Tax Issues for Canadian Non-Residents - Article Example

Therefore, once a person moves out of Canada, they would want to break all ties with the country, thus making them non-residents. Being a Canadian non-resident means that one is allowed to pay less (or no) taxes to Canadian Revenue Agency. In order to achieve this non-payment of taxes, one must ensure that he establishes new residence in the country he migrates to, and sever all residence ties with Canada. This is because, as “Tax for Canadian Expats” provides, the Canadian tax agency can only consider someone as a non-resident after they have been living out of Canada for 24 months.

According to “Emigrants and Income Tax 2011”, one can sever residential ties with Canada by selling or leasing out his Canadian homes on a long-term basis and establishing permanent homes in his new country (4). Secondly, one can have his spouses and dependents, if any, leave Canada and join him in his destination countries. A Canadian expatriate can also dispose of any property he has in Canada, surrender his driving license, credit cards, and health insurance (ibid). If one does not sever his residential ties with Canada, then he is liable for the taxation of his overseas income.

Tax obligations to Canada After a person leaves Canada and severs all residential ties with the tax agency, there are a number of source incomes that are liable for taxation under Canadian law. According to the “Leaving Canada Checklist”, the payers in Canada are allowed a withholding tax rate of 25 percent (5) on some income sources. Some of the income sources liable to this taxation include rental payments, annuity payments, retiring allowances, and dividends. An emigrant is obligated to pay tax on these types of income sources and can, therefore, not file any return claims.

However, as “Tax for Canadian Expats” provides, an expatriate who receives income from such sources as real estate and timber operations may decide to pay taxes using a different taxing method then ask for a refund on some of the withheld tax. In addition, an emigrant has tax obligations to Canada if they owed the country any taxes prior to their departure. A person can also file for a refund if they paid excess taxes to the Canadian tax agency. According to the provisions of “Emigrants and Income Tax 2011,” such returns should be filed on or before the 30th day of April, the year after the expatriate moved out of Canada (7).

Tax obligations to the new country of residence Most countries have a system of taxing the incomes of their residents. This means that a person migrating from Canada to another country will most probably have to pay taxes on their income in the destination country. Accordingly, “Tax for Canadian Expats” advises that such a person should ensure that these taxes are paid for by their employer, by insisting on a written contract specifying that the company is responsible for the payment of such taxes.

The employee should keep records to show that they have paid those taxes, by obtaining copies of tax returns filed on their behalf by the recruiting company (ibid). Proof of payment of taxes in a foreign country enables an emigrant to request the deduction of Canadian tax returns. Similarly, if a person moves out of Canada and gets employed by a specified Canadian company that is in the field of energy or engineering, such a person pays fewer income taxes to Canada.

A Canadian emigrant should also consider whether any tax treaty exists between Canada and his new country of residence. The tax treaty should clearly define which of the two countries gets to tax the income of the Canadian emigrant. For example, one should be very careful of the terms of operation of his Registered Retirement Savings Plan (RRSP) accounts once he leaves Canada. According to “Leaving Canada Checklist” the withdrawal of money from these accounts may attract some withholding tax but with varying degrees depending on the terms of the tax treaty, if any. For countries that do not have any tax treaties with Canada, the withholding tax is about 25 percent, which is much lower compared to what Canadian residents pay. However, for countries with tax treaties, the withholding tax is almost zero (ibid).