Under Canada’s tax system, residency determines how much worldwide income will be subject to Canadian income tax. Canadian residents are taxed on all worldwide income, whereas individuals who are not Canadian residents are subject to Canadian income tax only on certain types of income that have been earned in Canada.
Although there is no statutory definition of residency for tax purposes, individuals are typically described as ‘factual residents’, ‘deemed residents’, ‘non-residents’ or ‘deemed non-residents’.
According to legislation, individuals who are “ordinarily resident” in Canada are considered to be ‘factual residents’ of Canada. The most important consideration in determining whether someone is resident in Canada is their residential ties with Canada. Primary factors to consider include:
- A home in Canada
- A spouse or common law partner in Canada
- Children or other dependents in Canada
Other secondary ties that may be relevant include:
- Connections with social or religious clubs
- A Canadian driver’s license
- A Canadian passport
- Personal property in Canada (such as a car)
- Medical coverage under a Canadian provincial or territorial plan
An individual who has left Canada may still be considered a factual resident if they maintain these types of residential ties. An individual who has recently arrived in Canada can be considered factually resident as of the date of immigration if they establish these type of residential ties.
Individuals who are not factual residents of Canada may still be deemed residents for tax purposes under the Income Tax Act. For example, individuals are deemed resident in Canada for tax purposes for a given year if they:
- Spent 183 or more days in Canada during that year
- Served in the Canadian Forces during that year
- Worked as an ambassador, minister, high commissioner, officer or servant of Canada
Individuals who do not have significant residential ties with Canada and who lived outside of during a given year, or who stayed in Canada for less than 183 days of a given year may be considered non-residents. Non-residents are only taxed on certain types of income that have been earned in Canada.
Individuals who have close connections to more than one country may qualify as deemed non-residents even if they would otherwise meet the criteria for residency in Canada.
Individuals arriving in or leaving Canada partway through a year are typically considered part-year residents in the year of immigration or emigration. If an individual is considered a part-year resident, they are taxed on worldwide income only for the part of the year during which they are resident in Canada. Part-year residents are not generally taxed on worldwide income for the portion of the year during which they are not resident in Canada.
If you have any questions about whether you are a resident of Canada for tax purposes, please consult a TEP.