buying a house in Canada or having depended children here would definitely deemed you to be residents).

Michelle December 16, 2009 at 6:18 am

Dear Tax Guy

I am a South African married to a Canadian non resident. My husband has been out of Canada since 1993 and has obtained a non residency status from the CRA. He has a drivers license and a credit card and a professional license/membership in Canada. We have a joint non resident bank account that our salary is deposited to as a requirement of our employment with a Canadian overseas school. We were married in Canada have a daughter but I am not a Canadian resident or citizen nor have I ever lived there with the exception of a 3 month period on a student visa. My husband and I also have Australian residency which if we do not return to Australia in the next 2 years will expire. We are considering Canada as a place to settle but still unsure. I would like to purchase a recreational property in Canada but my husband is concerned about affecting his tax status. If we purchased the property in my name as a non resident, non citizen would this negatively affect my husbands tax status and could it impact us if we returned to live in Canada?

Best Regards
Michelle

Tax Guy December 16, 2009 at 9:38 am

@ Michelle – If I understand the current situation, your husband holds a Canadian professional designation, has an interest in a Canadian bank account, a Canadian credit card, and holds a Canadian drivers licence. Neither you, your husband or dependent children live in Canada and he is deemed to be non-resident.

You are considering purchasing recreational or vacation property in Canada before actually retiring to live and are concerned with residency status.

The CRA’s bulletin at http://www.cra-arc.gc.ca/E/pub/tp/it221r3-consolid/it221r3-consolid-e.html#P123_18961 indicates that if a dwelling place is acquired in Canada and is available for occupation, that it will be considered a significant residential tie to Canada. However, if that person has never been a resident of Canada and the property is leased then it will generally not be considered a significant residential tie.

Given the additional residential ties (drivers licence, bank account, credit card) that you may be close to being considered a resident. I would suggest posing the question to the CRA directly prior to the purchase.

James April 7, 2010 at 8:21 pm

Hi,

Excellent site. I plan to seek employment in Bermuda on a 3 year contract. Furthermore i am certain i wont be returning to Canada after that due to additional employmeny opportunities that will be available to me after this. I meet all the requirements to be a non-resident. However my parents live in Canada and have a house here. In addition i wish to keep my Canadian Passport and Citizenship as well. Do the above 2 factors hurt me if i intend to claim non-resident status?

thanks

James

Hilda April 9, 2010 at 3:22 pm

Dear Tax Guy,

I have been living and working abroad since 2008. I also got married in 2008 and my husband is NOT a canadian citizen/resident/landed immigrant so he has nothing related to Canada at all. I have been keeping my Canadian passport, driver license, health card and a bank account only. I am planning to stay abroad for a few more years. Am I suppose to file the T1 using the form for non-residents? If so, am I suppose to tick “married” for my Marital Status and write to CRA that my husband does not have SIN# as he has no residency in Canada?

Thanks a lot!

Tax Guy April 9, 2010 at 7:23 pm

The passport and citizenship together do not impact whether you are a resident. The home may if it is vacant.

Tax Guy April 9, 2010 at 7:48 pm

Hilda:
You should hire an accountant to handle this. You are probably not a resident but you do need to get a ruling from the CRA.

If you are a resident, you file a return for the province you had resided in and disclose your husbands total worldwide income on the fron of the T1.

Kazik April 18, 2010 at 6:41 am

Helo Tax Guy,
We sold our house, closed bank accounts and moved to Bermuda in 1992.
I maintain mambership in a professional association in Canada required for my employment here, keep two locked RRSPs in Canada and we all have Canadian Passports. Our son went to study in a university in Canada in 2006. Would our non resident status be impacted by our son studyning in Canada?

Tax Guy April 18, 2010 at 7:59 am

Kazik:
If your son is under age 18 and a dependent then it may affect your residency status for tax purposes.

Kosta May 16, 2010 at 1:03 am

Hi Tax Guy,

I have been living and working aboard for the last 6 years in various countries. I have no property or personal assets in Canada and have the following links: bank account, credit card, RRSP’s, driver’s license and only come to visit family and friends for a month once every year. In addition, I have not filed taxes since I left. At this time I have residency, a bank account and credit cards in the country where I now live and work.

My questions are as follows:
•Can I claim non residency from the time I left Canada 6 years ago?
•Is there a duration period where you are automatically considered a non resident?
•Can I put my name on my parent’s house deed at some point in the future?
•Do I have to empty my bank accounts?
•Can I still renew my Canadian driver’s license?
(Essentially, the account and license are there for when I go back home to visit.)
•How much tax does one have to pay given that I do not live in the country nor use its services? Is it the same rate as someone living in the country?

