When a non-resident has income in Canada or owns Canadian real estate

When a non-resident earns income in Canada, that income is taxable in Canada.  Tax treatments differ greatly, depending on whether the taxpayer is a non-resident , , or .  Income earned within a is usually allocated and taxable to the respective beneficial owner(s).Earth

There are many reasons a non-resident of Canada might decide to expand their horizons and do some cross-border business in the Canadian market.  For example, a corporation or individual may have:

  • engaged in contract work in Canada, requiring only a temporary stay or a few short series of stays in Canada
  • found a business opportunity in Canada, not requiring a permanent relocation
  • invested in a Canadian financial security with an optimal rate of return
  • purchased Canadian real estate for rental purposes

Or an individual may have a passive income stream such as a pension from when they previously lived in Canada, or interest earned within a Canadian bank account.

Or a non-resident estate or trust may have acquired a Canadian asset as a direct result of the death of a non-resident person who owned the asset prior to passing away.

Each of these situations represents a unique tax treatment.  For some situations, Canadian tax is withheld at source and becomes the taxpayer’s final tax obligation, and sometimes the tax withholdings can be reduced. For other situations, Canadian tax is withheld at source and the filing of a tax return to recover some or all of the withholdings is optional. For yet others, the filing of the tax return is mandatory.  There are different types of tax returns, depending on the nature of the income.

It is very important for a non-resident to contact a Canadian tax professional when contemplating the purchase or sale of Canadian real estate prior to the purchase or sale as there are certain Canadian requirements that can result in significant tax liability if not met properly and within certain deadlines.  Canada Revenue Agency requires specified procedures and documentation, often involving an arrangement with a Canadian agent who would assist with collecting rental payments and deducting and remitting withholding taxes.

Further, there are certain industries in business where specific Canadian tax rules must be obeyed.  For instance, income earned by non-resident actors, musicians and athletes for performances in Canada are generally subject to withholding tax.  Each of these industries has unique requirements and deadlines to be able to reduce or recover this tax.

Please contact us for more information on how we can assist with your situation.

A corporation can be defined as a legal entity separate from its owners, formed for the purpose of conducting a business. Canadian corporations, also called “companies”, often enjoy lower income tax rates compared with sole proprietorships or partnerships. It is important for a corporation to use an accounting system to help with financial reporting, but it is equally important for that system to be able to help make decisions about the future of the business.
In common everyday language, an individual is usually considered to be a human person. However, in the eyes of tax law, an individual can be defined as a human person or an estate or trust. Business organizations (ie. corporations, estates, trusts, not-for-profits, sole proprietorships, partnerships, etc.) are ultimately controlled by human people, whether directly or indirectly. The question of “Who is the taxpayer in this situation” (ie. a human person or another entity) can be dependent on a number of factors.
An estate is the collection of all property and assets owned by a person, often at death, which are set to be distributed according to a legal document, typically the person’s will. A testamentary trust is formed when these property and assets are transferred to a third party (trustee) for the purpose of distributing them to the beneficiary(ies). For example: An investor passes away, leaving a portfolio of stocks and bonds behind. The trust is formed upon his death, and title to the portfolio is transferred to the trustee who will administer the portfolio for the benefit of the deceased’s children. A common question that arises is who gets taxed on the investment income earned after death – the deceased, the trust, the trustee, or the beneficiary(ies). Sometimes there is no estate when a person passes away, and sometimes there is no trust. These things can get tricky sometimes.  There are also many types of inter-vivos trusts which are established during one’s lifetime.
A sole proprietorship is a business formed with little to no formalities by a person where there is no legal distinction between the owner and business.  Sole proprietorships are often home businesses, but not always.  A partnership is similar to a sole proprietorship, except that there is more than one owner involved.  Treatment of tax on income is different with a sole proprietorship or partnership compared with a corporation.