Why do I owe taxes as a non-resident?
A plain and simple explanation (though a long one) of why you might end up owing taxes as a non-resident
First of all, let's clarify the term "tax credits" in simple words
Every taxpayer in Canada is entitled to certain tax credits that help reduce the amount of income tax they owe. One common example is the federal Basic Personal Amount, which was $16,129 in 2025. Each province also has its own personal amount that can reduce your taxes even more.
Many people call this a “tax-free threshold.” In general it means, if your income is below this amount, you won’t have to pay any federal income tax, and any tax that was withheld from your pay will be refunded.
However, this doesn’t always apply to everyone.
Temporary or seasonal workers who spend only part of the year in Canada may not be eligible for the full tax credit. This is especially true for IEC participants who come to work in Canada for a summer or ski season or on a farm for the harvest season. And then return home.
The employers require forms, so they know how much tax to deduct from your pay.
Whenever you start a new job, you need to fill out the forms called TD1 Personal Tax Credits Return. There are two forms: one federal and one provincial, depending on where you work.
These forms tell your employer how much income tax to deduct from your pay. The taxes taken out are sent to the Canada Revenue Agency (CRA) as a prepayment for your annual taxes.
When you file your tax return the next year, the CRA checks whether you’ve paid the right amount. If you paid too much, you’ll get a refund. If you paid too little, you’ll need to pay the remaining balance.
Why employers don't deduct enough taxes
There are several reasons this issue happens.
- Most of the time, employers don’t help you fill out tax forms, or don’t ask for the forms at all.
- Because of this, many IEC participants complete the forms themselves, usually assuming they are residents for tax purposes. This often leads employers to apply the full annual tax credits when calculating payroll.
- Many employers treat all their staff as tax residents, whether they are Canadian citizens or temporary residents.
- Some employers don’t know the tax rules for non-residents, so they use the wrong deductions.
- Some payroll systems aren’t set up for non-residents, so they deduct tax as if everyone is a tax resident.
All of these missteps mean less tax is deducted from wages than may be required, which can create problems when filing a tax return. Many IEC participants face this issue every year.
There’s a positive side to this situation if you look at it differently
Because less tax was taken from your pay, you had more take-home income during your time in Canada. This extra money helped cover essentials like rent, groceries, and transportation—or even allowed you to save for a trip.
During your Work and Travel experience, having immediate access to these funds was likely more useful than waiting months for a tax refund. If the correct amount of tax had been deducted from the start, that extra cash wouldn’t have been available when you needed it most.
But why an amount owing? Are non-residents taxed more?
There is only one tax system in Canada and the tax brackets are the same for every worker in Canada, whether you are a Canadian citizen, temporary foreign worker, international student, or non-resident.
The main differences come from tax credits. Which credits you can claim depends on your personal tax situation, particularly the 90% non-resident rule, which affects eligibility for certain credits.
The 90% non-resident rule says:
To be eligible for the full amount of tax credits, the Canadian income must be more than 90% of the total worldwide income in the tax year.
World Income = Income in Canada + Foreign income for the tax year
Foreign income includes all types of income, i.e. regular wage income, unemployment benefits, (in many countries it’s called job seekers benefit).
- If 90% or more of your worldwide income is from Canada, you can claim the full personal tax credits.
- If less than 90% of your worldwide income is from Canada, you cannot claim the personal tax credits.
In short: An amount owing as a non-resident only occurs if you
had foreign income outside Canada and you do not meet the 90% rule
Here are two important things to remember about filing as a non-resident:
You only pay tax on Canadian income.
That means you’re only taxed on the money you earn while you’re in Canada.Your foreign income isn’t taxed in Canada.
Anything you earned before arriving or after leaving Canada is not taxed. You only report it on a separate form so the government can check whether you qualify for the tax credits.
Which forms are used to calculate the 90% rule?
- For non-residents, income from Canadian sources as well as income from foreign sources is first reported on
- Then the 90% are calculated on
Non-resident example
Federal basic personal amount 2025 = $16,129
You meet the 90% rule
Tax credits: $16,129
You do not meet the 90% rule
Tax credits: $0
Typically, the amount you owe in taxes results from missing tax credits and because the employers didn’t deduct enough tax from your wages. If employers had deducted the correct amount of tax (i.e., deducted more with each paycheck), you wouldn’t have ended up owing any money at tax time.
Here’s a simple example:
If your employer had taken an extra $50 from each bi-weekly paycheck, that would add up to $600 for 6 months. You probably wouldn’t even notice $50 being deducted each time. But if it isn’t deducted, it shows up as $600 owed when you file your tax return—a much bigger and more noticeable amount.
The total tax you pay doesn’t change. The difference is just how it’s paid: spreading it out over the year is easier than paying it all at once.
Unfortunately, there isn’t much you can do about this—it’s just how the Canadian tax system works for non-residents.
Questions from many IEC* participants
*IEC = International Experience Canada (temporary workers)
How does the CRA know my foreign income if I don't report it?
