The question of whether or not a person is a 'resident of Canada' is an important one for a number of matters dealing with income tax. Withholding requirements are imposed on people buying or renting certain property (including real estate) from sellers who are 'non-resident of Canada'. It is important to enquire whenever buying real property or business interests or renting property from a person. If the seller or landlord is non-resident of Canada and has not remitted the tax due and obtained a 'Clearance Certificate', one third the price of non-depreciable property, one half the price of depreciable property, or one quarter of the rent must be withheld by the buyer or tenant and remitted to Canada Customs and Revenue Agency (CCRA). A Clearance Certificate must be provided by the seller, or an undertaking provided by the rental agent.

Who is a non-resident of Canada?

As a rule, someone is a non-resident of Canada if:

• they normally or routinely live outside Canada
• they are no deemed under the provision of the Income Tax Act to be resident
• they spend fewer than 183 days in Canada in a calendar year
• they are not an employee of a Canadian government, and
• they don't have a 'residential tie' with Canada.

People are deemed to be resident of Canada if they spend a total of 183 days or more in Canada during a calendar year and are not resident of another country under a tax treaty with Canada.

Someone who has left Canada may still be considered a resident of Canada, if they have a number of 'residential ties'. Ties include such considerations as:

• a home in Canada
• a spouse and dependants in Canada
• personal property such as a car and furniture in Canada
• social ties in Canada such as club memberships
• a Canadian drivers license
• Canadian bank account or credit cards
• Canadian health insurance

While any one or two of these things wouldn't necessarily make one a deemed Canadian resident, a number of them would tend to bring one within the provision.

What taxes do non-residents pay?

Non-residents of Canada are required to pay tax on their income earned in Canada. The following sorts of income do not require a return to be filed. Income is deducted at source and remitted to CCRA.

• Interest and dividends
• Rent and royalties
• Retiring allowances
• RRSP and RRIF payments
• Annuity payments and management fees

The usual rate of tax is 25% unless a tax treaty with the person's country of residence provides for a different rate.

Income Tax returns are required to be filed for the following types of income:

• Business income earned in Canada, and
• Proceeds of disposition of taxable Canadian Property such as real estate and business interests.

This article has been provided by Stewart Johnson Law Corporation - email