Thanks for your help and for providing this service.

masa June 1, 2010 at 2:45 am

Hello Tax Guy,

If I am doing some oversea contract work for my company in Taiwan, what is the best and legal setup to avoid heavy taxation in Canada or paying double taxing?

Would it be best for my company to pay me to my bank account here in Canada, and I just pay tax as a non-resident subject to Part I Tax?

OR

Would it be best for the company to pay me in a bank account directly, in the country that I will be holding a APEC Business Temporary Residency of? Would I need to pay tax in the country that I am Temporary Residency of and pay Canadian Tax?

Thank you for your help in advance.

Tax Guy June 1, 2010 at 12:38 pm

Hello,

Your liability for Canadian income tax is based on your residency and residency is a question of fact. If you maintain a dwelling home in Canada that is vacant and available for use, or have a spouse living in Canada, or have dependent children in Canada you are a resident regardless of where you are living.

Even if none of these apply, you may still be a resident and are best to view some of the criteria listed in the article.

Residents of Canada pay income tax on their worldwide income and it really does not matter where you are paid to.

Ceasing to be a resident has consequences in the form of the departure tax. When you cease to be a resident, you are considered to have sold your worldwide assets at fair market value and must pay any taxes before leaving.

I suggest you might want to hire someone to help you make this transition.

KK June 3, 2010 at 3:35 am

Hi Tax Guy,

I am about to file taxes as nonresident for the first time. We left Canada in April of 2009. My wife is a PR Card holder and wished to maintain this card even though she is living with me outside of Canada (I am a Canadian citizen).

Question is will she be considered a non-resident if the only tie she has is the PR card/status?

Thanks.

Tax Guy June 3, 2010 at 10:13 am

KK,
She is probably not a resident for tax purposes. You should both obtain a ruling from the CRA by filing form NR73.

Francisco September 4, 2010 at 11:27 am

Hi Tax Guy,

I am a Permanent Resident and I am planning to move to Mexico. I will be working as a self employee for a Canadian Company, however I will be paying taxes in Mexico.

I am selling my apartment and my car. I am moving with my wife and my kids. The only residential ties that I will have are the bank accounts (credit card) and the driver license. I also have a life insurance.

What do I need to in order to determine if I am non residence for tax purposes?

Thank you,

Francisco

Tax Guy September 5, 2010 at 8:17 am

Complete the CRA docume NR73. The CRA will tell you if you are a resident or not.

Mathew September 12, 2010 at 4:45 am

I have been declared by CRA as a non-resident for tax purposes effective 2006.

Can I buy property (house) in Canada now, I am willing to pay capital gain tax when I sell it. Would my residency be affected if I buy property?

If I wish to become a resident in future, would I be required to pay income tax back-dated, from 2006 onwards?

Thank you….Mathew

Tax Guy September 12, 2010 at 7:59 pm

You might want to get an advanced tax ruling particularly if you have other connections to Canada.

Hilda September 12, 2010 at 9:27 am

Dear Tax Guy,

I am filling in the T1 General “Income Tax and Benefit Return for Non-residents and Deemed Residents of Canada” as I am a non-resident. When I calculate my federal tax on Schedule 1. If I am NOT electing under section 217, do I need to complete Schedule A? If yes, do I need to fill in my income outside Canada on line 6 “Net employment income”? Because if I report my world icome, it looks like I will have tax to pay, but I suppose non-resident don’t need to report world income?

Thank you very much.

Hilda

Joanna November 2, 2010 at 7:52 am

Dear tax guy,

I moved to Sweden (with whom CA has a tax agreement with) in January 2010. I work here and have a home here and live with my Swedish boyfriend. I don’t have any property in Canada, I do have a drivers licence and a bank acct. I visit once a year for a few weeks.
I haven’t worked in Canada at all in 2010. I filed my 2009 Canadian tax return regularly.

I believe I qualify as a non-resident. I’m wondering what the consequences of this are? Any consequences on citizenship or work allowance if I come back to Canada eventually?
Will I have to fill out the Canadian tax return anyway even though I don’t earn any income in Canada?

I believe because of the Sweden-Canada tax treaty I wouldn’t be double-taxed if deemed resident or non-resident…but wanted to check.

Thanks in advance!

Tax Guy November 2, 2010 at 8:58 am

Hi there,
Your immigration and citizenship status has no relation to your tax status.

I suggest you file form NR73 to determine if you are a resident of Canada for tax purposes. If you are, you will know what you need to do to sever tax residency with Canada and what your next steps are.

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