If you’ve reached this article, you may be wondering how to determine Canadian tax residency. Moving in between countries can be tricky work when it comes to your meeting your tax obligations. If you are a newcomer to Canada, returning from a period living outside Canada, or regularly live abroad for work, it is worth determining your residency status to confirm exactly how much Canadian tax (if any) you are required to pay.
Tax Residency
Canada uses a tax residency system which distinguishes between residents and non-residents of Canada. Tax residency is separate from one’s citizenship status and is determined by a person’s individual circumstances. Although there is no strict test for tax residency, having stronger residential ties to Canada and regularly living within Canada increases the odds of being designated a Canadian tax resident. However, this is just the tip of the iceberg: for an in depth look at how the Canada Revenue Agency (CRA) determines tax residency, see our article here.
Since tax residency is separate from one’s citizenship, and to some extent one’s physical residency, advantages may arise depending on whether you are designated a Canada tax resident or not. For instance, if the Canadian tax rate is lower than the country you have moved from, being designated a Canadian tax resident could allow you to pay less taxes. The reverse would also be true, and it may sometimes be in your interest to avoid being designated a Canadian tax resident. Residency can become even more complex for dual citizens. Most countries have a tax treaty with Canada, which is a method of determining which country has priority over collecting taxes from an individual. If a dual citizen is deemed a tax resident of Canada, they will have to pay Canadian taxes and report a foreign tax credit to the tax authorities of their second country to prevent double taxation.
Moving in between countries can be tricky work when it comes to your meeting your tax obligations.
The NR74 Application
Given the potential tax benefits, it is important to be informed of your tax residency status. Luckily, there is a way to accomplish this. The NR74 Application Form allows people entering Canada apply to the CRA for a determination of residency status. The applicant must fill out the form which covers a range of details including:
Length of stay in Canada;
Reasons for living outside of Canada;
Previous residency; and
Ties in Canada and other countries including dependents, permanent residence, and personal assets.
In order to receive a proper determination on how to determine Canadian tax residency it is crucial to provide these details as accurately and completely as possible. The CRA can request further details after an application is submitted, and errors may lead to a change in residency status. If you think you may need assistance in this process, contact us today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
Dylan Juschko is an articling student at R&A Tax Law.
Dylan received his J.D. from the University of Toronto Faculty of Law in May of 2022. During his legal education, Dylan led several public interest projects dedicated to promoting access to justice through the International Human Rights Program and the University of Toronto Chapter of Legal Hackers. Dylan also represented the University of Toronto in the 2022 Donald G. H. Bowman National Tax Moot.
Jason Rosen
Jason Rosen is a founding Partner at R&A Tax Law. Jason provides effective and aggressive representation by taking a proactive, client centered approach for his domestic and international clients alike. Throughout his time in the field, Jason has gained a comprehensive understanding of tax procedures and the dispute resolution process.
How to Determine Canadian Tax Residency
If you’ve reached this article, you may be wondering how to determine Canadian tax residency. Moving in between countries can be tricky work when it comes to your meeting your tax obligations. If you are a newcomer to Canada, returning from a period living outside Canada, or regularly live abroad for work, it is worth determining your residency status to confirm exactly how much Canadian tax (if any) you are required to pay.
Tax Residency
Canada uses a tax residency system which distinguishes between residents and non-residents of Canada. Tax residency is separate from one’s citizenship status and is determined by a person’s individual circumstances. Although there is no strict test for tax residency, having stronger residential ties to Canada and regularly living within Canada increases the odds of being designated a Canadian tax resident. However, this is just the tip of the iceberg: for an in depth look at how the Canada Revenue Agency (CRA) determines tax residency, see our article here.
Since tax residency is separate from one’s citizenship, and to some extent one’s physical residency, advantages may arise depending on whether you are designated a Canada tax resident or not. For instance, if the Canadian tax rate is lower than the country you have moved from, being designated a Canadian tax resident could allow you to pay less taxes. The reverse would also be true, and it may sometimes be in your interest to avoid being designated a Canadian tax resident. Residency can become even more complex for dual citizens. Most countries have a tax treaty with Canada, which is a method of determining which country has priority over collecting taxes from an individual. If a dual citizen is deemed a tax resident of Canada, they will have to pay Canadian taxes and report a foreign tax credit to the tax authorities of their second country to prevent double taxation.
Moving in between countries can be tricky work when it comes to your meeting your tax obligations.
The NR74 Application
Given the potential tax benefits, it is important to be informed of your tax residency status. Luckily, there is a way to accomplish this. The NR74 Application Form allows people entering Canada apply to the CRA for a determination of residency status. The applicant must fill out the form which covers a range of details including:
In order to receive a proper determination on how to determine Canadian tax residency it is crucial to provide these details as accurately and completely as possible. The CRA can request further details after an application is submitted, and errors may lead to a change in residency status. If you think you may need assistance in this process, contact us today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
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