Taxes are a tricky thing, especially as you scramble to get them in by tonight. Some of us, however, especially those who live and earn an income outside of the country, won’t be filing at all. But it’s very likely that they should be. Here’s what you need to know about working abroad and filing your taxes.
Factual residents and non-residents
According to the Canada Revenue Agency, residency plays a huge role in how you are taxed. While you may travel far and wide, remaining abroad for sometimes-lengthy periods of time, in most cases you’re still required to file your taxes at home. In fact, working in that bar in Bangkok won’t get you out of paying your taxes – and sometimes you might just have to pay them to both countries. If the CRA expects to see you return, you’re what’s considered a “factual resident.”
Factual residents are those who work abroad, but still have ties to Canada, including a home, a spouse and/or dependents, personal property (like a car), a driver’s license, health insurance and a bank account. If you want to avoid paying Canadian taxes, you have to sever all of these ties completely. That means not having a home in the country and taking your spouse and/or children with you. It also means opening a bank account outside of the country.
Think you’re a non-resident? In order to be considered a non-resident you need to spend less than 183 days of the tax year in the country. Only then can you entirely avoid filing and paying for taxes. It’s not easy to be considered a non-resident in the eyes of the CRA, and few meet the stringent requirements, so don’t make the assumption that you are just because you’re not here.
Who gets to tax me?
For many living abroad, avoiding taxes is nearly impossible. In fact, most who work abroad end up paying taxes in two countries. Here’s how it works:
The country in which you earned your income gets to tax you first. If their tax rate is lower than ours, then your have to pay the difference – or the remainder – to the CRA. For example, if you’re taxed $5,000 in Thailand, and owe $7,000 at home, you pay the $5,000 there and the difference – $2,000 – here. If taxes are higher in the foreign country, you’re not taxed here at all. But you do still have to file your taxes. The government still expects to have the paperwork in hand at the end of April.
Still not sure? Visit the CRA’s website for more information on emigrants and income tax.