Does this fact pattern sound familiar?
Gordie is a Canadian who leaves Canada and takes up residence in the United States. Like many Canadians, Gordie decides to leave his investments behind in Canada and changes the address with his financial institutions to his parents’ Canadian address. Gordie’s investments make money and the income is reported to CRA.
Should Gordie have used his parents address on his investment accounts now that he is a non-resident of Canada?
No. Gordie should change the address on his accounts to his US address.
As a non-resident, Gordie needs to make sure the correct amount of Canadian tax is deducted from his investment earnings. So it’s important he tells his Canadian financial institutions that:
- he is a non-resident of Canada for tax purposes; and
- his country of residence is the United States.
As a non-resident of Canada, Part XIII tax will be deducted from the following types of Canadian source income:
- rental and royalty payments
- pension payments
- old age security pension
- Canada Pension Plan and Quebec Pension Plan benefits
- retiring allowances
- registered retirement savings plan payments
- registered retirement income fund payments
- annuity payments
- management fees
You’re probably thinking to yourself, I don’t see interest income listed. Generally, the interest earned by a non-resident of Canada is exempt from Canadian withholding tax if the payer is unrelated to you.
If you receive Canadian income from the list above, then the Canadian payor, including financial institutions, must deduct tax from the income paid to you.
The usual tax rate on a non-residents Canadian source income is 25% but this rate may be lowered to 15%, or zero, depending on the type of income.
For example, under the US-Canada tax treaty, Canadian source dividend income received by a US resident is taxed by Canada at 15% instead of 25%.
The non-resident tax deducted from your Canadian source income is your final tax obligation to Canada on this income. Generally, the tax withheld is not refundable and you don’t need to file a Canadian tax return to report the income.
Nevertheless, if you receive Canadian rental income or Canadian retirement income (RRSP or pension income), then you will want to consider electing to file a Canadian tax return since the tax liability may be less than what you would pay as a non-resident.
At Gedeon Law & CPA, we are available to assist non-residents of Canada with the cross border tax implications of earning Canadian investment income.