Non Residents

Canadian Tax System

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The Canadian tax system is complex, and has become more so over the years. Whereas the Income Tax Act was 4,000 words long when it was enacted in 1917, today it comprises over 1.1 million words. That's almost 260 times increase in the number of words! Therefore, knowing what your tax obligations are is a serious matter!​

When it comes to your income tax obligations to Canada, the very first thing you must know is your residency status so that you know what your tax responsibilities and filing requirements to Canada are.​

Are you filing the right tax return(s) and paying the right amounts of taxes? If not done correctly, you could be making a very expensive mistake including big tax bills with significant penalties and interest!​

​EXAMPLE​

Mary emigrated from Canada in 2009 and became a resident of Hong Kong, China. She did not sell her house when she left Canada and decided to rent it out. She did not pay much attention to her obligation to file a Canadian Tax Return since she became a non-resident of Canada.

​Mary's annual income and expenses from the property:​

Gross rental income:                    $40,000​

Minus allowable expenses:         $21,000​

Minus capital cost allowance:       $4,000​

Equals net rental income:            $15,000​

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Mary would now like to sell her property and has agreed on a sale price with the purchaser.​

Here come the surprise: her lawyer has just told her that he is going to have to withhold 50% of the proceeds until they receive a clearance certificate from the CRA. Section 116 of the Income Tax Act in Canada requires that when non-residents sell taxable Canadian property, they must apply for a clearance certificate from the CRA.​

Mary instructs her lawyer to simply send in the request for the clearance certificate with the withholding. However, as part of the request for clearance she must declare if the property was rented and when the last NR4 was filed. This is where it starts to unravel for Mary since she has not remitted or filed anything with the Canada Revenue Agency.​

At this point her tax obligation is 25% of the gross rents from 2009 onward. This amounts to $10,000 per year, over a 10 year period for a total of $100,000 plus potentially significant penalties and interest!​

Had Mary filed everything correctly, she would have only paid $37,500.

Not filing or paying your tax correctly can be a very expensive mistake!​