How To Report Non-Resident Tax For Canadians Living Abroad

Over the last decade, Canada has seen an increase in emigration, with 2024 hitting record levels of 81,602 leaving Canada. With the increase, accounting firms are busier than ever, helping residents prepare their tax obligations for a variety of reasons before severing their Canadian ties. It’s important to understand the financial implications to prevent any surprises from the Canadian Revenue Agency (CRA).

Table of Contents

• What is the Non-Resident Tax
• How To Declare Non-Residency in Canada For Tax Purposes
• How CRA Evaluates Factual Residents and Deemed Non-Residents
• Are There Tax Benefits For Non-Residents
• How Treaties Impact Your Tax Rates on Canadian Non-Residents
• How To Report Your Non-Resident Tax Return
• Tax Saving Opportunities for Non-Canadian Residents
• Know the Key CRA Tax Forms for Non-Residents

What is the Non-Resident Tax?

The non-resident tax applies to all Canadians who live abroad but still earn income from Canadian sources, like rental income or investments. If you’re planning to become a non-resident, the advantage is that you are no longer required to file your tax return (T1). However, on certain Canadian income, which we will expand on later, you are still required to pay a 25% withholding tax. The difference is that before leaving, your employer automatically withheld those obligated taxes, which were remitted to the CRA on your behalf.

To be classified as a non-resident, we recommend seeking legal and financial guidance as severing significant residential ties to Canada, like selling your home or closing your Canadian bank accounts while living abroad, can have negative tax implications if you’re unaware of the risks. When making these changes, it is important to notify the Canada Revenue Agency (CRA) when your residency status changes to avoid unexpected tax penalties.

Understanding How To Declare Non-Residency in Canada For Tax Purposes

Regarding Canadian taxes, your residency status plays a key role in determining your tax obligations. The CRA does not assess residency solely on where you live, instead, CRA evaluates the residential ties you maintain with Canada. These ties directly impact whether you are considered a resident, non-resident, or deemed resident for tax purposes. To gain a better understanding, review the CRA residency guideline.

Significant Residential Ties

The CRA looks at your primary residential ties as the most important factor. These include:

• Owning a property: If you own or lease a property in Canada, it’s a strong indicator of residency.
• A spouse or common-law partner in Canada: Having your partner living in Canada can maintain your resident status.
• Dependants in Canada: Children or parents residing in Canada also establish strong residential ties.

If these significant ties remain intact while living abroad, the CRA may consider you a factual resident, meaning your tax obligations are as if you never left Canada. A factual resident is required to file their tax return for worldwide income that includes income earned from inside and outside Canada.

Secondary Residential Ties

In addition to significant ties, the CRA also examines secondary residential ties, which are:

• Personal Property in Canada: Vehicles, furniture, or other personal property
• Social Ties: Memberships in Canadian recreational, cultural, or religious organizations
• Economic Ties:  Having active Canadian bank accounts, credit cards, or RRSP accounts.
• Government Ties: Holding a Canadian driver’s licence, health insurance coverage, or a valid Canadian passport.

While secondary ties may not determine residency status on their own, they can contribute to the overall picture when combined with significant ties that may impact how you report your taxes.

How CRA Evaluates Factual Residents and Deemed Non-Residents

Factual Residents

If you live abroad but maintain significant residential ties, you are still considered a resident of Canada. These considerations include:

• Working temporarily outside Canada
• Teaching or attending school in another country
• Commuting between work in Canada to USA
• Spending part of the year in another country for health reasons or on vacation

As mentioned, a factual resident is treated like they never left Canada. This means a factual resident still needs to report their income earned inside or outside Canada. However, you will still be eligible to claim any deductions, pay federal or provincial tax, receive tax credits, and receive GST\HST credit or child care benefits.

Deemed Non-Residents

Deemed non-residents are Canadian citizens or permanent residents who live abroad. This classification is similar to non-residents who do not have to report their global income because of their significant ties in another country and the country’s treaty agreement.

In these cases, the treaty determines your residency status, meaning Canada won’t treat you as a resident, even if you still have ties here. This can affect how you manage Canadian accounts and file taxes, so it’s important to understand your status based on where you live.

