Non-Resident Status and Tax in Quebec and in Canada

Whether an individual is or is not a resident of Canada is, for tax purposes, a fundamental question.  In Canada, a resident, within the meaning of taxation laws, must pay taxes on his worldwide-source income

Tax laws in Canada are based on the concept of residence.  While such laws do not provide a definition of residence or of non-residence, caselaw has, over the years, well identified and defined the concept. Moreover, the legal status of an individual is not the same under immigration laws as it is under taxation laws.  Even if an individual holds a visa or a work permit for the USA, for example, this does not necessarily mean that such individual is no longer a Canadian resident for tax purposes.

Several people think that as soon as a person starts working abroad, it is no longer necessary to pay taxes in Canada.  This is far from being true. Actually, if your employer offers you a three-year-term contract of employment to work in the USA or in France, with a return date, you remain a Canadian resident.

This means that during those years, you will still have to file income tax returns in Canada and report therein your worldwide-source income, which of course will include the salary you will be earning abroad.  Canada has tax treaties with several countries in order to avoid double taxation, as well as a foreign tax credit, but the principle remains: Taxes still need to be paid in Canada.

This is often the case with nurses working in Switzerland for a few years or computer technicians deployed abroad for a certain period of time.

If an individual leaves Canada, but maintains significant ties with the country, taxation authorities may then assume that such individual has not really burned the bridges and that he, in some way, had the intention of coming back, one day.  He will then be recognized as a resident and have all the obligations that such status entails.

Obviously, whether an individual who has left the country actually has broken the ties is essentially a question of fact.

Taxation authorities will often base their determination, as to whether an individual is still a resident or not, on the following factors:

  • The fact of maintaining his provincial health insurance card;
  • The fact of maintaining his bank accounts in the country;
  • The fact of maintaining his provincial driver’s licence;
  • The fact of maintaining a dwelling place or a house in the country;
  • The fact of leaving the country, while his spouse and children remain behind;
  • The fact of leaving the country with a predetermined return date in his contract or the fact of going to a foreign country under a fixed-term contract.

While there are no rigid and established rules, taxation authorities will generally consider that an individual has not actually left the country if he is absent for a period of less than two (2) years.

If an individual is away for more than two (2) years, taxation authorities will not automatically consider such individual as a non-resident. All depends on the remaining ties. Therefore, even if an individual has been out of the country for more than ten (10) years, taxation authorities may well determine that such individual remained a resident if they consider that he has never severed ties with the country.

Consequently, if a taxpayer contemplates working outside the country for an undetermined and more or less lengthy period of time, such taxpayer would clearly benefit from clarifying his situation and planning as concretely as possible his effective taxation status, in order to avoid unpleasant surprises upon his return to the country, should such return ever occur.

For more information, please refer to federal rules here…

Louis Sirois, Tax Lawyer