Working abroad a few years: still a Canadian tax resident?

Working abroad for 2 or 3 years: are you still a Canadian tax resident?

Usually yes. No length of absence ends Canadian residency by itself. The CRA looks at the ties you keep in Canada, and courts have generally treated a temporary absence, "even on an extended basis", as not enough to stop being resident (Folio S5-F1-C1, ¶1.16). If your return was foreseen when you left, for example a contract to resume work in Canada, the CRA gives the ties you kept more weight (¶1.17). A plan to return is not enough on its own if you keep no ties (¶1.16). The CRA lists working temporarily outside Canada as a case where you may be a factual resident if you keep residential ties. The 183-day rule works the other way in Canada: it makes a visitor who stays here 183 days or more in a year a deemed resident (s. 250(1)(a)). Spending 183 days abroad does not by itself make you a non-resident. If you are posted abroad by the federal or a provincial government, the Canadian Forces or a prescribed Canadian aid program, you may be a deemed resident whatever ties you keep; see deemed residents of Canada.

A posting stops being simple when:

• the other country also taxes you as its resident, and Canada has a tax treaty with it (see the treaty section below);
• you hold investments with gains, stock awards or a home you rent out;
• you are paid by a foreign employer (no Canadian tax is withheld), or by both a Canadian and a foreign one.

Gather the assignment letter or contract, any promise of a job back in Canada, the plan for your home, and where your spouse and children will live. The full ties test is in Canadian tax residency.

Which choices before you go change the answer?

Your home, your family and a job to return to carry the most weight. The CRA treats a dwelling, a spouse or common-law partner, and dependants in Canada as ties that are almost always significant (¶1.11 of the folio).

Secondary ties, such as a car, furniture, bank accounts, provincial health coverage and memberships, count together. If your family stays behind, see family stays in Canada while you work abroad.

Canadian working overseas: what do you file, and how is double tax avoided?

As a factual resident you are taxed as if you never left. You file a normal return each year, report your world income, and pay federal tax plus tax for the province where you keep your ties, usually the one you lived in before leaving (CRA). For which province that is, see province of residence for tax. If your ties are in Quebec, you may also have to file a separate Quebec return (CRA).

A foreign tax credit may reduce the federal and provincial tax on salary you already paid foreign tax on; you claim it on Form T2209 for the federal credit and Form T2036 for the provincial or territorial one (Quebec has its own) (CRA). It generally does not reduce tax on income earned in Canada. The credit is limited, so tax paid abroad at a higher rate than Canada's may not all be recovered. The mechanics are in foreign income on a Canadian return.

If your Canadian employer keeps paying you, it keeps withholding Canadian tax while the other country may withhold its own; the overlap comes back on your return, or you can ask the CRA on Form T1213 to reduce the Canadian withholding. If a foreign employer pays you, no Canadian tax is withheld. Any Canadian tax left after the credit is due with your return, and the CRA may ask you to pay instalments; see CRA instalment reminders.

Your foreign salary account counts as foreign property. If the total cost of your foreign property was more than $100,000 at any time in the year, you also file Form T1135; see which holdings count on Form T1135.

If you are eligible for the Canada child benefit, it continues while you are abroad, as long as you and your spouse or partner each file a return every year; a non-resident spouse or partner files Form CTB9 (CRA).

Is there still an overseas employment tax credit?

No, not in practice. The overseas employment tax credit in section 122.3 of the Income Tax Act is still on the books, but its specified percentage is 0% for every year from 2016 on, so it reduces tax by nothing (s. 122.3(1.02)). Relief for foreign pay now comes only through the foreign tax credit.

Do you keep paying CPP while posted abroad?

Usually yes, if you stay a Canadian resident and your Canadian employer pays you: work outside Canada is pensionable when the employee is resident in Canada and paid from the employer's establishment in Canada (CPP Regulations, s. 16(1)(b)). A certificate of coverage adds the other half: it shows you remain under Canadian rules and are exempt from contributing to the host country's social security system, but only for a country that has a social security agreement with Canada (CRA).

• Who applies: the employer, for an employee sent abroad temporarily who is expected to return to the Canadian job. A permanent transfer does not qualify (CRA).
• How long: each agreement sets its own limit. Under the Canada–US agreement it is 60 months.
• Extensions: request one before the certificate expires; going past the agreement limit needs both countries' consent.
• Payroll: the Canadian employer keeps deducting and remitting CPP on all pay for the posting.

Without a certificate, or in a country with no agreement, CPP continues on your Canadian pay and the host country may also charge its own contributions. Ask your employer how payroll will treat the posting before you go.

What if the other country also treats you as its resident?

A tax treaty can then make you a deemed non-resident of Canada, even on a two-year posting. If the treaty's tie-breaker rules make you resident only in the other country, section 250(5) deems you not resident in Canada (Income Tax Act). The CRA says you are then a non-resident for all purposes, and the rules for leaving Canada apply from that date (¶1.37–1.38 of the folio).

