How to determine in which country you are a RESIDENT and most importantly, where should you PAY TAXES?
The most important thing to remember that your immigration status is not relevant. What determines to which country you owe taxes, is your RESIDENCY for TAX purposes.
Canada, considers a person to be a resident if he maintains, RESIDENTIAL TIES with Canada.
The most important ties are called significant ties and they include:
1. A home in Canada
2. A spouse or common law partner in Canada
3. Dependents in Canada
Secondary ties include:
1.Other property in Canada such as car or furniture
2. Economic ties, such as bank accounts or credit cards
3. Social ties, such as memberships in religious or recreational organizations
4. Documents issued by the Canadian government – a passport or a driver’s license
5.Health insurance with a Canadian province or territory
All relevant factors are considered in each case. Also, length of time and tax payer’s intent play a role.
And now, to the MEAT OF THE TOPIC – Canadian tax residents, owe tax to Canada on their WORLD WIDE INCOME. Or in other words on all their sources of income around the globe – employment, business, investment, real estate etc. However, tax credit is available for tax already paid to another country and will reduce the tax owed.
A non-resident of Canada only owes tax to Canada on Canadian source income.
Also keep in mind that Canada has TREATIES with most countries which prevents a person being considered a tax resident in two countries at the same time. And luckily PREVENTS DOUBLE TAXATION.