Temporary assignments outside Canada

Many assignments outside Canada are only temporary, ranging from a few weeks to several years. For income tax purposes, it’s important that you determine your residency status during the period you’re outside Canada. A resident of Canada is taxed on his or her worldwide income. Therefore, if you’re a Canadian resident for income tax purposes, any income you earn during an assignment abroad will be subject to Canadian tax.

Residency defined

Residence is a question of fact and the term “resident” is not defined in the Income Tax Act. The courts, however, have held that you’re a resident of Canada for tax purposes if Canada is the place where you regularly or customarily live.

In prior years, the CRA administratively took the position that, unless the circumstances indicated otherwise, you would likely be considered a non-resident if you were absent from Canada for two years or longer and you had severed your ties with Canada. It is now the CRA’s position that there is no particular length of stay abroad that necessarily results in an individual becoming a non- resident. In making a determination of residence status, all of the relevant facts in each case must be considered, including residential ties with Canada and length of time, object, intention and continuity with respect to stays in Canada and abroad.

Canada also has income tax treaties with a number of countries that contain tie-breaker rules to determine residency when you’re considered to be a resident of both Canada and the other country.

If you cease to be a resident of Canada for income tax purposes, special rules apply (see topic 119).