Do I Need to File a Canadian Tax Return as a Non-Resident?

Canadian tax law requires non-residents to pay tax on certain income earned from Canadian sources. The specific types of income that necessitate filing a Canadian tax return, and the methods by which that income is taxed, depend on your residency status and the nature of the income. This ensures that while non-residents are not taxed on their worldwide income, they contribute to the Canadian tax system based on their Canadian-sourced earnings.

Understanding Canadian Tax Residency

Your tax obligations in Canada are determined by your residency status. This status dictates whether you are taxed on your worldwide income, like a resident, or only on your Canadian-sourced income, like a non-resident. The Canada Revenue Agency (CRA) assesses residency by considering all relevant facts, focusing on your ties to Canada.

Factual residency refers to individuals “ordinarily resident” in Canada. This relies on significant residential ties. Primary ties include having a home in Canada, a spouse or common-law partner residing in Canada, or dependents living in Canada. Secondary ties also contribute to this assessment, such as:
Personal property in Canada
Canadian bank accounts
A Canadian driver’s license
Membership in Canadian social organizations

If you leave Canada, severing these ties is important to establish non-residency.

Deemed residency applies to individuals considered residents for tax purposes due to specific circumstances. This includes individuals present in Canada for 183 days or more in a calendar year, unless a tax treaty specifies otherwise. It also applies to certain individuals working abroad in official roles, such as members of the Canadian Armed Forces or government employees, and their accompanying family members.

Conversely, you are generally considered a non-resident for tax purposes if you customarily live in another country and do not have significant residential ties in Canada. This status typically applies if you live outside Canada throughout the tax year or stay in Canada for less than 183 days, and lack significant ties. Tax treaties may deem you a non-resident of Canada, applying similar tax rules.

Income Requiring a Non-Resident Tax Return

Non-residents earning specific types of Canadian-sourced income may be required to file a Canadian T1 General Income Tax and Benefit Return. This typically applies to income subject to Part I tax, Canada’s regular income tax system.

Employment income earned from working physically in Canada is generally taxable and requires a return. This applies even if the employer is not Canadian or if the employee is present for a short duration, though tax treaties may provide exemptions. Employers are typically required to withhold income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums from such remuneration.

Income derived from carrying on a business in Canada also obligates a non-resident to file a tax return. This includes profits generated from business activities conducted within Canadian territory.

Capital gains realized from the disposition of Taxable Canadian Property (TCP) are another category requiring a tax return. TCP broadly includes real or immovable property located in Canada, such as residential homes or commercial properties. It also extends to certain shares of private Canadian corporations, or interests in partnerships or trusts, where more than 50% of their value is derived from Canadian real property or Canadian resource property within a 60-month period. Non-residents disposing of TCP must report these gains and pay tax on them, often involving a clearance certificate process.

For rental income from Canadian real property, a non-resident must file a tax return if they elect under Section 216 of the Income Tax Act. While default withholding occurs on gross rental income, this election allows the non-resident to report net rental income after deducting eligible expenses, leading to taxation on the net amount.

Income Subject to Withholding Tax and Optional Filing

Certain types of Canadian-sourced income paid to non-residents are typically subject to a final withholding tax, known as Part XIII tax. This tax is generally deducted at source by the Canadian payer, who remits it directly to the Canada Revenue Agency (CRA). For income subject to Part XIII tax, a non-resident generally does not need to file a Canadian tax return, as the withheld amount is considered the final tax obligation.

Common types of income subject to Part XIII withholding tax include:
Dividends
Interest (with some exceptions)
Royalties
Pension payments (such as Canada Pension Plan, Old Age Security, and private pensions)
Certain trust income

The standard Part XIII tax rate is 25% of the gross amount, although this rate can be reduced by tax treaties between Canada and the non-resident’s country of residence.

Non-residents can sometimes elect to file a Canadian T1 General return under specific sections of the Income Tax Act. These elections allow non-residents to be taxed under Part I, potentially claiming deductions and credits, which may result in a refund if their actual tax burden is lower than the amount withheld. This filing is optional and often beneficial.

A significant election is available under Section 216 for rental income from Canadian real property. While the payer typically withholds 25% on the gross rental income, electing under Section 216 allows non-residents to report gross income and deduct eligible expenses like mortgage interest and property taxes. Taxation then occurs on the net rental income at graduated rates, often leading to a lower tax liability. To reduce initial withholding to 25% of net income, non-residents can file Form NR6 for CRA approval.

Section 217 offers an elective filing option for Canadian pension income. Non-residents receiving certain Canadian pensions, such as CPP, OAS, or private pension payments, are typically subject to 25% Part XIII withholding. Electing under Section 217 allows them to be taxed at Canadian graduated rates and claim non-refundable tax credits, potentially reducing their tax payable. Filing Form NR5 can authorize payers to reduce initial withholding based on the expected Section 217 tax liability.

Section 216.1 offers an alternative for capital gains from Taxable Canadian Property. This election allows non-residents to report the gain on a tax return, benefiting from regular capital gains taxation rules, rather than the standard 25% withholding on gross proceeds.

Steps for Filing Your Non-Resident Tax Return

Filing a Canadian non-resident tax return involves specific forms and procedures. These are tailored to individuals without Canadian residency to ensure proper reporting of Canadian-sourced income.

The primary tax form for non-residents is the T1 General Income Tax and Benefit Return. Additional schedules may be required depending on the income type, such as Schedule 3 for capital gains or Form T776 for rental income. For Section 216 rental income elections, Form T1159 is often used. For pension income elections, Schedule C is part of the T1 General package.

Gather all relevant documents detailing Canadian-sourced income and deductions, including T4, T4A, and NR4 slips. For rental income, keep records of gross rent and eligible expenses. For Taxable Canadian Property disposition, documentation of adjusted cost base and proceeds is required.

General tax filing deadlines for non-residents are April 30 of the year following the tax year. If you carried on a business in Canada, the filing deadline is June 15, though any balance owing is still due by April 30. For Section 216 rental income elections, the return is generally due by June 30 of the following year, or within six months of the fiscal year end if an NR6 form was filed.

Non-residents generally cannot NETFILE their returns directly. Instead, returns must usually be printed and mailed to the CRA’s International Tax Services Office. Mailing is a common requirement for specific elections like Section 216.

Payment options include online banking, the CRA’s My Payment service, or mail. After filing, the CRA processes your return and issues a Notice of Assessment.