How To Report Your Non-Resident Tax Return

Living abroad has its advantages, but not when it comes to your taxes. For non-residents earning income earned from Canadian sources must be reported based on varied tax rates. It is important to understand the two main CRA categories:

CRA Part XIII Tax: Withholding Tax on Passive Income

This is usually a flat withholding tax rate of 25%, applied to passive income paid to non-residents. If Canada has a treaty, this withholding tax rate can be reduced on the following:

• Dividends
• Rental and royalty income
• Pension payments
• Retiring allowances
• RRSP

Canadian payers (like employers, banks, or tenants) deduct this tax at the source and remit it to the CRA. This tax is considered final, meaning you generally don’t file a return for this income. However, tax treaties between Canada and your country of residence can lower this rate, often to 15% or less. That’s why it’s crucial to inform payers of your non-resident status and provide your country of residence documentation.

CRA Part I Tax: Active Income and Capital Gains

This applies to income from employment in Canada, business operations, or capital gains from selling taxable Canadian property. Unlike Part XIII, this tax isn’t final, you must file a Canadian tax return to calculate what you owe based on net income.

How Treaties Impact Your Tax Rates on Canadian Non-Residents

​Canada has established tax treaties with numerous countries to prevent double taxation and facilitate cooperation between tax authorities. These treaties can reduce the standard 25% withholding tax rate on certain types of income paid to non-residents. The list of countries with which Canada has tax treaties includes, but is not limited to:​

• Germany
• Japan
• United States​

For a comprehensive and up-to-date list of countries with which Canada has tax treaties, please refer to the official Government of Canada resource.

Tax Saving Opportunities for Non-Canadian Residents

Section 216

Common for non-residents earning rental income or royalties, instead of paying a flat 25% withholding tax on gross rental income, you can be taxed on net income after deducting eligible expenses like property taxes, mortgage interest, insurance, and repairs. This often results in significant tax savings or even a refund. But to benefit, you must submit the correct forms, meet deadlines, and potentially coordinate with a Canadian agent, details that an accountant can manage with ease.

Section 217

 This section applies if you’re receiving Canadian pensions (like CPP, OAS, or RRSP withdrawals). Receiving these payments requires you to pay taxes like a Canadian resident, often at a lower rate, and gives access to deductions and non-refundable tax credits. However, this election requires you to report your worldwide income, which can affect eligibility and tax outcomes. An accountant ensures everything is filed accurately and optimally.

These elections aren’t automatic—you have to file specific forms (like T1159 for Section 216 or the Section 217 return), understand your eligibility, and decide if the election benefits you based on your full financial picture.

Know the Key CRA Tax Forms for Non-Residents

If you’re a non-resident earning income from Canadian sources, understanding the required tax forms can save you time, stress, and even money. Canada Revenue Agency (CRA) has specific paperwork that helps ensure you’re paying the right amount of tax, and not a dollar more. Here’s a breakdown of the key forms you might need:

NR4: Statement of Amounts Paid or Credited to Non-Residents

This form is issued by Canadian payers (like banks, property managers, or investment firms) to report income paid to non-residents, such as interest, dividends, or rental payments. It also shows any taxes withheld at the source. The NR4 provides a clear record of what you earned and what was withheld. You’ll need this information to file your tax return or apply for refunds.

NR6: Undertaking to File a Return on Net Rental Income

As a non-resident landlord, you’re typically subject to a 25% withholding tax on gross rental income. Filing an NR6 allows you to have tax withheld only on net income (after expenses). Reduces the amount of tax withheld upfront and improves cash flow during the year. You must submit this with the help of a Canadian agent before the first rental payment of the year.

T1159: Income Tax Return for Electing Under Section 216

If you’ve filed an NR6, this is the return you’ll use to report your actual rental income and claim allowable expenses. It’s your opportunity to finalize your tax situation based on net earnings. Often results in lower tax payable and may qualify you for a refund if more tax was withheld than necessary.

T2062: Certificate of Compliance When Selling Canadian Property

Planning to sell real estate or other taxable Canadian property as a non-resident? You’ll need to file this form before or shortly after the sale to get a compliance certificate from the CRA. Without this certificate, the buyer is required to withhold 25–50% of the sale price, not just the gain. Filing this form helps you avoid excessive withholding.

These forms can be technical, and missing deadlines or filing the wrong one could lead to delays, penalties, or overpaying tax. A Canadian tax accountant can help you understand your obligations, file correctly, and even recover money you didn’t know you were entitled to.

Additional Resources For Non-Resident Tax Support

1. File Your Departure Tax Before Leaving Canada

Final Words

Becoming a non-resident of Canada has significant implications for your taxes. However, with the right financial guidance, our accountants can help make your transition hassle-free, giving you the confidence to enjoy your new home. Get a free consultation with an accounting specialist by filling out our contact form. them here to make sure you don’t miss out on any of this crucial financial support for your business.