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Taxation Based on Residency

In Canada, the CRA taxes individuals based on their residency and not their citizenship as the USA does. What does this mean?

If a person or corporation is deemed to be a resident of Canada, then they must pay taxes in Canada on their worldwide income. Canada is not concerned with citizenship – rather, it is one’s residency that determines whether one must pay Canadian taxes.

In making such a determination, the term “residency” has a different meaning than the dictionary meaning. One may reside in Canada and still be deemed to be a non-resident of Canada. Conversely, one may reside in Africa and still be deemed to be a resident of Canada for income tax purposes.

Canada’s residency determination is based on a number of factors. These factors are commonly referred to as a ‘nexus of economic and societal factors’ that one may have with a certain country, which include factors such as the location of one’s home, spouse, dependents, social ties, and the source of one’s income.

How Residency Affects Taxation

As an example, if you are deemed to be a Canadian resident and you receive rental income from a property you own in Asia, you will have to pay Canadian tax on this income. If, however, you are a non-resident of Canada, you would not have to pay tax on foreign income.

Leaving Canada

As a result, when leaving Canada permanently it is imperative to submit a residency determination application to the CRA to have you deemed legally a non-resident of Canada for legal income tax purposes. These NR73 applications are to ensure that you will not be taxed on your worldwide foreign income once you leave Canada.

Why you Need a Tax Lawyer

If you are considering leaving Canada, or you live in both Canada and another country, you need an experienced tax lawyer to prepare and submit a residency determination application so that you are not taxed on your worldwide foreign income. With years of experience in corporate law and tax law, Kalfa Law is your premier tax advisor for all your tax needs when seeking to minimize your legal Canadian tax obligations.

Leaving Canada? We’re here to help™.

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