Residency and liability for tax

Before computing anyone's income, you need to know whether, and on what, Canada can tax them. The answer turns on residence, not citizenship. Canada taxes its residents on their income from all sources worldwide and taxes non-residents only on certain income connected with Canada. This lesson explains how residence is determined for individuals, what happens in the year someone arrives in or leaves Canada, how non-residents are taxed and how tax treaties resolve cases where two countries both claim a person as a resident. It ends with a point that surprises students coming from other systems: Canada taxes each individual separately, even within a family.

The basic rule: residents on world income

Subsection 2(1) of the Income Tax Act imposes income tax on the taxable income of every person resident in Canada at any time in the year. Because Division B starts from income "from all sources", a resident's employment income from a contract in Texas, interest from a bank account in Germany and rent from a condominium in Portugal are all taxable in Canada. Double taxation is relieved mainly through the foreign tax credit in section 126, which reduces Canadian tax by foreign income tax paid on the same income, and through tax treaties.

Non-residents are taxed in two ways. Under subsection 2(3) and section 115, a non-resident who was employed in Canada, carried on a business in Canada or disposed of taxable Canadian property, such as Canadian real estate, pays Part I tax on that income and files a Canadian return. Under Part XIII, passive income paid to non-residents, such as dividends, rents, royalties and pensions, is subject to a 25 per cent withholding tax that the Canadian payer deducts and remits; treaties often reduce the rate, for example to 15 per cent on portfolio dividends paid to US residents. Most interest paid to arm's length non-residents is exempt.

Factual residence

The Act does not define "resident". The courts have filled the gap. In Thomson v. Minister of National Revenue (1946), the Supreme Court of Canada described residence as a matter of the degree to which a person, in mind and fact, settles into or maintains a settled routine of life in a place, with its ordinary social relations, interests and conveniences. Residence is a question of fact, decided on all of the circumstances, and a person can be resident in more than one country at once.

The CRA's Income Tax Folio S5-F1-C1, Determining an Individual's Residence Status, organizes the facts into ties. Significant residential ties are a dwelling place in Canada, a spouse or common-law partner in Canada and dependants in Canada. If a person keeps any of these, the CRA will usually consider them resident. Secondary residential ties include personal property such as a car or furniture, social ties such as memberships, economic ties such as Canadian bank accounts and credit cards, a provincial health card and driver's licence, and a Canadian mailing address. One secondary tie alone rarely decides the question, but together they can. Intention and the length of a stay abroad also matter: a person who leaves for a two-year assignment and keeps a home and family in Canada remains resident.

Deemed residents and the sojourning rule

Section 250 deems certain people to be resident for the whole year even if they are not factually resident. The most important rule for practice is paragraph 250(1)(a): a person who sojourned in Canada for a total of 183 days or more in the year is deemed resident for the entire year. Sojourning means a temporary stay, so the rule catches people who are not factually resident, such as a foreign contract worker or a long-staying visitor; it does not apply to someone who becomes factually resident part-way through the year, who is a part-year resident instead. Other deemed residents include members of the Canadian Forces serving abroad, federal and provincial government employees and diplomats posted abroad who were resident before the posting, and their dependent family members. Deemed residents pay federal tax on world income, but because they are not resident in any province they pay a federal surtax of 48 per cent of basic federal tax in place of provincial tax.

The program below applies the sojourning rule to three invented visitors and then shows how a part-year resident's personal credits are prorated.

# Sojourner test and part-year residency, Canada, 2026 (illustrative)
# Three people present in Canada in 2026; days are invented.
people = {
    "Arjun (contract engineer, no Canadian ties)": 196,
    "Mei (visiting researcher, home in Taipei)": 150,
    "Ola (seasonal guide, family abroad)": 183,
}
for name, days in people.items():
    deemed = days >= 183            # s. 250(1)(a): sojourned 183 days or more
    print(f"{name:<46}{days:>4} days  deemed resident: {'yes' if deemed else 'no'}")

# Part-year resident: Leah's colleague Daniel immigrates on 1 September 2026.
days_resident = 30 + 31 + 30 + 31                 # Sep to Dec
share = days_resident / 365
bpa = 16_452
print()
print(f"Daniel resident {days_resident} of 365 days ({share:.1%})")
print(f"Prorated basic personal amount  {bpa * share:>9,.2f}")
print(f"Federal credit at 14%           {0.14 * bpa * share:>9,.2f}")
print("Taxed in Canada on world income from 1 September only;")
print("before that, only on Canadian employment, business and taxable property.")

