By Sepp Nasri
With the growing trend of working remotely or taking opportunities overseas, such as teaching English abroad through OISE TEFL, Canadians working and teaching abroad must navigate the complex world of international tax obligations.
Though not a simple concept, understanding these responsibilities are vital in order to comply with regulations and optimize financial outcomes. Here are some important things to know to successfully file your taxes, for Canadians working abroad.
What is Canadian Tax Residency?
According to the Canada Revenue Agency (CRA), Canadian tax residency refers to the province or territory where you lived or of which you were considered to be a factual resident for the previous tax year.
It means you are (or were) a factual resident of Canada for income tax purposes - if you keep significant residential ties in Canada while living or travelling outside the country.
The tax obligations for Canadians working abroad depend largely on one's status as a tax resident. Canada taxes individuals based on residency status.
It considers factors like the permanence and purpose of staying abroad. If you still qualify as a Canadian tax resident, you are required to report worldwide income to the CRA.
What Are the Tax Implications For Canadians Permanently Living and Working Abroad?
If you're no longer living in Canada, you may be considered a 'former' Canadian (or, non-resident), which means you may no longer be considered a tax resident.
Or put another way, you may no longer be required to file taxes in Canada.
A Canadian might not be required to file taxes in Canada if they:
- Permanently move to another country and sever residential ties with Canada.
- Establish significant residential ties in another country, such as purchasing a home or moving family members.
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Stay abroad continuously for a period typically over 183 days, showing intent to live outside Canada indefinitely.
If you tick one or more of the boxes above, you’re a non-resident and hence are only taxed on your Canadian-sourced income, such as earnings from businesses located in Canada or rental income from Canadian properties.
Foreign Income and Canadian Taxes
As a tax resident of Canada, you are obligated to report all global income, which includes not just wages earned but also capital gains, and all other income from abroad.
For instance, if you earn CAD 75,000 working in Germany and another CAD 15,000 from investments in the USA, both amounts must be reported on your Canadian tax return.
However, the Canada Revenue Agency (CRA) sometimes provides relief through exclusions and credits. You should consult your accountant to get a detailed and precise list of the exclusions and credits you may qualify for.
How to Avoid Double Taxation
Canada has tax treaties with many countries to avoid double taxation, ensuring that you don't pay tax on the same income in two countries. These treaties can significantly reduce your tax burden and simplify reporting requirements.
To counter double taxation further, Canadian citizens can claim a foreign tax credit.
This credit applies to the amount of tax paid in another country, reducing your Canadian tax liability accordingly. Some key deductions include moving expenses and housing costs, which are available to reduce taxable income.
Tips for Compliance and Planning
Benjamin Franklin once famously said: “in this world, nothing is certain except death and taxes.”
Hence, Effective tax planning is essential.
It’s advisable to:
- Keep detailed records of your global income and related taxes paid.
- Stay updated on changes in Canadian and international tax laws.
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Consult with a tax professional specializing in expatriate tax issues to tailor a plan that fits your specific situation.
You've Got This. Navigating Canadian Taxes Successfully
Working abroad is becoming increasingly popular each year, offering exciting opportunities for personal and professional growth.
For Canadian citizens embarking on international careers, such as teaching English abroad through programs like OISE TEFL, it’s crucial to understand and manage your tax responsibilities.
By planning ahead and seeking expert advice, Canadian citizens can navigate these issues successfully, ensuring compliance and optimizing their financial health while enjoying the benefits of an international career.