Area of Law: Tax Law
Answer # 172
Tax rules for residents and non-residentsRegion: Ontario Answer # 172
The Income Tax Act sets out different taxation rules for residents and non-residents. The Income Tax Act determines which individuals and corporations are residents of Canada for income tax purposes. It is important to determine whether you are a resident or non-resident for Canadian tax purposes because it will affect how much tax you have to pay.
Taxation differences between residents and non-residents
Individuals and corporations that are considered residents must pay tax in Canada based on their income from all sources, no matter where it was earned.
Non-residents usually only pay tax in Canada on income earned in Canada, and they are levied a 25% withholding tax on certain types of income such as dividends, rental payments, pension and OAS payments, and RRSP payments in Canada. Also, non-residents may not be entitled to a capital gain exemption on the sale of their home.
Interest income for non-residents:
According to CRA, the interest that you receive or that is credited to you is generally exempt from Canadian withholding tax if the payer is unrelated (arm’s length) to you.
For more info, visit the CRA website for Non-residents of Canada.
Defining “resident” for tax purposes: individuals and corporations
There are different rules for individuals and corporations in deciding if they are a resident for tax purposes. An individual is considered a resident based on many factors. These include:
- How much time the person spent in Canada during the year,
- The reasons why the person was in Canada,
- Where the person’s regular home is located,
- If the person owns property in Canada,
- If the person is a member of a club in Canada, or
- If the person has a family in Canada.
If an individual visits Canada for at least 183 days in a calendar year, for tax purposes, they are deemed to be a Canadian resident for the year.
Other rules apply to corporations. A corporation is considered a resident in the place where its central mind and management or head office is located. However, if a company incorporated in Canada after April 26, 1965, it is automatically considered to be resident in Canada, and will have to prove otherwise.
For general information, contact Canada Revenue Agency.
For legal advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact Tax Chambers LLP
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