Non-resident tax

Part XIII tax is withheld at source

Canadian payers, including financial institutions, must deduct Part XIII tax when they pay or credit certain income to a non-resident. Common examples are dividends, rental and royalty payments, pensions, Old Age Security, Canada Pension Plan benefits, retiring allowances, RRSP and RRIF payments, annuities and management fees. Interest paid by an unrelated payer is generally exempt.

If the right amount is deducted, that withholding is generally your final Canadian tax on the income, and it is not refunded by filing a return. The usual rate is 25%, unless a tax treaty with your country of residence reduces it. To get the correct rate, tell each payer that you are a non-resident and name your country of residence.

Part I tax is settled on a return

Other Canadian income is taxed under Part I, and you may have to file a return even if tax was withheld. It covers employment in Canada, a business carried on in Canada, taxable scholarships and research grants, and taxable capital gains on certain Canadian property such as real estate, business property and unlisted shares of Canadian corporations. Selling that kind of property carries extra procedures that apply before and after the sale.

Returns are generally due April 30 of the following year, or June 15 if you or your spouse or common-law partner ran a business in Canada. Any balance owing is still due April 30.

Electing to file instead

Two elections can change the result. Under section 216 you can report Canadian rental income on a separate return rather than accept withholding on the gross rent. Under section 217 you can include certain Canadian pension income on a return. Either route can produce a refund of some or all of the Part XIII tax withheld.

An illustrative example

Suppose a former Ontario resident now lives abroad, owns an Ontario condo they rent out, and holds Canadian shares. A $1,000 dividend would generally have $250 withheld at the usual 25% rate, and a treaty might lower that. The rent is subject to withholding too, but a section 216 return could let them report net rental income instead. The figures are illustrative only.

What to discuss with your accountant

Bring a list of every Canadian income source, the payers’ slips, your date of departure and proof of foreign residence. Ask which items are final withholding, which need a return, whether an election helps, and how the treaty applies. Non-residents are also generally not eligible for the Canada child benefit, so ask what your change of status means for any benefits you receive.