To put it bluntly, intentionally omitting income in the tax return is a criminal offense in Canada. It is called “tax evasion“.
Surely no one can ever track how much you received in cash.
However, any income officially reported to your home country’s tax authority (for example through the payroll of your employer) can be shared with Canada, and vice versa. That’s because many countries, including Canada, have tax treaties that allow them to exchange financial and tax data upon request.
Do I have to file a Canadian tax return?
What happens if I owe Canadian taxes but don’t file a return?
Basically, it is mandatory to file a tax return in Canada if you owe taxes.
If you don’t, you might receive a request from the CRA (‘Notice to File’ letter), then you will have no other choice and will have to file the tax return and pay the taxes owing and a late-filing penalty.
What is the late filing-penalty?
The late-filing penalty is 5% of your balance owing, plus an additional 1% for each full month that you file after the due date, to a maximum of 12 months.
Now tell me: What’s the absolute worst that can happen if I don’t file taxes in Canada?
Without trying to scare you, it’s important to understand the worst-case scenario.
Not filing taxes when you owe money can technically be considered tax evasion in Canada, which is a criminal offense. In very rare cases, this could lead to fines or imprisonment.
That said, for someone on a short-term IEC stay who worked in Canada for just a few months, it’s extremely unlikely. However, it is possible for significant unpaid taxes.
Will I have problems entering Canada later if I don't file a tax return?
Yes and no. Therefore, here are two scenarios as well.
No: If you don’t file a tax return, the CRA won’t know whether you’re due for a tax refund or if you owe taxes. In this case, the CRA will not communicate with the border or immigration agencies about your taxes.
Yes: Problems can arise if you file a tax return, owe taxes, but fail to pay and ignore reminder letters from the CRA. This could eventually lead to legal action. Depending on the severity of the situation or the amount of tax debt involved, this could be reported to the immigration agency and border agency (and might affect future visas or entries to Canada).
Bottom line: Most work and travellers who leave Canada without filing a tax return are usually dealing with interest penalties, not criminal charges. Tax evasion is reserved for deliberate, significant avoidance.
How high is the risk of a 'Notice to File' letter?
There are a few possible scenarios that come to mind:
If you’ve filed a Canadian tax return before: The CRA can contact you at any time within six years to request that you file a return. If you filed as a non-resident in the previous year, receiving a filing request the following year is very likely—almost guaranteed.
If you’ve never filed in Canada: You don’t have a CRA Account, so there’s no online record. Technically, the CRA could track you via your home country’s tax information (especially if a treaty exists), but for low-income travellers, the likelihood is very low.
If you plan to file a tax return in your home country: You may need to report the income you earned in Canada and the taxes you paid, depending on your country’s tax rules. If your country has a tax treaty with Canada, the two governments can share tax information if needed.
In most cases, your home tax office will ask for documentation. This means you’ll likely need to file a Canadian tax return to show proof of your income and any taxes paid.
How does the CRA reach me?
Officially, you’re required to update your address with the CRA every time you move. More information here.
Many Work and Travellers who never filed a Canadian tax return don’t change their address.
If you have filed a Canadian tax return in previous years, you must update your address in your CRA Account. You can also register for a CRA Account if you don’t have one yet, though registering from outside Canada can be complicated and may require a phone call to the CRA.
> Here is a helpful guide how to register for the online CRA Account <<
Please note that you can only register for the CRA account after you filed a tax return in Canada.
To change the address:
- Online: in your CRA account if you have one
- Call:
- Within Canada: 1-800-959-8281
- Outside Canada: +1-613-940-8495
- By mail: Using Form RC325 to the address mentioned in the form.
- Social Insurance Number
- Full name and date of birth
- Complete address
- Assessed return, notice of assessment or reassessment, other notices or tax documents.
I didn't change my address; how will I get the 'Notice to File' letter?
The CRA will send it to the last address they have on file. This could be the address you used on your last tax return or the one you gave when applying for your Social Insurance Number (SIN) at Service Canada. They’ll use that address to contact you about your taxes.
If I decide to file a tax return, how do I make the payment of the taxes owing?
The CRA does not accept cash sent by mail.
- If you still have a Canadian bank account, you can make a payment via online banking. > instructions here <
- If you no longer have a Canadian account, you can pay using a credit card via a third-party provider. PaySimply is recommended by the CRA for tax payments. Please note that the provider charges a small processing fee.
- If you use the Canadataxback service to file your tax return, payment instructions will be included as a PDF along with your tax return documents.
What if I cannot pay the total amount because it is very high?
In this case you can call the debt collection department to arrange a monthly repayment plan after you received the notice of assessment or notice of debt with the repayment amount.
- Within Canada or the U.S.: 1-888-863-8657
- Outside Canada: +1-613-221-3002
When you call, you will need to have your:
- Social Insurance Number
- Full name and date of birth
- Complete address
- Assessed return, notice of assessment or reassessment, other notices or tax documents.
> Here are all other phone numbers if you have to repay other benefits to the CRA.