Non-resident tax returns in Canada: What you need to know

Canada has a unique tax system in that it requires both residents and non-residents to fulfill their tax obligations. 

As a non-resident, navigating the rules for a non-resident tax return in Canada can be tricky.

In this blog, we’ll break down everything you need to know about filing a non-resident tax return in Canada, including key concepts like the 90% rule, deemed non-residency, and how to claim non-residency on your taxes.

Do you need to file a non-resident tax return in Canada?

Well, that depends!

Whether or not you need to file a tax return as a non-resident of Canada depends on your income sources and the type of income you earned while you were in the country. 

As a non-resident, you are typically only required to file a Canadian tax return if you earned Canadian-source income. This can include:

• Employment income from a job in Canada

• Rental income from property located in Canada

• Income from the sale of Canadian property

• Pensions or retirement income from Canadian sources

• Investment income like dividends or interest from Canadian accounts

If you have Canadian-source income, you generally need to file a Section 217 tax return or an income tax return for non-residents, depending on the type of income and the agreements in place between Canada and your country of residence.

For instance, if your Canadian income was subject to withholding tax (usually a flat rate of 15-25%), you might not need to file a return unless you want to claim a refund of any overpaid taxes or if you’re eligible for a lower tax rate under a tax treaty.

Why should I file a Canadian tax return?

You will need to file a Canadian tax return if any of the above points relate to your situation.

However, another reason to file a Canadian tax return is to claim your Canadian tax back!

The average Canadian tax refund for non-residents with Taxback is CA$998, so you can see why it is worth filing a tax return to see what you could be due!

The average Canadian tax refund is $998

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What is the 90% rule for non-residents?

The 90% rule is important when determining eligibility for certain credits and deductions for a non-resident tax return inta Canada. Here's how it works:

If 90% or more of your worldwide income for the tax year comes from Canadian sources, you may be eligible for the basic personal amount (the most common non-refundable tax credit) and other credits that residents are typically entitled to. 

In other words, even though you're a non-resident, you might be able to reduce your Canadian taxes based on the portion of your global income earned in Canada.

For example, if you lived and worked in Canada for part of the year and earned 90% of your total income from Canadian sources, you may qualify for credits that would lower your overall tax bill. 

However, if less than 90% of your total income comes from Canada, you will not qualify for these credits, and your tax obligations will be calculated solely on the income earned in Canada.

What is a deemed non-resident of Canada tax return?

A deemed non-resident is someone who, despite having significant ties to Canada (such as a home, family, or bank account), is considered a non-resident for tax purposes due to the terms of a tax treaty between Canada and another country.

This occurs if you are considered a resident of another country for tax purposes under a tax treaty, even though you may have residential ties to Canada. 

In this case, you will be treated as a non-resident and will only be taxed on your Canadian-source income.

When filing a deemed non-resident tax return, you follow the same filing procedures as other non-residents. This includes reporting only your Canadian income and being subject to withholding taxes or the same rates that apply to non-residents. 

You will also not be entitled to most tax credits or benefits that residents of Canada can claim.

How to claim non-residency on a Canada tax return?

Claiming Canada non-residency on your tax return is crucial for ensuring that you're taxed appropriately. 

With that in mind, are are some steps to follow:

1. Determine your residency status: Before you can claim non-residency, it's essential to confirm whether you are a non-resident or deemed non-resident. You can use the Canada Revenue Agency’s (CRA) "Determination of Residency Status" form (NR74 or NR73) to clarify your status if it’s unclear.

2. Report only Canadian-source income: As a non-resident, you will report only the income earned from Canadian sources. This could include employment income, investment income, or rental income. If you received any income from foreign sources, you do not need to report it on your Canadian tax return.

3. File the appropriate non-resident return: Depending on the type of Canadian income you earned, you will either file a Section 217 return or a Part XIII return. Section 217 allows you to choose to be taxed as a resident on certain types of income (such as pensions) if it results in a lower tax liability.

4. Declare non-residency on tax forms: On your Canadian tax return, you will indicate your non-resident status. Make sure to complete the sections specifically for non-residents, including providing your foreign address and information about your country of residence.

5. Withholding tax considerations: If you’ve already had withholding tax applied to your Canadian income, review whether you're eligible for a refund or reduced rate under a tax treaty. If you overpaid, you can claim the excess tax back by filing a tax return.

Filing a non-resident tax return in Canada can be a bit complex, but it’s essential to understand your obligations and potential benefits! 

Whether you're a non-resident, a deemed non-resident, or you need to comply with the 90% rule to claim certain tax credits, ensuring you file your taxes correctly will save you from potential penalties and help you maximize your tax refund.

The average Canadian tax refund is $998

GET YOURS NOW

At Taxback, we specialize in helping non-residents navigate the Canadian tax system. 

If you're unsure of your residency status or how to file your tax return, get in touch with us today, and we’ll guide you through the process step by step.