Canadian tax guide

An increasingly large number of Canadians are making a transition to the location independent lifestyle. Most have limited to no understanding of the tax consequences of doing so. In this article, I explain how the Canadian taxation system works and answer the most frequently asked questions.

 

Overview

Canada is one of the world’s largest economies and a leading country in nearly every field. Its thirty-five million or so people enjoy some of the highest living standards in the world and a level of wealth rivaled only by a few other nations. Tax-wise, Canada uses a fairly restrictive version of the residential taxation model based on domicile. Federal rates are progressive and range from 15% on income up to ~ 46000 CAD to 33% on income above ~ 200000 CAD. The first ~ 12000 CAD is tax-free at the federal level. Provincial and territorial rates are also progressive and range from 4% to over 20%. There is no Capital gains tax per say, instead, the first half of all gains is taxed as normal income. Deductions, tax credits and allowances are available provided that certain conditions are met. There are no wealth, inheritance, capital duty, stamp duty or estate tax in Canada. An annual return must be filed by all taxpayers on a yearly basis and the deadline for payment is the 30th of April.

 

Tax residency

Canada uses the domicile rules to determine the tax residency status of individuals, NOT the 183 days system. The way the domicile system works is simple: you are considered domiciled in the jurisdiction where you normally live or where you have the most ties. In the Canadian context, ties include close family members, a house, a car, personal possessions, a gym membership, a drivers license, a passport, a job, bank accounts, credit cards, social club memberships (sports, religion, ngo etc), a phone number, a mailing address etc.

Because of the way the domicile rules works, it is absolutely possible for a Canadian nomad to travel constantly, spend zero days in Canada but still be considered a Canadian tax resident. To ensure that this does not happen to you, you must acquire a foreign residency and qualify as a tax resident there. You must then have your status as a tax resident of that foreign country recognized by the CRA (Canada Revenue Agency). This is done via the NR73 form. Although there are a few exceptions, in most cases you will need to spend 183+ days in that foreign country.

As a non-resident, you will only need to file a tax return in Canada if you have Canadian-sourced income. To re-qualify as a Canadian tax resident, you simply need to spend 183+ days in Canada in a single tax year.

 

F.A.Q.

Question 1: Is spending 183+ days abroad enough to qualify as non-resident for taxation purposes?
Answer 1: No.

Question 2: Do I need to close all my bank accounts, credit cards etc in order to qualify as non-resident for taxation purposes?
Answer 2: No, you can continue using your accounts and credit cards while you live abroad. Not ideal though.

Question 3: Is there a way for a nomad who is a tax resident of Canada to tax-optimize?
Answer 3: Absolutely. Many rebates and credits exist. Some provinces also offer very advantageous legal structures. Manitoba for example.

Question 4: As a non-tax resident, will I still have access to health care and social services?
Answer 4: No. You will need to purchase health insurance and pay your own way.

 

Resources

I have written articles covering nearly every aspects of the nomadic lifestyle. I strongly recommend that you read them all, especially the following ones: The best residency options, Where to register your business, Ultimate guide to nomad banking, The five flag theory, Ultimate guide to travel hacking, Health insurance, the guide, Dying abroad, the guide, Mailing addresses, the guide, CFC rules, the list, The French citizenship hack, CRS, the end of banking secrecy and How to transfer money internationally.