Can I deduct expenses to reduce my tax?
Maybe. My opinion is that you’ll make less waves if you keep it simple. Unless you’re going to be in Canada a long time (in which case, you will be a resident anyway), any “deductions” you think you might be able to claim won’t be worth the aggravation. Plus then you’d need to file a return. Which brings me to…

Do I need to file an income tax statement?
Not sure. Have received conflicting opinions on this. If you think you should be paying more or less than 15%, then yes, you definitely do. Otherwise, I’ve had at least one CRA person claim you need to fill out a regular income tax form just as if you were a Canadian resident. Everyone else says you don’t need to bother. Having said that, the fact that you get a T4 slip at the end of the year suggests otherwise… ** UPDATE ** I’m almost positive you’re supposed to file a non-resident return. It should be pretty straight-forward since you’ve paid exactly what you are supposed to. But I’ve never done it.

What if you come back to Canada and work for a short period during the contract?
Use your judgement. When I come back for a few days or a week, I don’t generally notify the contracting agency. If I’m back for the summer, it’s reasonable to assume I’m hunkering down for a while and should pay the government their due.

http://codebetter.com/blogs/kyle.baley/archive/2008/06/17/rehash-canadian-taxes-for-non-residents.aspx

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CPP/EI

I normally wouldn’t add this section but recent adventures warrant mentioning. Until then, I would have said you don’t need to pay CPP or EI, nor does the company who pays you. This is based on conversations with both CRA and a fairly confident-sounding international tax accountant. As a non-resident, you aren’t entitled to EI so it makes sense that you shouldn’t have to pay it. CPP is more of a grey area but by most accounts, you shouldn’t need to pay into that either.

The sole dissenting voice in this is the contracting agency I currently go through who is rather insistent that they have to charge me for it as well as pay their share. They claim that there are different rules for contracting agencies which could be the case but I suspect they just want to cover their asses and not do anything that may trigger an audit. In any case, I’ve sent numerous e-mails quoting international tax accountants and linking to relevant CRA sites, all of which have gone ignored. So I’m letting them have their way partially because I’m in the country only for another month and partially because I think their share of the EI/CPP payments cost more than the commission they’re charging me.

No tax and kayaks, too! Which reminds me: CPP and EI are charged only while you are in the country, assuming they should be charged at all, which I doubt.

** UPDATE ** The contracting agency in question claims there was a miscommunication and they recanted when I pressed them.

Residency

Residency means different things for income tax than for GST. For GST, if you earn $30,000 while in Canada, you are a resident for GST purposes. Otherwise, you have to consider the many other scenarios on their website.

For income tax, the rules are not nearly as concrete. If you are physically in Canada for 183 days or more (whether you work or not), you are a Canadian resident.

There are some dire ramifications if you are considered a Canadian resident for income tax. Namely, you are taxed on your entire worldwide income for the year, regardless of where you earned it. Unless, of course, you pay tax on your external income in another country, in which case, Canada does not double-tax. But since there is no income tax in the Bahamas, this means I’d have to pay tax on my total income for the year. And given the cost of living, it’s something I like to avoid.

Even if you are in the country less than 183 days, you still may be considered a Canadian resident. And this is where it gets iffy. There is nothing that says, “If you meet this set of criteria, you are a Canadian resident”. Rather, CRA will look at a combination of factors and essentially make a judgement call. Some of the questions they’ll consider:

* Do you own a home in Canada?
* Do you have a registered vehicle in Canada?
* Do you have bank accounts and credit cards in Canada?
* Do you have family and other personal ties to Canada?
* Do your spouse and/or children live in Canada?

Answering yes to any of these questions is a mark against you but again, it doesn’t mean you’re a resident. For example, maybe you own a home but rent it out. Then it becomes more of an investment than a residential tie.

All in all, it’s kind of wishy-washy so the more you can do to wedge yourself into the country to which you’re moving, the better. Get a local driver’s license. Buy property. Enroll your children in local schools. Get credit cards. Attend a local gay pride parade. That sort of thing.

Final note on residency: when you leave Canada, I believe there is a formal process to follow to claim you are no longer a resident. I haven’t followed it. I just left and stopped paying taxes (which was easy to do because I didn’t earn money in Canada for the first two years after I left). You could do the same thing but the underlying theme I’m picking up from my dealings with CRA is that they are fairly practical, at least in the tax department. As long as you act in a relatively reasonable manner, they should leave you alone.

http://codebetter.com/blogs/kyle.baley/archive/2008/06/17/rehash-canadian-taxes-for-non-residents.aspx

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