Non-resident tax rates in Canada: 25%, treaty rates and surtax

Which non-resident tax rate applies to which Canadian income?

Canada sorts a non-resident's income by type. Passive payments such as dividends, rent, pensions and royalties face Part XIII withholding of 25% of the gross amount, unless a treaty or the Income Tax Act lowers it (CRA: Part XIII rates; Income Tax Act s. 212). Work done and business carried on in Canada goes on a Canadian return: federal plus provincial rates where the income is earned in a province, or federal rates plus a surtax where it is not.

The same person can face several rows in one year. What makes a case not simple: mixed income types, a property sale, a pension or rental election that changes the tax, or a treaty claim the payer did not apply.

Gather for each payment: the payer, the type of income, the gross amount, the tax withheld (from each NR4, T4 or T4A-NR slip), your country of residence, and any form you gave the payer to claim a treaty rate.

What is the 25% non-resident withholding tax, and when is it final?

Part XIII tax is the flat non-resident tax: the payer withholds 25% from the gross amount and sends it to the CRA. The CRA says the tax deducted "is your final tax obligation to Canada on this income" if the correct amount is deducted (CRA: Non-residents of Canada).

The full rate applies to residents of countries with no tax treaty with Canada, and to countries whose treaty is not yet in effect (CRA: Part XIII rates). Dividends (25%) and gross rent (25%) start at this rate before any treaty cut. An individual who pays you rent directly for a home they live in does not withhold; with no Canadian agent, you remit the tax yourself. If any other payer fails to withhold, the payer owes the tax and can recover it from you (Income Tax Act s. 215).

For dividends from a corporation you own, see non-resident owners of a Canadian corporation. To read the slip that reports this tax, see the NR4 slip.

How do I find my country's treaty rate?

Check four things in order: whether your country has a tax treaty with Canada in force, what the treaty article says for that income type, whether the payment is periodic or a lump sum, and whether the payer has your treaty claim on file.

1. Treaty in force. The Department of Finance keeps the list of tax treaties in force. The CRA warns that treaties are renegotiated and rates should be verified regularly (CRA: Part XIII rates).
2. The article for the income. IC76-12R8 explains how treaty rates apply. It states the law as of January 1, 2022, so confirm later changes on the Finance list.
3. Periodic or lump sum. Many treaties give regular pension payments a lower rate than lump sums. IC76-12R8 excludes from periodic pension payments a lump sum or a payment that is really an instalment of one, so an RRSP withdrawal or one-time payout may get a different rate from a monthly pension.
4. The payer applies it. You give the payer a declaration of eligibility for treaty benefits, such as Form NR301. If you do not certify your eligibility when the payer asks, the payer should assume treaty benefits do not apply and withhold the full statutory rate (IC76-12R8).

Each country's rates are on its own page, for example the US, China, Hong Kong, Taiwan and the UK. To lower withholding on a pension before it is paid, see Form NR5.

Which payments are exempt or taxed at a lower rate?

Three common payments can be taxed below 25%: interest from an arm's-length payer (exempt), CPP and OAS (a lower rate set by country, which Service Canada applies itself), and Canadian property mutual fund distributions (15%).

• Interest from an arm's-length payer. Interest paid by a payer dealing at arm's length with you is exempt from Canadian withholding tax (CRA T4058). Exceptions: participating debt interest, and interest from a payer not dealing at arm's length with you unless it is fully exempt (such as interest on government debt); these face 25% or a treaty rate (IC76-12R8).
• CPP and OAS. Service Canada withholds 25% unless a treaty between Canada and your country of residence reduces or removes it, and publishes a country table (Service Canada: taxes for people outside Canada). OAS recipients abroad may also have to file an Old Age Security Return of Income, due before April 30 each year, which decides whether the OAS recovery tax applies; see the section 217 return.
• Canadian property mutual fund distributions. This is narrow: a fund listed on a designated stock exchange whose value comes more than half from Canadian real property or resource property. Its assessable distributions to a non-resident face 15% tax, generally final; distributions from other Canadian funds are ordinary Part XIII payments. If you later sell the fund at a loss, a return filed by your filing-due date can recover some of this tax (Income Tax Act s. 218.3; CRA T4058).

What rate applies to employment or business income earned in Canada?

Employment income earned in Canada, and business income from a permanent establishment in Canada, is taxed on a Canadian return at the federal graduated rates plus the rates of the province or territory where it was earned. The CRA tells non-residents to pay tax to the province where they earned the income and to complete that province's Form 428 (CRA T4058); Quebec tax goes on a separate Revenu Québec return instead. Federal rates run up to 33%. Personal credits such as the basic personal amount are allowed in full only if your Canadian income is at least 90% of your world net income; below that, only a short list of credits is allowed (T4058).

