Non-Residents of Canada — Montreal CPA Firm Near You: Tax Rules, Part XIII vs Part I, Filing Options, Elections (216/217), and Benefit Eligibility

Once you leave Canada and sever your residential ties, or if you normally live in another country and only have limited Canadian connections, you may become a non-resident for income tax purposes. Non-residents are not taxed on worldwide income; instead, they are taxed only on certain Canadian-source income under specific rules. Those rules are strict, and the penalties for getting them wrong can be significant.

This guide explains when you are considered a non-resident, what Canadian tax you pay, how Part XIII and Part I tax work, when you must file a Canadian return, when you can elect to file to recover some tax, which tax package to use, filing deadlines, temporary fax rules, and how all this affects eligibility for benefits such as the Canada child benefit.

1. Residency Status: Who Is a Non-Resident?

You are generally a non-resident of Canada for income tax purposes if:

• You normally, customarily, or routinely live in another country and are not considered a resident of Canada; and

• You do not have significant residential ties to Canada; and at least one of the following applies:

  • You live outside Canada throughout the tax year; or

  • You stayed in Canada for less than 183 days in the tax year

Significant residential ties include:

• A home in Canada

• A spouse or common-law partner in Canada

• Dependants in Canada

If you have none of these and only minor ties (such as a bank account or credit card), you are typically a non-resident, provided you do not spend 183 days or more in Canada without being tax-resident elsewhere.

Special note:

• If you sojourn in Canada for 183 days or more in the year, have no significant residential ties, and are not considered resident of another country under a tax treaty, you may be a deemed resident of Canada and different rules apply.

• Government employees, Canadian Forces members, and certain Global Affairs Canada program participants may be treated as factual or deemed residents even when outside Canada; they must follow the specialized rules for government employees outside Canada.

Determining residency is a legal and factual exercise; if uncertain, you should seek a ruling or professional advice.

2. Your Tax Obligations as a Non-Resident

As a non-resident, you are taxed only on certain types of Canadian-source income. The type of income determines how tax is collected and whether you must file a Canadian return.

There are two main regimes:

• Part XIII tax

• Part I tax

Some income may be subject to both regimes at different stages or under different elections.

Part XIII Tax: Withholding Tax on Passive Income

Part XIII tax is a withholding tax applied to certain types of Canadian-source income paid to non-residents. The payer (bank, pension plan, RRSP/RRIF issuer, etc.) must withhold tax at the time of payment or credit and remit it to the CRA.

Common types of income subject to Part XIII tax include:

• Dividends from Canadian corporations

• Rental payments and royalties

• Pension payments (including many private pensions)

• Old Age Security (OAS)

• Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) benefits

• Retiring allowances

• RRSP and RRIF payments

• Annuity payments

• Management fees

By default, the Part XIII tax rate is 25 percent. However, tax treaties between Canada and your country of residence may reduce this rate; for example, many treaties reduce withholding on pensions or dividends.

Key points:

• You must tell Canadian payers that you are a non-resident and provide your country of residence so they can withhold the correct treaty rate.

• When the correct Part XIII tax is withheld, it is generally your final tax obligation to Canada on that income.

• Part XIII tax is not recovered by filing a standard Canadian income tax return, except if you elect under special provisions such as section 216 or 217.

Interest paid from Canada to arm’s-length non-residents is often exempt from Canadian withholding tax, but exceptions exist. If you are unsure, you should confirm whether any withholding applies.

Old Age Security recipients may have additional filing obligations (OAS Return of Income) if they receive OAS pension while non-resident.

Part I Tax: Employment, Business, Capital Gains, and Other Income

Part I tax applies to income that is more active in nature. Non-residents may pay Part I tax on:

• Income from employment in Canada

• Business income from carrying on a business in Canada

• Certain employment income outside Canada if you were resident when the duties were performed or under treaty exemptions

• Taxable portion of Canadian scholarships, fellowships, bursaries, and research grants

• Taxable capital gains from disposing of certain Canadian property

• Income from providing services in Canada other than regular, continuous employment

Depending on the situation:

• The payer may withhold Part I tax at source (e.g., on employment income)

• You may be required to pay instalments for business income

• You may have to file a Canadian return to calculate your final tax liability on these items

Disposing of taxable Canadian property (real estate, certain shares, business property) carries specific non-resident procedures, including possible clearance certificates and withholding at the time of sale. These must be handled carefully to avoid penalties and double taxation.

3. Electing to File to Recover Part XIII Tax (Sections 216 and 217)

Although Part XIII tax is usually final, non-residents may elect to file in specific situations to calculate tax under regular graduated rates and potentially receive a refund.

You can elect to file a Canadian tax return if you receive:

• Canadian rental income from real or immovable property or timber royalties (section 216); or

• Certain Canadian pension-type income (section 217).

Section 216 Election (Rental Income and Timber Royalties)

If you have Canadian rental income or timber royalties:

• The default is 25 percent withholding on gross rents.

