Canadians working overseas or who have made an investment abroad, are likely to be subject to foreign income taxes. Some countries exempt foreign income from taxation, but residents still might have to pay tax on the sale of an asset, even if the asset is in their home country.
Canada has tax treaties in force with over 90 countries. The purpose of this is to prevent tax evasion of foreign earned income as well as avoid double taxation. These treaties define criteria on how to charge tax, outline eligibility criteria, as well as clarify residency status for foreigners earning income in the respective countries.
These tax treaties provide specifics on taxes for self-employment, salary, pension and other income, and define who is exempted from tax. For example, in the case of the tax treaty between the United States and Canada, a tax credit may apply to the following:
Income from United States pensions and annuities
Income of a Canadian that is earned via a U.S. based business, or
Income earned in the U.S.
Residency Status Implications for Canadians Working, Living or Traveling Abroad.
Regardless of treaty arrangements or country of residence, Canadians working, living, or traveling abroad, are subject to paying their provincial or territorial and Canadian income tax. However, residency status has significant tax implications. Whether the taxpayer is considered a resident, non-resident, or a combination of both, depends on residential ties.
Residential ties should also be taken into consideration and include:
Dependents who live in Canada
A spouse or partner living in Canada
Ownership of a home or other real property in Canada
A current Canadian passport and driving licence
Financial ties such as credit cards or banks accounts
Active membership in Canadian organizations—religious, social, etc.
Therefore, to identify the residency status, all the above factors will be considered. Those factors will determine one of the following tax-paying statuses, with implications described below:
Each of the foregoing tax status will determine how much and at what percentage Canadians living overseas must pay for income taxes.
A factual resident of Canada maintains significant residential ties in Canada while working, traveling or living abroad. Factual residency is maintained when the taxpayer is:
On a vacation outside Canada
Commuting on a regular basis from Canada to your employer in the U.S.
Attending school or teaching overseas
Working on a temporary basis abroad
Residing in the U.S. for health reasons, but maintaining residential ties
For factual residents, the income tax is charged as if the taxpayer never left Canada. Factual residents must continue to report all income earned both in Canada and abroad. Likewise, the taxpayer can continue to claim applicable deductions and credits on provincial and federal returns.
A deemed resident is a taxpayer who lived outside Canada during the tax year, and who did not have significant residential ties. Canadian government employees, members of the Canadian Forces and their overseas school staff, and those working under a Canadian International Development Agency assistance program are deemed residents.
Likewise, a deemed resident is a foreign resident who sojourned in Canada for 183 days or more and does not have significant residential ties with Canada. This category of deemed resident is not considered a resident of another country if covered by the terms of a tax treaty between Canada and that country.
The deemed resident will be required to provide income details on earnings within Canada or abroad during the tax year. Deemed residents are subject to federal tax, but instead of paying a territorial or provincial tax, they pay a federal surtax.
Canadian expatriates become non-residents for tax purposes when they emigrate and become permanent residents of a foreign country. Non-resident tax status occurs when:
They are not considered a resident of Canada and normally live abroad
They have no significant residential ties to Canada
Their stay in Canada is less than 183 days, or
They live in another country for the entire year
Non-residents must pay tax only on a specific income from Canadian sources. The types of income include the following:
Registered retirement income and savings plan payments
Rental income and dividends
Canada and Quebec pension plan benefits
Note: Non-residents who received old age security pensions received during the tax year must submit the old age security return of income each year.
A taxpayer may be a deemed non-resident of Canada for tax purposes when living abroad in a country that has a tax treaty with Canada. The taxpayer can be deemed a factual resident of Canada but can avoid paying double taxes while permanently living abroad. Being a deemed non-resident, the taxpayer is required to abide by the same rules that as a non-resident of Canada.
Federal Foreign Tax Credits.
Canadians must pay tax on income they earn anywhere in the world. It can be an investment income, salary from employment, or a business income. However, in most cases, tax liability accrues in the country where the income was earned. To avoid double taxation, Canada applies foreign income tax credits that decrease the overall tax liability.
Territorial or Provincial Tax Credit
This tax credit may be applicable to non-business income earned abroad in a country that has a tax treaty with Canada. For example, a Canadian living abroad discovers that the foreign income tax paid on non-business income exceeds the Canadian federal income tax credit normally allowed.
The taxpayer can, under those circumstances, claim a tax credit from his or her home province or territory. However, the non-business taxes must exceed $200, and separate claim forms must be submitted for each country where the income was earned.
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Who can use the MTFX payment service?
Individuals and businesses who need to send money in foreign currency internationally can use MTFX’s services. The beneficiary of the transfer must have a bank account for the funds to be paid into.
Personal clients usually use our services to transfer money between their own accounts in two different countries.
Business clients usually use our services to transfer funds to suppliers, fund international operations, or repatriate overseas earnings.
Why should I use MTFX and not my own bank?
MTFX offers currency exchange rates that are 2-5% better than those offered by the banks. Personal clients usually save hundreds of dollars per transfer and for larger transfers, the savings can run into the thousands.
We also offer excellent customer service, dedicated currency specialists, and a 24/7 online platform with best-in-class technology that allows you to complete transfers from any device virtually anywhere in the world.
Business customers save with better currency exchange rates and proven solutions geared towards managing and mitigating foreign exchange risk. Our solutions include forward contracts, market orders, rate alert services, and much more - all backed by great technology and great people.
How do customers send funds to MTFX?
Funds can be transferred via wire transfer, Electronic Funds Transfer (EFT), or ACH payment services. MTFX maintains bank accounts in all major currencies with highly-rated banks. Our banking infrastructure ensures that you can transfer funds to us quickly and securely.
How long does it take MTFX to transfer funds?
Our global network of banking partners allows us to get funds to virtually anywhere in the world quickly and efficiently. Most wire transfers from MTFX will be received by your beneficiary within 24-48 hours. MTFX also offers same-day transfers that are almost instantaneous, as well as low-cost in-country payment services for your less urgent transfers. For further information please speak to one of our currency specialists.
MTFX is in the process of migrating our online dealing system to a newer version which offers more functionality along with an updated look and feel. While we complete our migration, both versions of our online dealing platform will be accessible.