If a non-resident of Canada receives income from Canadian sources they can be liable for tax in Canada and depending on the type of income they may also be required to file a Canadian T1 non-resident return.
Examples of the types of income that generally will require a non-resident of Canada to file a T1 non-resident return are:
- Income from employment in Canada
- Income from a Canadian business
- Disposition of taxable Canadian property (e.g. real estate)
In order to complete the non-resident return you will need to have a social insurance number (SIN) or an individual tax number (ITN). The ITN is relatively easy to obtain by completing form T1261.
The more common sources of Canadian income that non-residents receive are dividends, interest, pensions, old age security, Canada pension plan, registered retirement income fund payments, etc. This income subject to Part XIII tax which is required to be withheld at source by the payer when it is paid to a non-resident. The usual income tax withheld on this income is 25%, but can be reduced or eliminated depending on the type of income and the tax treaty that Canada has with the non-residents country. For example, the Canada-US tax treaty requires that 15% tax be withheld on regular pension payments and 30% on lump sum payments, 15% on dividend income and 0% on interest income.
In addition, it is likely that the non-resident will be able to claim the taxes paid in Canada as a foreign tax credit in their country of resident, reducing or eliminating any additional taxes owning.
Another common source of income earned by non-residents is rental income. The gross rental income is subject to the 25% withholding tax. In most situations there is the option for the non-resident to file a NR6 which allows the non-resident to have taxes withheld on the expected net income instead of the gross amount. If an NR6 is filed, the non-resident still must also file a Section 216 income tax return.
The NR6 and the Section 216 returns are required to be filed annually. The NR6 must be filed before the first rents are received during the calendar year and the Section 216 return is due by June 30th of the following year.
As each individual’s residency status determination, situation or type of income can be unique we recommend that you contact one of our experienced professionals.
Rob Brown, CA
Latest posts by Rob Brown (see all)