There are many factors to assess whether tax owed
Q: Recently, I accepted a new job overseas. I hope to return in a year or two. Can I continue to pay into my Canada Pension Plan (CPP)? Will I have to pay Canadian income taxes on my overseas earning?
A: A requirement to pay CPP and income taxes may be more of a requirement based on residency. A resident in Canada pays income taxes on income earned in Canada or around the world. On the other hand, non-residents of Canada must pay taxes on income earned specifically in Canada. Some individuals may attempt to circumvent the tax system to work in their favour to pay less tax and may flip-flop between residencies.
They are not generally successful and at some point reassessed with penalties and interest.
The income tax act does not define the term “resident.” However, our courts have held “residency” to be a matter of degree to which an individual in mind and fact settles into or maintains or centralizes his/her ordinary mode of living. Factual or deemed residents must file and pay taxes on income earned in and outside Canada.
An important factor that will determine if an individual continues to be a resident of Canada, and therefore subject to Canadian income taxes, is the level of residential ties with Canada when living abroad.
Three primary significant factors in determining an individual’s residency are:
- Place(s) of dwelling
- Spouse or common-law partner
Other factors considered are:
- Ownership of other personal property such as automobiles and furniture.
- Social ties such as gym memberships, social clubs and religious organizations.
- Maintenance of driver’s licence, OHIP cards, Canadian passports, auto insurance, etc.
All relevant facts of residency should be assessed on a case by case basis.
Q: After graduating from university last year, I accepted a job in New York. I will be moving to the U.S. permanently but I am a Canadian citizen. Will I have to file a Canadian tax return? How much tax will I pay?
A: An individual that is permanently moving to another country and has severed all residential ties to Canada does not have to file a tax return nor pay taxes on income earned outside Canada. However, you will have to file a tax return for income earned in the period you were a Canadian resident. An obligation to file a Canadian tax return is based on residency and not citizenship. Therefore, in subsequent years, you will not be required to file a Canadian tax return.