If you do not live in Canada, but do have income from Canada, you may be required to file a Canadian tax return. You may also decide to file an optional tax return in order to lower your overall Canadian tax liability.
In all cases, there are timing requirements as to when the following returns must be filed. We suggest that you consult with KMA as to your specific filing requirements.
Reasons to File a Canadian Tax Return as a Non-Resident
You Own a Rental Property in Canada
In Canada, you would be required to use a rental agent. This is an individual or company that is required to collect and submit to CRA (the Canada Revenue Agency – Canada’s tax authority) 25% of the gross rents.
In order to get some or all of it back, you will need to file an elective return, called a Section 216 return, so that you pay income tax on your net income, not the gross.
You Are Selling Your Canadian Property
There are several tax withholding and filing requirements that you should be aware of. The first is that when you are not a Canadian resident, (even if you are a Canadian citizen) there is a 25% of the gross sales price withholding requirement. This means that if you sell your vacation property for $400,000, then the lawyer handling the conveyance of title is required to withhold $100,000.
In order to reduce the amount withheld, a clearance certificate request must be filed with CRA within 10 days of the sale. A clearance certificate is a request made to the Canadian tax authorities to reduce the amount of taxes that would otherwise be withheld. In the case of a real estate sale, the clearance certificate allows the amount to be withheld to be 25% of the profit on sale. If filed late, the certificate carries a penalty of $25 per day, up to a total of $2,500. Therefore, contacting KMA when you list the house is a step to ensure that there are no delays in processing the request for the certificate.
If there are two of you title, then you both need to file a request for a clearance certificate.
You Receive CPP, OAS, a Canadian Pension, or Other Retirement-Related Payments
In these cases it may make sense for you to file a Sec 217 return. This is an optional return where if your taxes that you would have otherwise paid is less than the statutory withholding rate, then it may be filed. It is a mandatory return if you have filed form NR-5 (election to reduce withholding taxes) for every year it is in effect.
You Worked In Canada, or Carried on a Business in Canada, Through a “Permanent Establishment”
If this is the case, you may have to file a Canadian tax return in order to establish your actual Canadian tax liability.