Are you planning on leaving or coming back to Canada? It’s important to know the rules regarding residency for tax purposes. In this article, we will cover everything you need to know about residency in Canada, including the tax implications and how to maintain your status as a resident.
What is Residency for Tax Purposes?
Residency for tax purposes is not the same as immigration residency. It’s important to distinguish between the two as one may be a resident for immigration purposes, but not for tax purposes, and vice versa.
For tax purposes, residency is based on the length of time you have lived in Canada, your primary ties to Canada, and your secondary ties to another country. You are considered a resident of Canada if you spend 183 days or more in Canada during the tax year. If you do not meet this threshold, you may still be considered a resident if you have significant residential ties in Canada.
What are Residential Ties?
Residential ties are factors that connect you to Canada, such as:
- A home in Canada
- A spouse or common-law partner and/or dependents in Canada
- Personal property in Canada (i.e., car, furniture, clothing)
- Social ties in Canada (i.e., memberships, religious affiliations)
- Economic ties in Canada (i.e., bank accounts, investments, business interests)
If you have significant residential ties in Canada, you may be considered a resident even if you spend less than 183 days in Canada during the tax year.
Tax Implications of Residency
If you are a resident of Canada for tax purposes, you are subject to tax on your worldwide income. This means that you must report all income earned inside and outside of Canada on your Canadian tax return. However, Canada has tax treaties with many countries to avoid double taxation.
If you are a non-resident of Canada for tax purposes, you are only subject to tax on your Canadian-source income, such as rental income or employment income earned in Canada. You are not required to report foreign income on your Canadian tax return.
How to Maintain Your Residency Status
If you are a Canadian resident for tax purposes, you must take steps to maintain your status, even if you leave Canada for an extended period of time. The following steps can help you maintain your residency status:
- File your Canadian income tax return every year, even if you have no income to report
- Keep your residential ties to Canada, such as maintaining a home or bank account
- Avoid becoming a resident of another country for tax purposes
- Avoid becoming a deemed resident of another country, which can happen if you spend too much time in another country or if you have significant residential ties in that country
Conclusion
Maintaining your residency status for tax purposes is important for avoiding penalties and ensuring that you pay the correct amount of taxes. If you have questions about your residency status or need help filing your tax return, it’s best to consult with a qualified tax professional.
We hope this article has provided you with a better understanding of residency for tax purposes in Canada. Remember to keep track of your residential ties and take steps to maintain your status as a Canadian resident for tax purposes.