The Canadian tax liability for residents and expats is decided and calculated on the residence status of the individuals. Residents will be considered taxable on all the income they make anywhere in the world (not dissimilar to the tax net in the US) and non-residents will only be made taxable on the income they earn while in the country.
Residence can be decided by the authorities based on a number of factors namely spouse, where you live, how long you’ve been working in the country, other economic ties as well as the range of assets you hold in Canada, and the number of family members that also live there. It is important to note that even non-residents staying in Canada for 183 days or more will be temporarily considered a resident which does open them up to a range of taxes. However, in order to exempt themselves from taxes, individuals can claim non-resident status by filing for it.
If a person has been in Canada for at least a year they automatically become part-year residents and their worldwide income at that time becomes taxable but only for the duration of their stay or the portion of the year they actually spend in the country. If there is any confusion individuals and expats can always consult an expat tax CPA in Canada or otherwise known as a certified public accountant in Canada. Part-year residents are doubly taxable since they pay tax on worldwide income streams but then secondly on income, they have earned from Canadian sources, marketplaces, or organizations.
Avoiding Double Taxation Where Possible
Expats face the issue of double taxation on all their activities within the country whether it is earning income or accumulating assets so here are some tax provisions that can be utilized in Canada.
- Canada has standing double tax treaties with no less than 96 countries. Each expat or non-resident should check the specifics of the tax treaty that Canada entered with their country but generally the OECD (Organization for Economic Cooperation and Development) model treaty has been followed for all of them.
- Provincial foreign tax credit relief can offer some help with regard to taxes that are rendered on incomes at the provincial level that are non-commercial in nature. Tax that has been paid in excess of the foreign tax requirement or credit may be returned in this case.
- Foreign tax relief is to avoid being doubly taxed on income generated abroad and brought into the country. With this tax provision, the individual pays the taxes in the country of origin or the home country and does not need to pay the full scale of income taxes applicable in Canada.
For those unfamiliar with the tax filing procedures in Canada, it is useful to note that the federal government with the exception of Quebec collects all the taxes together without delegating tax collection to provincial or territorial offices. This means most residents only need to file once without having to file separately with the provincial office and there are fixed thresholds for taxpayers and residents with high incomes.
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