If you are a Canadian working abroad permanently or temporarily, there are many tax implications to consider. Tax implications are important issues to consider for Canadian citizens working outside of Canada.
Canadians who work abroad permanently
A Canadian permanently working abroad must determine their residency status. The CRA looks at three primary factors when making its determinationresidential status:
- The first is where your permanent home is located.
- The second is where your partner and children live.
- The third is where you live.
Let's take the example of George, who left Canada to work and live in the United States. His permanent home is in the United States. His wife and child are in the United States and George himself lives in the United States. In this case, George is clearly a non-resident of Canada.
The secondary factors that the CRA considers when determining residency status include:
- Bank accounts.
- Credit cards.
- Social ties.
- Personal possesions.
A single secondary bond by itself will not make you or stay a resident. When examining secondary ties and their impact on your Canadian residency status, you should evaluate the ties as a whole.
6 things you should do before you leave Canada
1. Submit departure tax return
On your departure tax return, it is important that you indicate the date on which you emigrated from Canada.
2. Submit Form NR73
You could submit a formNR73(determination of residency status when leaving Canada). It is not required to submit this form to the CRA, but you may fill it out because the CRA will then notify you in writing whether you are a resident of Canada or a non-resident of Canada.
3. Stop receiving tax credits
Canadians working abroad must notify the CRA that they no longer wish to receive payments or tax credits, such as for GST, Canadian child support and more. If they continue to work abroad and receive these payments, they will eventually have to pay back all that money, plus interest and penalties, once the CRA finds out.
4. Disclose all assets
Canadians working abroad must provide the CRA with a complete list of all Canadian and foreign assets they own on the date of departure. On this form you must give a description of your possessions and the fair market for them on your departure. However, you do not need to submit this form if the total value of all your assets is less than $25,000 when you leave Canada. Failure to submit this form will result in a significant fine from the CRA.
5. Pay departure tax
When you leave Canada and become a non-resident, you are deemed to have sold all of your assets at their fair market value and must pay taxes on the accrued gains. Certain assets are exempt from departure tax, such as your primary residence, RSPs and TFSAs.
6. Talk to your financial advisor
You should tell your financial adviser that you have become a non-resident, the date on which you became a non-resident, and that you would like to receive non-resident tax statements from the financial institutions with which you do business. You should also inform your financial advisor that you no longer wish to contribute to your RRSP and the Tax-Exempt Savings Account, as you will no longer be allowed to do so once you become a non-resident of Canada. There is a 1% per month penalty for contributions to a TFSA after becoming a non-resident.
File tax returns in Canada
As a Canadian permanently working abroad, you only need to file tax returns in three specific cases:
- You earned income from work in Canada.
- You ran a business in Canada.
- You have sold taxable Canadian real estate, such as real estate.
Withholding tax for Canadians living abroad
After you leave Canada, you are subject to withholding tax. Withholding tax is withheld at a rate of 25% on the Canadian income you receive. This includes interest, dividends, CPP, old age security and pension, RSP income and real estate rental prices in Canada.
Let's take an example: George has $10,000 in Canadian savings bonds that pay him 10% interest, or $1,000 a year. In this case, George's Canadian Bank would be required to withhold 25% in taxes, or $250 from the 10% interest payment it receives. This is known as withholding tax.
You should look at the tax treaty Canada has with your country of residence to see if you can get any kind of tax relief from the withholding tax. For example, if you live in the United States, the withholding tax on dividends is only 0%. In addition, the withholding tax on interest received from Canadian financial institutions is zero. You can receive payments from the Canadian pension plan and the withholding tax rate is zero.
Canadians living abroad temporarily
If you temporarily reside abroad, you are considered an actual resident of Canada as long as your residential and personal ties to Canada remain. You can also actually be a resident of Canada under the following circumstances:
- You temporarily worked outside Canada.
- You teach or attend a school outside of Canada.
- You commute to work in the United States on a daily or weekly basis.
- You regularly go on holiday outside Canada.
Tax filing obligations for Canadians temporarily residing outside Canada.
As a Canadian working abroad, you still need to:
- File a regular personal income tax return, due April 30eof the following year.
- Pay tax on your worldwide income, which is income earned both inside and outside Canada.
- Claim all deductions and tax credits.
- Pay both federal and provincial taxes to the CRA.
Let's look at an example. George's employer is transferring him to Hong Kong for 18 months. He leaves behind his wife and child in Canada and still has his permanent home in Canada. He temporarily rents accommodation in Hong Kong, which is made available to him by his employer. In this case, George is clearly an actual resident of Canada and is therefore subject to income tax on his worldwide income: the income earned in both Hong Kong and Canada.
