Who must File a Canadian Personal Income Tax Return?

You must file an income tax return for a taxation year if any of the following circumstances apply:

(1) You have tax payable for the year (in excess of amounts already withheld);

(2) You have earnings of $3,500 or more in the year and are thus required to make CPP contributions (even if your income is otherwise below taxable levels);

(3) Either you or your spouse or common-law partner are entitled to receive the Child Tax Benefit; that is, if either of you is entitled to receive Child Tax Benefit, both of you must file returns to continue receiving it (if separated, only the parent receiving benefits need file for this purpose);

(4) You disposed of a capital property in the year (regardless of whether you had gain or loss on the property, and regardless of whether an exemption may be claimed);

(5) You had a taxable capital gain in the year (as you would, for example, if you claimed a capital gain reserve in the preceding year) even if the application of losses, exemptions or a new capital gain reserve results in no tax owing;

(6) You have to repay all or part of your Old Age Security because your overall income exceeded $63,511 (in 2007);

(7) You have to repay all or part of your Employment Insurance benefits (because you received benefits in the current year and your overall income exceeded $50,000);

(8) You have not repaid all amounts you withdrew from your RRSP under the Home Buyers' Plan or the Lifelong Learning Plan;

(9) You ceased to be a Canadian resident during the year and had, at that time capital property; you are deemed to dispose of very nearly all capital property on emigration. A separate rule requires separate disclosure if the value of all your property (capital or otherwise) exceeded $25,000;

(10) You have received a demand from the CRA to file a return.

If you are not required to file a return under the rules above, you are still entitled to file a return; you might want to do this for the following reasons:

(1) If no tax is payable but tax has been withheld or otherwise paid to the government, you must file in order to obtain a refund of tax. In general, a return must be filed within three calendar years of the year for which tax is overpaid, or the refund will be denied, although legislation permits an individual to obtain a refund at the discretion of the Minister of National Revenue where 1985 or later returns have not been filed within the three-year limit;

(2) You want to claim federal and provincial credits to which you may be entitled. For example, you may be eligible for a refundable child tax benefit (paid monthly over the following year), a Goods and Services Tax credit (paid in instalments over the following year) or any of several refundable provincial tax credits. These credits are a form of income supplement for low income taxpayers, especially families with children; they are paid to you in cash if they exceed your tax payable (or if you have no tax payable);

(3) You had a non-capital loss in the year which you want to record so that it can be carried forward or back to reduce income of other years; A non-capital loss, for example, could include a business loss you incurred (during the tax year);

(4) You were a student in the taxation year and have excess tuition/education or textbook amounts to be carried forward;

(5) You had income eligible for RRSP contributions in the year; even if you make no such contributions currently, filing a return will enable the Canada Revenue Agency to maintain a record of your income eligible for RRSP contributions; such income (“RRSP room”) carries forward to enable you to make additional contributions in future ; or

(6) You have investment tax credits either from your own operation of a business, your investment in flow-through shares, or flowed through to you from a trust, partnership, etc. Where the credits are not earned directly by you through a business or partnership and reduce your tax below taxable levels, you do not necessarily need to file, but filing will ensure your eligibility for the credits and allow you to claim carryforwards where they exceed your income.

Failure to report a capital gain on the disposition of qualified farm property or shares of a small business corporation may deny you a later claim for the capital gains exemption on that gain, and failure to file a return claiming capital gains exemption within one year of the due date for a return may also deny you a claim for the exemption.

Residents of Quebec, persons with a business establishment in Quebec, or non-residents of Canada employed in Quebec or disposing of taxable Quebec property are also required to file a separate Quebec return.

Non-Residents Who are Taxable in Canada (and Thus May be Required to File a Canadian Tax Return):

If you are considered a non-resident of Canada (for Canadian tax purposes) you may be subject to federal Canadian taxes if you:

(a) received in the year income from employment in Canada at any time in the year or a preceding year,

(b) for 1998 and later years, received employment income in the year relating to employment outside Canada in a previous year while you were a Canadian resident;

(c) were employed in Canada in a previous year and received employment income in the current year from a source in Canada (this rule only applies if you were exempt from tax in your country of foreign residence by virtue of a treaty between that country and Canada);

(d) exercised a stock option granted either to you or to someone from whom you received it in a non-arm's length transaction and who is now deceased, if the option related primarily to employment in Canada;

(e) received a Canadian-source grant, scholarship, prize for achievement, or RESP payment in the year;

(f) carried on business in Canada at any time in the year;

(g) disposed of taxable Canadian property;

Taxable Canadian Property may include items such as

(1) Real property (e.g., land and buildings) situated in Canada.

