Spouse in Canada While You Work Abroad: Taxes and Child Benefit

Spouse in Canada, working abroad: why do you usually stay resident?

Usually yes. A spouse or common-law partner and dependants who stay in Canada are significant residential ties, and a home kept for your use is another (Folio S5-F1-C1, paragraphs 1.11 to 1.13). The CRA lists working temporarily outside Canada as a situation where you may stay a factual resident: someone who lives abroad but keeps enough ties to remain a Canadian resident (CRA). Whether your ties are enough is the residency guide's question.

The main case that flips it while your family stays: the country you work in also treats you as its resident under its own law, and the tax treaty between it and Canada places your residence there. You are then deemed not resident in Canada, even with your family here (Income Tax Act, s. 250(5)). This is uncommon while your family and home stay in Canada: most tie-breakers look first at where you have a permanent home, then at where your personal and economic ties are closer, and a home and family here usually point to Canada (Folio S5-F1-C1, paragraphs 1.46 to 1.50).

The case is not simple when the job is in a treaty country that taxes you as a resident, when foreign tax on your pay is lower or higher than Canadian tax, so the credit does not simply cancel it out, or when years have passed without returns. Gather your employment contract, the dates you left and visited, the other country's residence rules or certificate, foreign pay slips and foreign tax assessments.

What do you file while working abroad as a factual resident?

You file a normal Canadian resident return. The CRA says a factual resident's income "is taxed as if you never left Canada": you report income from inside and outside Canada and pay federal tax plus tax for the province or territory where you keep residential ties (CRA). Use that province's income tax package; if your ties are in Quebec, you may also have to file a separate Quebec return (CRA). Which province applies is in province of residence for tax.

• World income: your foreign salary, foreign interest and any Canadian income all go on the return, converted to Canadian dollars.
• Foreign tax credit: tax the other country took from your pay may reduce your federal and provincial tax on that income. Claim the federal credit on Form T2209 and, outside Quebec, the provincial or territorial credit on Form T2036; Quebec residents claim it on their Quebec return. The credit is generally limited to the lower of the foreign tax paid and the Canadian tax on that income, so if the other country taxes your pay lightly or not at all, you pay Canada the difference. You generally cannot claim a credit for foreign tax on income earned in Canada (CRA). The calculation is in foreign income on a Canadian return.
• Deadline: generally April 30 of the following year, or June 15 if you or your spouse carried on a business in Canada; any balance owing is still due April 30.
• Tax not withheld: a foreign employer deducts no Canadian tax, so what is left after the credit is a balance owing. If your net tax owing is more than $3,000 ($1,800 in Quebec) this year and in either of the two previous years, the CRA may ask for instalments on March 15, June 15, September 15 and December 15 (CRA).

Fixed-term postings and Canada Pension Plan coverage abroad are covered in working abroad for a few years.

What does your spouse file, and what happens to the Canada child benefit?

Your spouse files their own Canadian return every year, and the Canada child benefit (CCB) continues while you stay resident. The CRA says you may keep receiving the CCB and related provincial or territorial benefits while abroad, but "you will have to file a return each year," and your spouse must also file each year (CRA).

• Who receives it: the parent primarily responsible for the child's care and upbringing, who must be a resident of Canada for tax purposes. The CRA usually considers the female parent who lives with the child to be primarily responsible (T4114; CRA).
• Whose income counts: the benefit is based on adjusted family net income, which adds both spouses' net income (CRA). Your foreign salary is in your net income, so it lowers the family's benefit just as Canadian pay would.
• If the parent leaving is the one receiving it: the recipient must live with the child. When the children stay with the other parent, that parent may need to apply instead on Form RC66, and the CRA must be told of custody changes (CRA).

The CRA needs a return from each spouse every year, even one with little income; a missing return can stop the benefit.

Salary paid abroad into a foreign account: does it still go on your Canadian return?

Yes. As a resident you report income from all sources, wherever it is paid or kept; a foreign employer, foreign currency and a foreign bank account do not change that (CRA). Foreign tax withheld is claimed through the foreign tax credit, not by leaving the pay off.

Money building up abroad can also trigger Form T1135. Funds deposited or held outside Canada are specified foreign property, and a resident must file the form when the total cost of such property is more than $100,000 at any time in the year (Income Tax Act, s. 233.3). Interest earned on that account is income too.

If a treaty makes you a deemed non-resident: what changes?

