The tax implications of working abroad for residents and non-residents of Canada

Tax implications of working in another country

Congratulations, Eddy. That sounds exciting but obviously challenging to leave your family behind in Canada while you are working half a world away.

Canada levies federal and provincial income tax based on residency, not citizenship. So, while residing in Canada, both citizens and non-citizens alike have to report and pay tax on their worldwide income. When income is subject to tax in another country as well, Canada generally allows a foreign tax credit to be claimed to avoid double taxation.

The United Arab Emirates (UAE) does not charge income tax, nor is there any withholding tax. It is a common expat destination where incomes and the cost of living can be high, and its tax-free status is appealing. That said, when a Canadian works in the UAE and does not break ties with Canada, they will typically continue to file Canadian tax returns and pay Canadian tax.

Who is considered a “resident” for tax purposes?

In your case, Eddy, your wife and minor children will still be Canadian residents and live in your home. A spouse, dependants and a permanent home available in Canada would be considered significant residential ties.

When you are temporarily living or working outside of Canada, but still have residential ties like yours, Eddy, you may remain a factual resident of Canada. In order to be considered an emigrant non-resident of Canada and no longer subject to Canadian income tax on worldwide income, you must generally sever residential ties.

What if you have residential ties in another country?

In some situations, you can establish residential ties in another country while you still have significant residential ties in Canada. You and your spouse could, for example, move to another country to work, while a child stays behind and lives in your home while going to university.

In this situation, you may be considered a resident of the other country as well as Canada. You need to look to the tax treaty between the two, if applicable, to determine which country is your primary tax residence. In some countries, a tax treaty might allow you to be considered a deemed non-resident of Canada and avoid Canadian taxation.

If you do not become a non-resident of Canada, Eddy, your tax obligations in Canada will not change. Based on your situation, it sounds like you may remain a factual resident of Canada, such that you are still a resident for tax purposes.


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