(2) Property used or held by a taxpayer in, eligible capital property in respect of, and inventory of, a business carried on in Canada,

(3) Designated insurance property (defined in section 138(12) of the Income Tax Act) of an insurer used in carrying on an insurance business in Canada.

(4) Other items (not listed here)

(h) received income in the form of recaptured capital cost allowance to the extent that it was not included in computing income from a business (this would include, for example, recapture on disposition of a rental property);

(i) received income resulting in a negative balance of cumulative Canadian exploration and development expenses, less any portion that was included in computing income from a business in Canada;

(j) received proceeds of disposal of a right to share in the income or loss of a partnership in excess of the unrecovered cost of such right ordinarily deductible by residents of Canada;

(k) received proceeds of disposition of an income interest in a trust resident in Canada in excess of any portion that would be ordinarily deductible by residents of Canada; or

(l) received income of certain types from Canada, such as dividends, interest, rents, pensions and other passive income.

Generally, as a non-resident receiving Canadian source income as described in (a) to (k), above, you will be subject to Canadian income tax on this income and be required to file a T1 return. Canada will tax you by applying the basic rules of the Act for computing income as if your only income was from the Canadian sources referred to in (a) to (k), above.

In computing the income referred to in (a) to (k), you will generally be allowed to claim all deductions to arrive at the net income from those sources which you would have been allowed to deduct as a Canadian resident.

Any or all of the above circumstances numbered (a) to (k) may subject you to Quebec income taxes.

A non-resident may claim certain deductions (in arriving at taxable income) and credits (personal exemption credits) against the above mentioned sources of income. Consultation with a professional tax advisor is recommended.

Even though a partnership is considered as a separate person resident in Canada for purposes of computing the income of its members, this does not change the general rules relating to the taxation of its members. If you are a non-resident member of a partnership operating in Canada you must refer to your share of the partnership income from each source to determine whether and to what extent you are subject to Canadian tax.

Example:

Jones and Brown is a partnership which carries on business in the United States and Canada. Bill Jones, who has a 50% interest in this partnership, is a resident of the United States. The partnership's income for the year was:

Business income attributable to the Canadian
permanent establishment ...........................   $15,000
Business income attributable to the United
States permanent establishment ................... 20,000
                                                                            ----------
Total income .........................................          $35,000

                                                                          =======

Mr. Jones must file a Canadian income tax return reporting $7,500 of business income earned in Canada. He does not report his share of the U.S. business income because he is not subject to Canadian tax on that amount.

Although the income described in (l) above is subject to Canadian tax, it is treated differently than income from employment, business or the disposition of taxable Canadian property. Since the non-resident receiving payment is not required to file any Canadian return with respect such income, the tax is paid on behalf of the non-resident by the Canadian payer, who is required to remit the appropriate tax to the Canadian government. The Canadian payer will withhold the amount of the Canadian tax from the payment and remit only the net amount to the non-resident.

On the other hand, (rather than having tax withheld on a gross income basis) a non-resident taxpayer may obtain more favorable treatment on rent by electing to file a Canadian return (on a net income basis). Similarly, non-residents in receipt of Canadian retirement income may benefit from filing a Canadian return under alternative available rules. Note that non-resident recipients of Canadian Old Age Security benefits may (depending on country of residence) have to file a statement of world income to be entitled to receive Old Age Security benefits.

 


 

North American Tax Services - Attention: Joseph Soussan, CGA, CPA (USA)
2510 Yonge Street, Suite 322A
Toronto, Ontario, M4P 2H7
Tel: 416-489-4829
Fax: 815-717-9383

Email: jsoussan@usatax.ca

Copyright 2000 North American Tax Services

 

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