From the day the treaty places you in the other country, you are treated as a non-resident of Canada for all purposes (Folio S5-F1-C1, paragraphs 1.37 to 1.38; s. 250(5)). Three things follow.

1. Departure tax. When you stop being resident, you are treated as having sold most of your property at fair market value that day, and you may report a capital gain. Canadian real estate, RRSPs, TFSAs and pension rights are generally excluded, as is property you owned when you last became resident if you were resident for no more than 60 months in the preceding 120 months (s. 128.1(4); CRA). Form T1161 lists your property if its total value was more than $25,000. You report the gain on Form T1243 and can elect on Form T1244, by April 30 of the year after departure, to defer paying the tax until you sell; above a threshold the CRA asks for security (CRA). See the departure tax example.
2. Your return. Your final resident return covers world income up to that date; after it, Canada generally taxes only your Canadian-source income.
3. The child benefit. Your spouse in Canada is still resident and can keep receiving the CCB, but must complete Form CTB9 for each year you are non-resident for any part of the year. For that period, family net income includes your income "from all sources, both inside and outside Canada" (T4114; Form CTB9).

What your spouse enters about you on their own return is in non-resident spouse on a Canadian return. Whether the tie-breaker points away from Canada depends on the treaty's wording and your facts; for the US treaty see treaty tie-breaker for dual residents. To ask the CRA for its opinion on your status, see asking the CRA to decide your residency.

Sending money home to your family: does it change anyone's tax?

Money you send home from your own pay is generally not income to your spouse or children; the tax point is what it earns later. If you give or lend money to your spouse, or to a child under 18, while you are resident in Canada, investment income on it is generally taxed to you, not to them (Income Tax Act, s. 74.1). The rules and exceptions are in transferring property to family.

When the family joins you later: how does that move your departure date?

If you, your spouse and your children all end up living abroad, you usually become a non-resident on the latest of three dates: the day you leave, the day your spouse and dependants leave, and the day you become resident in the new country (CRA). So the months between your move and the family's move are usually resident months, with world income reported.

If you are returning to a country you lived in before, the date can be the day you leave instead; see the date you become a non-resident. Departure tax, joint property and benefits in that gap are in spouses leaving Canada on different dates, and when the CCB stops is in benefits after leaving Canada.

Which records keep both spouses' returns consistent?

Both returns and the child benefit rest on the same facts, so keep one set of records for the household:

Example

All figures are illustrative and in Canadian dollars.

Two-year job abroad, family in Winnipeg

He earns C$140,000 on a two-year job abroad; his spouse and two children stay in their Winnipeg home. Each year he files a Manitoba resident return with the C$140,000 and claims foreign tax credits on Forms T2209 and T2036 for the tax the other country withheld. His spouse files her own return, and the CCB continues, calculated on both spouses' combined net income.

The treaty points to the other country

The same worker later becomes resident in a treaty country under its law, sets up a permanent home there, and on that treaty's wording and his facts the tie-breaker places him there, which is uncommon while his family stays in Winnipeg. From that date he may be a deemed non-resident of Canada. His non-registered investment account, worth C$60,000 with a C$40,000 cost, is treated as sold that day: a C$20,000 capital gain on his final resident return. His spouse keeps receiving the CCB and completes Form CTB9 each year to report his worldwide income.

Family joins her in August

She starts work abroad in March; her spouse and children join her on August 1, after school ends. Her departure date is generally August 1, not March. On her return for that year she reports world income to July 31 as a resident, including the C$50,000 earned abroad from March to July, and only Canadian-source income after. On August 1 the deemed sale of her property also applies, as in the departure tax example.

Different for you?

• You are not sure your ties keep you resident: start with Canadian tax residency.
• Your job is in a treaty country that also treats you as resident: the tie-breaker can make you a deemed non-resident and trigger departure tax. Have individual tax help review the treaty position before you file.
• The other country takes little or no tax from your pay: Canada collects the difference at filing, and no one withheld it. Get individual tax help to plan the payment and instalments.
• Foreign tax on your pay is higher than Canadian tax on it: see foreign income on a Canadian return and get individual tax help with the credit.
• One of you skipped returns while abroad: the CCB depends on both returns every year; see individual tax help to catch up.
• Your family is following you months later: see spouses leaving Canada on different dates.
• Your posting is fixed-term and you want CPP coverage: see working abroad for a few years.
• The benefit kept arriving after you all left: see benefits after leaving Canada.