Who Pays Tax in Canada, and on What Income?

Canadian Residents

A person who is a resident of Canada is subject to Canadian income tax on their world wide income.

Are You a Canadian Resident?

Whether or not a person is a resident of Canada is determined by many factors.  The amount of time spent in Canada is not the only factor considered.  Other factors include

  • Maintaining a residence in Canada
  • Relatives in Canada
  • Bank accounts in Canada
  • Other social and economic ties.

A person who is a resident of Canada, and moves to another country, could still be considered to be a resident of Canada for tax purposes.  If you left Canada in the year to travel or live abroad, see the Canada Revenue Agency (CRA) information Individuals - Leaving or entering Canada and non-residents.

As per CRA's technical interpretation TI-2012-0444821E5The residential ties of an individual that will almost always be significant residential ties for the purpose of determining residence status are the individual's:
     (a) dwelling place (or places),
     (b) spouse or common-law partner, and
     (c) dependants.

For newcomers to Canada, you have to report your world income for the part of the year that you were a resident of Canada.  Some personal tax credits will be prorated based on the day you immigrated to Canada.

If you are a resident of Canada but have little or no income, you should still file a tax return to establish eligibility for the GST/HST credit.  There are also similar provincial credits.  See our article on other reasons why a tax return should be filed.
Non-Residents and Deemed Residents

A person who is not a resident of Canada for any part of the year, and visits Canada for less than 183 days in a year, will pay Canadian income tax only on income earned from Canadian sources.

A person who is not a resident of Canada for any part of the year, but who visits Canada for a total of 183 days or more in a year, may be deemed to be a resident of Canada, and subject to Canadian income tax on their world wide income for the entire year.

Non-residents and deemed residents may or may not have to file a Canadian tax return.  Much Canadian source income will have had Canadian tax withheld when it was paid, and in many cases there is no requirement to file a Canadian tax return.  The most common types of income earned in Canada which are required to be reported on a Canadian tax return are:

  • Income from employment in Canada
  • Income from a business carried in Canada
  • Taxable part of Canadian scholarships, fellowships, bursaries, and research grants, and 
  • Taxable captial gains from the disposal of taxable Canadian property (50% of the capital gain)

When a non-resident or deemed resident files a Canadian tax return, they are taxed at the current federal tax ratesplus a surtax of 48% of the federal tax, unless income was earned from a business with a permanent establishment in Canada.  In this case, provincial or territorial tax is paid on that income.

Deemed residents can claim the federal basic personal tax credit plus other applicable tax credits.  For non-residents, the amount of non-refundable tax credits allowed depends upon whether Canadian-source income is 90% or more of total world income for the year.

See our article on other reasons why a tax return should be filed.

See also our article on Non-Resident Workers in Canada.

For more information, see the CRA Income Tax and Benefit Package for non-residents and deemed residents of Canada.

When a non-resident disposes of certain taxable Canadian property, such as real estate, there are certain procedures to be followed, which include paying a tax of 25% of the gain on the property.  If this tax is not paid, the purchaser of the property will be liable for the tax, and thus may withhold 25% (50% in some cases) of the selling price of the property.  See disposing of certain types of property in the Canada Revenue Agency (CRA) guide T4058 Non-Residents and Income Tax (link at bottom of page) for more information.

If a tax treaty exists between Canada and your country of residence, the terms of the treaty may reduce or eliminate the tax on some types of income.  You may be a deemed non-resident of Canada for tax purposes if you were a resident of Canada in the year, and, under a tax treaty, you were considered to be a resident of another country.  In this case, you will be treated as a non-resident for tax purposes.

Non-Resident Withholding Taxes / Elective Returns

Canadian payers must withhold tax on payments of certain types of income to non-residents.  The tax withheld is usually considered your final obligation to Canada for taxes on the income.  However, for certain types of income, you have the option of filing a Canadian income tax return.  This may allow you to receive a refund of some or all of the non-resident tax withheld.  Another option is to file an NR5 Application by a Non-Resident of Canada for a Reduction in the Amount of Non-Resident Tax Required to be Withheld for Tax Year.  This application is used to determine whether filing a section 217 elective return will be beneficial for you.  Once filed and approved, the withholding tax reduction is in effect for 5 years, and a section 217 income tax return must be filed annually.

The most common types of income which are subject to non-resident withholding tax are:

  • dividends
  • rental payments
  • pension payments
  • Old Age Security pension
  • Canada Pension Plan or Quebec Pension Plan benefits
  • retiring allowances
  • registered retirement savings plan payments
  • registered retirement income fund payments
  • annuity payments

If you have received any of the above types of income, you may be able to recover some of your withholding tax by filing a Canadian tax return.  This is called an Elective Return.  For more information, see:

Non-Resident Recipients of Old Age Security (OAS)

If you are a non-resident and are a recipient of the OAS pension, you may have to file a T1136 Old Age Security Return of Income every year.  Whether or not this return has to be filed depends on the country in which you live.  For instance, a US resident receiving OAS would not have to file this return.  See CRA's T4155 Old Age Security Return of Income Guide for Non-Residents to see if your country of residence is one of the ones listed, for which a return is not needed.  The purpose of the T1136 is to determine whether you will be subject to the OAS clawback, or "recovery tax". If you are required to file the T1136 each year, this must be done, regardless of your income level, in order to ensure that your OAS payments are not interrupted.

See CRA's technical interpretation TI-2012-0444821E5, in which the principal issues are whether an individual is a non-resident of Canada and required to file a tax return to report pension income.

Part-Time Residents

A person who is a resident of Canada for any part of the year is subject to Canadian income tax on their world wide income during the time that they are a resident of Canada.  During the time that they are not a resident of Canada, they will pay Canadian income tax only on income earned from Canadian sources.

See also Non-taxable Amounts.

International Students Studying in Canada

International students studying in Canada may have to file a Canadian income tax return.  See the Canada Revenue Agency (CRA) information on International students studying in Canada.

Emigrating From Canada

There is a deemed disposal of assets when a Canadian resident becomes a non-resident by emigrating to another country, but s. 128.1(10)(a) of the Income Tax Act excludes this treatment for registered accounts (RRSPs, RRIFs, RESPs, RDSPs, TFSAs) and certain other properties, which are not considered "reportable properties".  An individual who ceases to be a resident of Canada and who owns one or more reportable properties with a total fair market value in excess of $25,000 must file a list of these properties with the Minister of National Revenue.  The individual may be subject to a departure tax on capital gains related to reportable properties.  See the CRA information on departure tax, in their information on Leaving Canada (Emigrants).