For tax purposes, you are considered a non-resident if you permanently live outside of Canada and you do not have any primary or secondary residential ties to Canada. However, you may have some tax obligations to attend to and ensure that you are non-resident tax compliant. In order to confirm that you do not have tax obligations, it is recommended that you hire a tax accountant. The following are some areas in which Toronto Tax Consulting practices and is beneficial for non-residents.
• Determine residency status of an individual or corporation
• Obtain an Individual Tax Number (ITN) or Non-Resident Tax Account Number (NR) or Business Number (BN) as required
• Open a GST/HST account or payroll account if necessary
• File an NR5 application to have the amount of Non-Resident Tax Withheld Reduced
• File an NR6 form for rental properties to remit non-resident tax based on Net Income and not Gross Rents
• Attain Certificate of Clearance from Canada Revenue Agency
• Support your Canadian Lawyer with non-residency matters
• File a Non-Resident Tax Return under Section 116, Section 216, Section 217 and Individual personal return or corporate as required
• Open an NR4 account
• Assist in Non-Resident Tax withholdings and remitting requirements
• File the NR4 Slip and Summary Information Return with Canada Revenue Agency
• Attain taxpayer relief for interest and penalties on omitted or late filed returns
Taxation of Non-Residents
Non-residents pay tax on income received from sources within Canada. The type of tax and requirement to file depends on the kind of income received. Canadian income received by a non-resident is subject to Part I tax or Part XIII tax. Unless there is a tax treaty between Canada and your home country reduces the rate, the Part XIII tax rate is twenty-five percent.
Part I Tax
The most common type of Part I Tax is if you sell or transfer taxable Canadian property, which includes real estate. When purchasing Canadian real estate from a non-resident, individuals have an obligation to withhold and remit twenty-five percent of the gross sale proceeds with respect to the purchase. When the real estate is depreciable property, such as a building use for rental or business purposes, this liability increases to fifty percent. The Canada Revenue Agency can enforce this liability for any purchaser who fails to withhold the tax, unless they had no reason to believe that the non-resident was not a Canadian resident. It is standard for the purchaser’s solicitor to either require the vendor to certify in writing as to the Vendor’s Canadian residency status or require withholding of this tax.
Certificate of Clearance
If the Vendor obtains a “Certificate of Clearance” from the Canadian Revenue Agency on a timely basis, the withholding tax can be reduced or eliminated. The form must be filed with the Canada Revenue Agency in advanced of the disposition or within 10 days thereafter.
Part XIII Tax
Canadian income subject to Part XIII tax are:
• Rental and Royalty payments
• Management fees
• Dividends
• Old age security pension
• Canada Pension Plan and Quebec Pension Plan benefits
When the income is paid or credited to the individual, Canadian payers must deduct Part XIII tax. An individual can elect to file a Canadian Income Tax Return for income which Part XIII tax was deducted when:
• The individual receives Canadian rental income or timber royalties; and
• The individual receives certain Canadian pension income.
It may be beneficial to file a Canadian Income Tax Return so that the individual may receive all or some of the Part XIII taxes paid.
Payment to Non-Resident
If the individual is the Canadian Payer to a non-resident, the individual is responsible for withholding and remitting Part XIII tax, and to report the income and withholding tax on an NR4 information return. The NR4 information return is due by the last day of March following the calendar year.
Failure to Deduct
An individual may be assessed a penalty of ten percent of the required amount of Part XIII tax failed to deduct. Repeat offenders may be penalized twenty percent.
Filing a Income Tax Return
An individual must file a Canadian income tax return if you owe tax for the year, previously filed a NR5 form to reduce required taxes withheld, had a taxable capital gain or disposed of taxable Canadian Property or if the individual wants to claim a refund.
Other Forms for Non Resident Individuals and Corporations:
• NR4-Statement of Amounts Paid or Credited to Non-residents of Canada
• NR6-Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent
• NR73-Determination of Residency Status (Leaving Canada)
• NR74-Determination of Residency Status (Entering Canada)
• R105-Regulation 105 Waiver Application
• Section 216 tax returns
• Section 217 tax returns
• T1 departure tax returns
• T1134-A-Information Return Relating to Foreign Affiliates
• T1134-B-Information Return Relating to Controlled Foreign Affiliates
• T1135-Foreign Income Verification Statement
• T1141-Information Return in Respect of Transfers or Loans to a Non-Resident Trust
• T1142-Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust
• T1161-List of Properties by an Emigrant of Canada
• T2061A-Election by an Emigrant to Report Deemed Dispositions of Taxable Canadian Property and Capital Gains and/or Losses Thereon
• T2062-Request by a Non-Resident of Canada for a Section 116 Certificate of Compliance Related to the Disposition of Taxable Canadian Property
• T2209-Federal Foreign Tax Credits
• T4A-NR-Summary of Fees, Commissions, or Other Amounts Paid to Non-Residents for Services Rendered in Canada
• T626-Overseas Employment Tax Credit
For further information please call 416-628-7824 press 2 and speak with one of our tax advisors today.