Canadian tax obligations for non-residents
A non-resident of Canada (see topic 118 for residency) is subject to Canadian income tax on certain types of income from Canadian sources, including
- income/loss from employment in Canada,
- income/loss from a business carried on in Canada, and
- capital gains/losses from dispositions of taxable Canadian property (see topic 123).
A non-resident of Canada is required to file a special income tax return (Income Tax and Benefit Return for Non-Residents and Deemed Residents of Canada) to report the above sources of income. A non-resident who doesn’t have a social insurance number is required to obtain an individual tax number (ITN). The ITN can be obtained by completing Form T1261, “Application for a Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents.” Although certain deductions and tax credits are allowed, there are some restrictions.
Non-residents of Canada are not required to file a Canadian tax return if their only income from Canada is from certain types of passive income, such as dividends, and pension income. In such cases, tax is withheld at source by the payer when the amount is paid to the non-resident. The general rate of withholding tax is 25%, but this may be reduced to a lower rate pursuant to the tax treaty that Canada has with the non-resident’s country. In the vast majority of cases, the non-resident may be able to claim a foreign tax credit in their country of residence for Canadian taxes paid. Rental income earned by a non-resident is also subject to the 25% withholding tax (on the gross rents received). However, in the case of real property rentals, there is the option for the non-resident to file a special return under Section 216 whereby tax is paid on the net income earned from the property. There are also additional procedures and filings that can be undertaken to reduce the amount of tax withheld to that based on estimated net income.
Non-residents are also generally exempt from filing Canadian income tax returns if the following criteria are satisfied:
- No tax is payable by the non-resident for the current taxation year.
- Each taxable Canadian property disposed of in the year is either exempt from Canadian tax due to a tax treaty or a property for which the CRA has issued a clearance certificate to the non-resident (see topic 123).
Tax tip: If you’re a non-resident of Canada with Canadian-source income, you should consult a tax adviser to determine your tax obligations and ways to minimize your Canadian tax.