That means departure tax: you are treated as selling most property at fair market value. Real estate in Canada, property of a business you carry on through a permanent establishment in Canada, and registered plans and pensions such as RRSPs and TFSAs are excluded; so is property you already owned when you last became a resident, if you were resident in Canada no more than 60 months in the preceding 120 months (s. 128.1(4)(b)). If the property you owned was worth more than $25,000 in total, you must also file Form T1161 by your filing due date for that year, even if you owe nothing; filing late costs $25 a day, from $100 to $2,500 (CRA); the list of properties form explains what counts.

You can elect on Form T1244, by April 30 of the year after departure, to defer paying that tax until you sell, without interest; security is required only when the deferred federal tax is more than $16,500 (s. 220(4.5); CRA). If you come back still owning the same property, you can elect, by the filing due date for your year back, to reduce or undo the gain (s. 128.1(6)). For both, see moving back to Canada after paying departure tax.

Most treaties test first where you have a permanent home, then where your personal and economic ties are closer (¶1.46–1.50). The result turns on that treaty's wording and your facts. Check whether Canada has a treaty with the country on Finance Canada's list. For a US posting, see Canadian employee working in the US and the treaty tie-breaker. Departure tax itself is covered in leaving Canada.

Can you still use your TFSA and RRSP?

Yes, while you remain a resident. A resident keeps getting new TFSA room each year (the annual limit is $7,000). The no-new-room rule and the 1% monthly tax on contributions apply only once you are a non-resident (CRA).

RRSP room keeps building too: employment income earned while you are resident in Canada counts as earned income, wherever the work is done (s. 146(1)). The other country may not recognize either account as tax-sheltered; check its rules before contributing.

What if you cut your ties instead?

Then you become a non-resident, usually on the latest of the day you leave, the day your spouse or partner and dependants leave, or the day you become resident in the new country (CRA). You report world income up to that date, pay departure tax, and after that Canada taxes only your Canadian-source income. The Canada child benefit generally stops, and you can keep a TFSA but not contribute to it.

Cutting ties is a choice with costs at both ends. See leaving Canada and, for the move home, returning to Canada after years abroad. If you want the CRA's opinion before you go, see asking the CRA to decide your residency. If you will keep working for a Canadian employer after becoming a non-resident, see working for a Canadian employer from abroad.

Which records support your position?

Keep the documents that show what you intended and what you kept. The CRA and the other country may each ask.

Example

All figures are in Canadian dollars and illustrative.

Posted to a treaty country for three years

An engineer is posted by her Calgary employer to a country with a tax treaty and social security agreement with Canada, for three years, with her job held for her. She is single and rents her condo to an unrelated tenant. The other country taxes her as a resident. If its treaty's tie-breaker makes her resident there, she becomes a deemed non-resident of Canada. Her C$80,000 non-registered investment account with a C$60,000 cost would then show a C$20,000 deemed gain on her Canadian return for that year. Her condo is Canadian real estate, and her RRSP and TFSA are registered plans, so none of them is part of that deemed sale. From then on, her condo rent is a non-resident's Canadian rental income, with its own withholding and filing rules; see non-resident landlords. If she comes back still owning the account and it is then worth at least C$20,000, she can elect, by the filing due date for her year back, to undo the C$20,000 gain.

A two-year contract in a country with no treaty

A nurse takes a two-year contract in a country that has no tax treaty with Canada. She keeps her furnished Halifax apartment for visits and plans to come back. She likely stays a factual resident.

• Year 1: she reports her C$100,000 salary on her Canadian return with Nova Scotia tax, and claims foreign tax credits on Forms T2209 and T2036 for the foreign income tax she paid. She also gets that year's TFSA room.
• Year 2: the same, plus RRSP room based on her year-1 salary.

Sent to the US office for 36 months

A Canadian employer sends a manager to its US office for 36 months. The employer obtains a certificate of coverage, so he keeps paying CPP, up to the yearly maximum, on his C$120,000 salary and is not charged US social security. His income tax residency and US filing are a separate question.

Different for you?

• The other country taxes you as a resident and has a treaty with Canada: that treaty's tie-breaker may make you a deemed non-resident with departure tax; check the treaty on Finance Canada's list and get individual tax help.
• You hold stock awards or investments with large gains: a treaty switch to non-residence can trigger departure tax; see departure tax on stock options and RSUs and your investment account when leaving Canada, and get individual tax help.
• You rent out your Canadian home while away: you report the rent, and turning your home into a rental is treated as a sale at market value unless you elect otherwise; an employer posting can extend how long it stays your principal residence. See turning a home into a rental and get individual tax help.
• Your spouse or children stay in Canada: see family stays in Canada while you work abroad.
• Your foreign accounts passed $100,000 and you never filed Form T1135: see which holdings count on Form T1135 and get individual tax help.
• You own a Canadian corporation and will run it from abroad: where it is managed can affect its residence; see corporation residency after the owner moves abroad and get corporate tax help.
• You are posted to the US: see Canadian employee working in the US and the treaty tie-breaker, and get cross-border tax help.
• You are coming home after the posting: see returning to Canada after years abroad.