Tax Tips for Canadians Working Abroad - Madan CPA (2023)

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:

1. The first is where your permanent home is located.
2. The second is where your partner and children live.
3. 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:

1. Bank accounts.
2. Credit cards.
3. Social ties.
4. 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:

1. You earned income from work in Canada.
2. You ran a business in Canada.
3. 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:

1. You temporarily worked outside Canada.
2. You teach or attend a school outside of Canada.
3. You commute to work in the United States on a daily or weekly basis.
4. 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:

1. File a regular personal income tax return, due April 30^eof the following year.
2. Pay tax on your worldwide income, which is income earned both inside and outside Canada.
3. Claim all deductions and tax credits.
4. 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.

1. Exploration of petroleum, natural gas, minerals or similar resources
2. Construction, installation, agricultural or engineering work
3. 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.

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