1. Tax Lesson 2 YOURLOGO Start Lecture
Note: This screen has no script. Static page.
YOURLOGO
Start Lecture

2. Residence
Residents of Canada (for tax purposes) must pay tax in Canada on their worldwide income (i.e., Canadian and foreign income). Non-residents only pay tax in Canada on certain Canadian source income. Residence for tax purposes is different from citizenship and immigration rules
Residents of Canada must report their gross foreign income and then they can get a foreign tax credit for any foreign income taxes paid (which reduces their Canadian federal tax owing)

3. Non - residents
Pay tax on Canadian employment income, Canadian business income and taxable capital gains on dispositions of taxable Canadian property
Taxable Canadian property (TCP) includes: real property (land and buildings) in Canada; business assets related to a business carried on in Canada and Canadian natural resource properties
Shares (both public and private) are typically not TCP. However, shares that derive more than 50% of their value from Canadian real property or Canadian natural resources will be TCP
If a non-resident sells TCP they must apply for a section 116 certificate (and pay tax on any taxable capital gains) within 10 days from the disposition
Pay a 25% withholding tax on certain passive Canadian income. No tax return is filed; instead the payer must withhold a 25% withholding tax and remit this tax to the federal government. Examples include Canadian: rental income, dividend income, pension income and RRSP withdrawals
This rate (25%) can be reduced by a tax treaty. Note: there is no withholding tax on capital gains and most interest income (but non-residents will pay tax on capital gains if they dispose of TCP and there can be withholding tax on interest income earned from a related person)

4. Individual Residence
An individual will typically be considered a resident of Canada (for tax purposes) if he/she owns or rents a home in Canada or if he/she has immediate family members in Canada (i.e., a spouse and/or minor children)
An individual who does not meet the above test, will be deemed to be a resident if he/she spends 183 days or more in Canada in the year

5. Corporate Residence
A corporation incorporated in Canada (after April 26, 1965) is considered a resident of Canada
A corporation that is not incorporated in Canada but that has mind and management in Canada will also be considered a resident of Canada
Mind and management of a corporation is typically exercised by the board of directors (BOD) of a corporation, who typically hire/fire/determine the pay of top management of the company and declare dividends (or not) etc. Hence if the majority of the BOD meetings are held in Canada then the company will be considered a resident of Canada

6. Becoming Resident
When a taxpayer becomes a resident of Canada they will have a deemed disposition and reacquisition (immediately before becoming a resident) of all property (other than taxable Canadian property) at fair market value. Hence the taxpayer’s cost for tax purposes of all properties will generally be equal to the fair market value when they become a resident of Canada
A corporation will be deemed to have a year-end immediately before becoming a resident and it can pick a new year-end. (A year-end cannot be longer than 53 weeks)

7. Becoming Non-Resident
When a taxpayer becomes a non-resident of Canada they will have a deemed disposition and reacquisition of all property (with some limited exceptions) at fair market value. Hence the taxpayer will pay tax on any accrued gains (earned while the taxpayer was a resident of Canada)
Exceptions to the deemed disposition include Canadian: real property, pensions and business assets. Recall that Canadian real property and business assets are taxable Canadian property, and Canadian pensions are subject to a 25% non-resident withholding tax