A permanent establishment is a fixed place of business, such as an office, branch, workshop or warehouse; an employee or agent who can sign contracts for you can also create one (Income Tax Regulations s. 2600).

A treaty can exempt some or all of this income, for example employment income under some treaties' conditions. The exempt amount is claimed on line 25600 of the return (T4058). Which return and form fit your income is covered in non-resident Canadian returns.

What is the surtax for non-residents of Canada, and when does it apply?

The surtax for non-residents is an extra federal tax of 48% of basic federal tax on income not earned in a province. It replaces provincial tax on that income; it is not added on top of provincial tax and does not apply to all income (Income Tax Act s. 120(1)).

The CRA lists the income it covers for non-residents: taxable Canadian scholarships, fellowships, bursaries and research grants; capital gains from disposing of taxable Canadian property; and business income with no permanent establishment in Canada (CRA T4058). A return with both provincial income and this other income uses Form T2203 to split the tax between the province and the surtax.

The surtax is figured in proportion: only the share of income not earned in a province draws it. On a property sale the buyer usually holds back part of the price until the CRA issues a clearance certificate; see non-residents selling Canadian property.

Is the 15% withheld on fees for services in Canada a final tax?

No. A Canadian payer withholds 15% of the gross fee for services performed in Canada under Regulation 105, but that amount is a prepayment. You report the income on a Canadian return and claim the tax withheld as a credit; the return refunds the excess or collects the shortfall (CRA T4058). The rule does not apply to salary or wages.

A treaty may exempt the profit, but the withholding still applies unless the payer has a waiver. See withholding on services in Canada.

Can electing to file a Canadian return lower my rate?

It can, for rent and some pensions. Instead of the flat tax on gross amounts, you may elect to file a return:

• Section 216 (rent and timber royalties): you pay tax on net rental income instead of the gross amount (CRA T4058). File within two years after the year ends, or six months if you filed Form NR6 (Income Tax Act s. 216). See non-resident landlords.
• Section 217 (pensions, RRSP, RRIF, CPP, OAS and similar): an alternative method may refund all or part of the tax withheld (T4058). File by June 30 of the next year (Income Tax Act s. 217). See the section 217 return.

Either election can also raise the tax or bring other Canadian income into the calculation, so compare both results before filing.

Does Quebec take its own share?

Yes. Employment or business income earned in Quebec is taxed by Quebec on its own return: a non-resident who has to pay Quebec tax files a Revenu Québec return (T4058). A Quebec payer also withholds an extra 9% on fees to non-residents for services in Quebec, on top of the federal withholding. See withholding on services in Canada.

Example

These examples are illustrative and use Canadian dollars.

Dividends to a non-treaty country

A resident of a country with no tax treaty with Canada receives C$10,000 of Canadian dividends. The payer withholds 25%, C$2,500. If the correct amount is withheld, that tax is final and no Canadian return is needed for the dividends.

Consulting work in Ontario

A non-resident consultant earns C$50,000 for work done while in Ontario. The client withholds 15%, C$7,500, as a prepayment. Her Canadian return taxes the profit at federal and Ontario rates if she has a permanent establishment in Ontario, or at federal rates plus the 48% surtax if she does not; if the tax works out lower than C$7,500 she gets the difference back, and if higher she pays it. Whether she can claim personal credits depends on how much of her world income is Canadian. A treaty may exempt the profit if its conditions are met.

A scholarship

A non-resident student receives a taxable Canadian scholarship; the taxable part, after any exemption, is C$20,000. It is taxed at federal rates, plus a surtax of 48% of that federal tax, in place of any provincial tax.

Different for you?

• Too much was withheld, for example the payer did not apply your treaty rate: Part XIII tax is not refunded through a return; the refund is claimed on Form NR7-R. See tax refunds for non-residents and get individual tax help.
• The dividends come from a Canadian corporation you own: see non-resident owners of a Canadian corporation and get corporate tax help.
• Several income types in one year, or you are unsure which need a return: see non-resident Canadian returns and get individual tax help.
• You are selling Canadian real estate or shares that are taxable Canadian property: see non-residents selling Canadian property and get individual tax help.
• You draw a pension, RRSP or RRIF and want to test a section 217 return: see the section 217 return and get individual tax help.
• You rent out Canadian property: see non-resident landlords and get individual tax help.
• You have not left yet: start with leaving Canada.