Foreign tax credits
As a Canadian temporarily working abroad, you may be concerned about double taxation: you must pay tax in the country where you currently work, but you must also pay tax in Canada. Fortunately, the Canadian Income Tax Act can provide tax relief through a foreign tax credit. You can claim a foreign tax credit for the taxes you paid abroad.
The foreign tax credit is the lower of two amounts:
The income tax you paid abroad, or:
Canadian tax is due on the foreign source of income.
So if you work in a country with a very low tax rate, you will most likely get all foreign taxes refunded on your Canadian income tax return.
Foreign employment tax credit for Canadians working outside of Canada
Canadians who temporarily work abroad should take into account the foreign employment tax credit. To qualify for this credit, you must work for a Canadian employer and work abroad for more than six months. To be eligible, you must be employed in one of the following industries.
- Exploration of petroleum, natural gas, minerals or similar resources
- Construction, installation, agricultural or engineering work
- Working for the United Nations.
It's important to note that this credit is being phased out, so take advantage of it while you still can.
Keep in mind that when you leave Canada to work abroad, your tax obligations come with you. Thanks for looking. Don't forget to like, comment and subscribe. You can also follow us on Facebook and Twitter for more tax tips.
The information on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consulting accounting and financial professionals. Allan Madan and Madan Chartered Accountant cannot be held responsible for any problems arising from the use of the information on this page.
OVER BY AUTHOR
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto area.
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I am Canadian and just started working outside Canada, I have a house in Canada and my kids and wife are still there.
I wonder if there are any lawyers or accountants abroad who can help with this,
Hi Firas, can you email me more details about your situation? My email address is firstname.lastname@example.org.
If a Canadian resident with ties in Canada works outside the US or the Middle East, and continues to travel back to Canada to his family, and declares worldwide income on his Canadian tax return, can he also declare the travel expenses under labor costs or somewhere on his Canadian tax return? Tax returns?
Hello Brij, in this case the travel costs are not deductible. Travel expenses can be deducted if you do not receive a reimbursement from your employer and you travel for an appointment with a customer, colleague or supplier.
Hello, I will be leaving Canada soon but my child will stay in Canada to complete his university education. Am I still considered a resident as a dependent in Canada? Thank you
Hi Eric, if you financially support your adult child while they reside in Canada, your adult child will be treated as your family member. If you have a family member in Canada, you are classified as a Canadian tax resident. However, you should check the tax treaty between Canada and your new home country to see if you can escape being a Canadian tax resident.
Hi madan; You mentioned children. Are they also adult children over the age of 18?
If you have adult children (aged 18 or older) living in Canada and you support them financially, they are considered members of your family. As a result, you have a primary connection to Canada and are taxable in Canada on your worldwide income.
Hi I am leaving Ontario to teach in Egypt in September and was wondering about the GST and Trilium tax rebates I just received. I read below from the CRA website for actual residents:
As an actual resident, your income is taxed as if you never left Canada. This is how you stay:
report all income you receive during the year from sources inside and outside Canada and claim any deductions that apply to you
claim any federal, state, or territorial non-refundable tax credits that apply to you
pay federal tax and provincial or territorial tax for the province or territory where you maintain residential ties
claim any federal, state, or territorial refundable tax credits that apply to you
qualify for the GST/HST (goods and services tax/harmonized sales tax) credit and Canadian child benefit
It says I'm eligible for the GST/HST credits, but the video above says I need to notify the CRA to stop GST credits when I leave. I'm just looking for clarification on this. Thank you.
If you actually remain a resident of Canada because of your strong primary and secondary ties to Canada, you qualify for the GST/HST credit. Non-Canada residents cannot collect the GST/HST credit.
Hi. I have a house in Canada where my mother lives. I do not receive rent for my house. The house is under both my brothers and my name (he is the primary). I also have bank accounts, driver's license, credit cards and I pay insurance for my house and car. I have been working in China for 8 years and will continue for another year. I am currently in Canada due to covid 19 and have been here for 5 months until the border reopens. My family is going to China with me while I'm there. Would this make me an actual resident or a non-resident? Do I have to state my worldwide income every year? I haven't been in 8 years. If I work here full time until I go back (summer job), do I have to declare my worldwide income or just my Canadian income for the work I did? Any information you can provide would be appreciated.
According to the tax treaty between Canada and China, you are a resident of the country where your permanent residence is located. It seems that you have a permanent home in both China and Canada. If you own a home in both Canada and China, you are a resident of the country where your personal and economic ties are strongest. You have multiple ties to Canada, but I suspect your ties to China will be stronger as you have lived in China for 8 years and are temporarily residing in Canada due to Covid-19. However, if your personal and economic ties to both countries are similar, you are a resident of the country where you usually live. It appears that you normally live in China, making you a tax resident of China and a non-resident of Canada.