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What is tax residency?

Tax residency in Canada determines tax obligations based on residential ties, length of stay, and purpose of presence in Canada. Individuals can be classified as residents, non-residents, deemed residents, or deemed non-residents, affecting their income reporting requirements. Understanding residency status is crucial for compliance with tax laws and financial planning.

2 min read
Written by Peyton Bieda on August 20, 2024
Tax Residency ClassificationCanadian Tax Obligations for ResidentsResidency Status Determination

Tax residency in Canada is a key concept that determines your tax obligations and responsibilities. The Canada Revenue Agency (CRA) uses specific criteria to assess whether an individual is a resident for tax purposes. Here's an overview of what tax residency entails and how it affects you.

What is Tax Residency?

Tax residency in Canada is not based on citizenship or immigration status but rather on the presence and connections you have with Canada. It influences what income you must report and the credits you can claim on your tax return.

Determining Tax Residency

The CRA considers several factors to determine your residency status:

  • Residential Ties: The primary consideration is your residential ties to Canada. Significant ties include having a home in Canada, a spouse or common-law partner, and dependents in Canada. Secondary ties might include personal property, social ties, economic ties, a Canadian driver’s license, a Canadian passport, and health insurance with a Canadian province or territory1.
  • Length of Stay: Spending 183 days or more in Canada during a calendar year can also make you a deemed resident for tax purposes1.
  • Purpose and Continuity of Stay: The CRA looks at the purpose, intent, and continuity of your stay in Canada1.

    • Types of Residency

  • Resident: If you have significant residential ties, you are considered a resident and must report worldwide income.
  • Non-Resident: If you live outside Canada and do not have significant ties, you are a non-resident and only report Canadian-sourced income7.
  • Deemed Resident: If you spend 183 days or more in Canada and do not have significant ties elsewhere, you may be deemed a resident1.
  • Deemed Non-Resident: If you are a resident of another country with which Canada has a tax treaty, you might be deemed a non-resident2.

    • Why is Tax Residency Important?

    Your residency status affects your tax filing requirements and obligations. Residents report global income, while non-residents report only Canadian-sourced income. Understanding your residency status ensures compliance with Canadian tax laws and can impact your financial planning.

    For more detailed information, you can visit the official CRA website or consult with a tax advisor. The CRA provides resources and forms, such as Form NR73 and NR74, to help determine your residency status when leaving or entering Canada13.

    Citations

    1. https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/determining-your-residency-status.html
    2. https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/film-media-tax-credits/residency-status-determination.html
    3. https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/certificate-residency.html
    4. https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-5-international-residency/folio-1-residency/income-tax-folio-s5-f1-c1-determining-individual-s-residence-status.html
    5. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-address-information/your-province-territory-residence.html
    6. https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/businesses-international-non-resident-taxes/residency-a-corporation.html
    7. https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/non-residents-canada.html
    8. https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents.html