• Under section 216, you can elect to file a special return reporting rental income and deductible expenses.

• You then pay tax only on net rental income at graduated rates, often resulting in a refund of part of the withholding.

Important:

• A section 216 return is separate from any other return you may file.

• You file one return solely for rental income or timber royalties and another for other taxable Canadian income, if applicable.

Section 217 Election (Certain Pensions and Similar Income)

If you receive certain Canadian pensions, annuities, RRIF payments, or OAS/CPP/QPP, you may elect under section 217 to:

• File a return including that income

• Claim applicable deductions and credits

• Have tax calculated as though you were a resident of Canada (for that income only), potentially reducing tax below the flat withholding rate.

Section 217 can be very beneficial for non-resident retirees with modest income.

4. Filing Your Canadian Income Tax Return as a Non-Resident

You must file a Canadian income tax return if you:

• Have to pay additional tax beyond what was withheld; or

• Want to claim a refund (for example, because too much Part I tax was withheld, or because of a section 216/217 election).

Do not include income on which Part XIII tax was properly withheld, unless you are electing to file under sections 216 or 217.

Special filing updates:

• Non-residents and deemed residents can now use EFILE for 2024 and subsequent years (with some exclusions).

• Emigrants can use NETFILE for 2024 departure-year returns.

• Due to international mail delays, the CRA is temporarily accepting non-resident and deemed resident returns by fax; you must fax them to the tax centre specified for your country of residence.

You may, in some circumstances, file more than one return in a tax year—for example:

• One section 216 return for rental income; and

• One regular return for other taxable Canadian income.

Which Tax Package Should You Use?

The type of Canadian-source income determines the tax package:

1. Only Canadian employment or business income:

   • Use the provincial/territorial income tax package for the province or territory where the income is earned, along with Guide T4058 (Non-Residents and Income Tax).

   • If you have business income with a permanent establishment in Canada, province-level tax allocation rules apply.

2. Employment/business plus other types of income (capital gains, scholarships, etc.):

   • Use the same provincial/territorial package plus Form T2203 (Provincial and Territorial Taxes for Multiple Jurisdictions).

3. Only other types of taxable Canadian-source income (no employment/business) such as:

   • Capital gains on taxable Canadian property

   • Taxable scholarships, fellowships, bursaries, research grants

   • Certain business income with no permanent establishment in Canada

   • Use the Income Tax Package for Non-Residents and Deemed Residents of Canada.

Section 216 rental returns have their own forms and should not be combined with other income on the same return.

5. Filing Deadlines and Payment Dates

As a non-resident, your filing deadlines generally mirror those of residents:

• April 30 of the year after the tax year; or

• June 15 if you or your spouse/common-law partner carried on a business in Canada (other than a tax shelter business).

Regardless of filing deadline:

• Any tax balance owing must be paid by April 30 of the following year to avoid interest.

Section 216 and 217 elections have specific due dates; late elections may still be accepted under certain conditions but should be avoided.

6. Entitlement to Benefits as a Non-Resident

Generally, as a non-resident of Canada:

• You are not eligible for the Canada child benefit (CCB)

• You are not eligible for the GST/HST credit or most related provincial credits

Exception:

• You may be eligible for CCB if you are the spouse or common-law partner of a deemed resident and you otherwise meet the CCB eligibility criteria.

If you continue to receive benefits or credits after becoming a non-resident, you should contact the CRA immediately; these are usually repayable.

7. Practical Considerations and Risk Areas

Key risk areas for non-residents include:

• Failing to notify financial institutions and payers of non-resident status (wrong withholding rate)

• Failing to seek treaty relief when available

• Not filing when required (e.g., Canadian employment or business income)

• Misclassifying rental activity vs business activity

• Not complying with clearance certificate requirements when disposing of taxable Canadian property

• Ignoring Part XIII withholding on pensions, RRIF, and other payments

• Continuing to receive benefits such as CCB or GST/HST credit after emigration

Proper documentation, including residency evidence and treaty residency certificates where appropriate, is critical.

Why Mackisen

Non-resident taxation is one of the most intricate areas of the Canadian tax system. With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps:

• Former Canadian residents who now live abroad

• Investors with Canadian rental property or Canadian securities

• Non-residents working temporarily in Canada

• Non-resident retirees receiving Canadian pensions

• Non-residents disposing of Canadian real estate or private shares

We assist with:

• Determining residency status correctly

• Applying the right Part XIII or Part I tax rules

• Preparing section 216 and 217 elections to reduce tax

• Filing non-resident and deemed resident returns (including via EFILE/NETFILE where allowed)

• Coordinating Canadian tax with foreign tax rules and treaty provisions

• Avoiding double taxation and penalties

If you are a non-resident with Canadian income—or you are leaving Canada and unsure how your tax obligations will change—Mackisen can review your situation, identify your real obligations, and handle all CRA filings so you remain compliant while minimizing tax.