Canada Taxes. Am I a resident or non-resident?
This very confusing question comes up on the Canadian tax return – Under the IEC work permit, am I resident or non-resident in Canada? Unfortunately, this question is not as easy to answer. The tax situation depends on many different factors.
It is important to know that an IEC work permit does not automatically make you a non-resident. “Resident for tax purposes” should not be confused with “permanent resident” or even with “citizenship”. Also, no tax situation can be compared to that of a friend or with other IEC participants. There is no all-size fits all.
Disclaimer: This page offers general and basic information for a typical IEC participant and isn’t a substitute for professional advice. Always double check with a tax professional. canada-taxback.com is not responsible for any actions taken based on this information.
For the information provided, the following links were used, where you can read more in detail. This short info page will try to explain it as simply as possible for a typical IEC participant:
- >> Determining your residency status <<
- >> Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status <<
If you are still unsure after reading all the information provided in this info blog, you can complete Form NR74 to get the CRA’s opinion on your residency status. Processing usually takes about 8 weeks.
When looking at an IEC participant’s tax situation, it’s important to consider their full circumstances
The Canada Revenue Agency (CRA) determines tax residency based on a combination of factors, including:
- Residential ties in Canada
- for example, whether you had a home, a lease, or family members (spouse, partner, or children) living with you in Canada.
- Length of stay
- how long you were physically present in Canada during the tax year.
- Ties to your home country
- such as property ownership, or having a job in your home country that you plan to return to.
- Type of accommodation
- whether you lived in temporary staff housing, shared accommodation, or had your own place.
- Intentions
- If you plan to leave Canada once your work permit ends or you want to establish a long-term life in Canada.
I stayed in Canada for more than 183 days; doesn’t that make me a resident for tax purposes?
Not automatically. As you can see above, the length of your stay matters, but it’s only one piece of the puzzle. Your entire situation, including the strength of your ties to Canada is assessed together to determine whether you’re a resident or a non-resident for tax purposes in Canada.
It gets even more complex because of the tax treaties Canada has with other countries. To keep this info page simple, we won’t go into those details, as they only come into play if your tax situation isn’t entirely clear. These treaties include “tie-breaker rules” to determine residency when multiple countries could consider you a resident. However, the examples below will help you make an informed decision about your tax situation as an IEC participant.
Resident for tax purposes
The following residential ties increase the likelihood of being classified as a resident for tax purposes. In general, the more ties you have, the stronger your connection to Canada will appear. For easier understanding, the ties are grouped into two categories based on their significance.
1. The strongest ties that can usually make you a "tax resident"
- Your family (spouse and children) joins you in Canada.
- You own or rent a house or apartment with a rental contract in your name (not a shared flat or staff accommodation).
The two strongest ties to Canada, and thus also the most important (“significant residential ties”) are family members (spouse and children) and your own home. In the country where they are, you are a “resident for tax purposes”.
If you have lived with your partner for at least 12 consecutive months, the relationship is considered a common-law partnership. In that case, both of you are treated as residents for tax purposes and must file your tax returns as common-law.
2. Very good ties that can make you a "tax resident" if you have a lot of them
Those are called “secondary residential ties” and must be looked at collectively. The more you have, the most likely you are considered a tax resident.
- length of stay (in the tax year longer than 183 days in Canada),
- Canadian health insurance from a province (health care card),
- a work permit
- an employer-specific work permit, for example a Young Professional or LMIA work permit
- Canadian bank account, credit card, savings account
- Car registered and insured on your name in Canada
- Canadian driver’s license
- social ties with Canada (such as memberships in Canadian recreational or religious organizations)
A very strong tie, in my opinion, is a health care card from a province. Canadian health insurance is hard to get because you must meet certain residency requirements.
In addition to these listed points, the intention in Canada also weighs heavily for the classification as “tax resident”. If you come to Canada to settle for a longer period of time, e.g. with the intention of applying for a second IEC participation, another work permit, or for permanent residency, you build closer ties with Canada.
Non-resident for tax purposes
Many IEC participants come to Canada mainly for the adventure and cultural experience. The purpose of the Working Holiday work permit is to explore and travel across Canada while taking on short-term jobs to support your journey. The following situations are common for IEC participants. Being a backpacker and travelling is not a problem, it’s often the best part of your stay in Canada, but it does affect your tax situation.
Here are some common situations where you are considered a non-resident for tax purposes:
- You have no ties to Canada at all.
- Your family (spouse and/or children) live in your home country.
- This is a significant tie to your home country.
- You have no home in Canada but still own a home in your home country.
- Home ownership is a key factor and can override other ties.
- You were in Canada for less than 183 days in the year and only stayed in staff accommodation, hostels or campgrounds.
- You were in Canada for more than 183 days, but only worked briefly in several provinces while travelling.
- You came to Canada to work a summer season or ski season.
- You did a short-term paid internship in Canada.
- You came to Canada to work on a farm for a few months.
- You worked as an Au pair with a family for a few months.
- You entered and left Canada within the same year, e.g., arrived in April and left in August.
- You arrived in Canada in November or December, initially travelled, lived in a hostel or Airbnb, and only found a job and a home or exchanged your driver’s license in the following year.
How does the tax situation as a non-resident impact my taxes in Canada?
Non-residents might not be able to claim all the tax credits that residents can, which could result in owing taxes. In fact, many IEC participants are affected, especially those who come to Canada temporarily for a summer or ski season. Click >> here << to find out why you might owe taxes as a non-resident.
If you file your tax return as a non-resident, you must use different tax forms. You cannot file online or use tax software. Instead, the return must be submitted on paper by regular mail.