Knowing your residency status and tax filing obligations can save you from expensive penalties.
For most individuals, the question residency for Canadian tax filing purposes is a straight-forward one. If you reside in Canada for 183 days or more, you’re a resident for tax purposes, and you must file a tax return if the taxes due on your world income less deductions exceeds your credits. The question of residency gets trickier when you spend part of the year outside Canada.
Immigrants and emigrants are often referred to as “part-year residents” for tax purposes. Part-year residents are taxable on world income for the period in which they are resident in Canada. For the remainder of the year, they are taxed as non-residents.
“Immigrants” become residents of Canada once they establish their permanent residency in Canada. “Emigrants” become non-residents of Canada once they establish permanent residency in another country. In short, an immigrant will file a tax return in the year of immigration and report on world income earned after immigration.
An emigrant will file a final tax return for the year of emigration which includes world income earned prior to emigration. A departure tax will be applied to capital gains resulting in the increase in value of taxable assets as of the date of departure. Some people are considered “deemed residents.” This includes those who visit Canada for 183 days or more in the year, students studying abroad temporarily or members of the Canadian Armed Forces, those working in a foreign country under a program of the Canadian International Development Agency, or those who work as a high commissioner, ambassador, officer or servant of Canada, for example. Also included in the definition are spouses or children of those taxpayers.
It’s Your Money. Your Life. Failing to file a tax return and paying your taxes on time can generate expensive penalties that erode your wealth and, in some cases, your health. Be sure you know your tax filing obligations, especially if you are not sure of your residency status.
Evelyn Jacks is the best-selling author of 50 books on tax and wealth management and President of Knowledge Bureau. Evelyn’s books are available at www.knowledgebureau.com and better bookstores. To read more of her blogs, go to EvelynJacks.com.