Short term residency in Canada due to COVID – Do I file as a Non-resident on my tax return?

For some individuals holding working holiday visas the dream year in Canada was cut short due to the COVID-19 pandemic. We have received tax related questions from individuals who arrived in Canada in the first couple of months of 2020, and who ultimately had to return home after only a few months in order to return to their families. Not only was their working holiday shortened, it will also have an effect on their tax residency, and how their tax returns will be filed at year end. 

To file as a tax resident or a non-resident? That is the question

The benchmark for attaining tax residency, and filing your tax return is by residing in Canada for 183 days or longer during the tax year. For those arriving at the end of the year, you can still file as a tax resident with less than 183 days, as long as you are planning on residing for 183 days or longer split between two tax years (ie arriving November 1, 2020 and planning to leave June 1, 2021).

If you arrived in Canada the beginning of 2020 and had to return home less than 183 days later, and did not return to Canada later in 2020, you will be required to file your 2020 tax return as a non-resident. 

How does filing as a non-resident affect your return?

When filing as a non-resident, you are required to report all Canadian income on your tax return. It is most likely that your income will be reported on T4s received from any Canadian employer you had during the tax year. You will also be required to make a declaration about the amount of foreign income you earned during the tax year. If your Canadian income represented 10% or less of your total world income for the tax year, you will not be required to pay tax on your Canadian income, this would result in a tax refund when filing your return. 

If your Canadian income made up more than 10% of your world income for the tax year, you will be required to pay a 25% tax rate on that Canadian income. Most employers will have deducted income tax from your pay at a rate which is less than 25%, meaning you will be required to pay more tax to CRA when filing your return, in order to cover the shortfall in tax owed.

When filing as a non-resident it is not possible to file your tax return online, you will be required to print, sign and mail your tax return to CRA.

If I have a tax balance owing can I simply not file my tax return?

If you find yourself with a tax balance owing to CRA, you are obligated to file the tax return and pay the balance to CRA. If you wish to return to Canada and work in the future, the outstanding tax balance could impede future immigration/work permit applications.

Not too sure on your tax residency? Ask a tax professional for help.

If you are unsure of your tax obligations and want to be 100% sure of your tax residency status it may be wise to ask a professional for assistance with your tax return filing. The jackstaxback team is always happy to take the weight off your shoulders and ensure that your return is filed correctly. If you are interested in a free consultation, please message us today. Tax doesn’t have to be taxing.