Arjun (contract engineer, no Canadian ties)    196 days  deemed resident: yes
Mei (visiting researcher, home in Taipei)      150 days  deemed resident: no
Ola (seasonal guide, family abroad)            183 days  deemed resident: yes

Daniel resident 122 of 365 days (33.4%)
Prorated basic personal amount   5,499.02
Federal credit at 14%              769.86
Taxed in Canada on world income from 1 September only;
before that, only on Canadian employment, business and taxable property.

Arjun, a contract engineer who spent 196 days in Canada without establishing a home or family here, is deemed resident for the whole of 2026 and taxed on his worldwide income for the year, subject to any treaty relief. Mei, at 150 days, is not caught. Ola is caught at exactly 183 days, which is why careful day counts matter. Daniel, who immigrated and became factually resident on 1 September, is not a deemed resident; he is a part-year resident, taxed on world income only for the 122 days after he arrived and on Canadian-source income under section 115 before that. Section 118.91 prorates most personal credits, so his basic personal amount is reduced to about $5,499, unless substantially all of his income for the non-resident period was taxable in Canada.

Arriving in and leaving Canada

A person who becomes or stops being factually resident part-way through a year is a part-year resident. Section 114 computes taxable income as world income for the resident period plus, for the non-resident period, only the Canadian-source items that section 115 would tax. When a person immigrates, subsection 128.1(1) deems them to have acquired most of their property at fair market value on arrival, so gains that accrued before they became resident are never taxed in Canada. When a person emigrates, subsection 128.1(4) deems them to have disposed of most property at fair market value on departure, triggering the so-called departure tax on accrued gains; Canadian real estate, registered plans and certain other property are excluded because Canada can still tax them later. Lesson 10 returns to deemed dispositions. The date residence changes is usually the latest of the dates the person leaves, their spouse and dependants leave, and they establish residence elsewhere.

The individual as the taxpayer

Canada taxes each individual separately. There is no joint return and no option to pool a couple's income, which is a deliberate policy choice that makes progressive rates bite on each spouse's own income. Family relationships still matter a great deal, however. The spouse or common-law partner amount gives a credit when one partner has little income; the eligible dependant amount gives a single parent a credit equal to the spouse amount; pension income splitting lets retirees allocate up to half of eligible pension income to a spouse; the attribution rules in sections 74.1 to 74.5 stop high earners from shifting investment income to a lower-income spouse or minor children by gift (lesson 8); and income-tested benefits such as the Canada child benefit are based on family net income. A common-law partner is a person who has cohabited with the taxpayer in a conjugal relationship for at least 12 continuous months, or who is the parent of the taxpayer's child and lives with them. Marital status is generally determined at the end of the year.

Because Leah and Tomás file separately by law, decisions about which spouse claims a deduction or credit matter. Child care expenses must generally be claimed by the lower-income spouse; medical expenses and charitable donations may be claimed by either, and pooling them on one return often produces a larger credit; and income earned on money one spouse gives the other is attributed back to the giver. Lesson 11 works through these choices for the Brandt family.

Who must file

A resident individual must file a return for a year if they owe tax, if they disposed of capital property or realized a taxable capital gain, if they must repay Old Age Security or Employment Insurance benefits, if they have to contribute to the Canada Pension Plan on self-employment income, if they withdrew from an RRSP under the Home Buyers' Plan or Lifelong Learning Plan without full repayment, or if the CRA sends a demand. In practice, almost everyone should file, because the return is the gateway to refundable credits and benefits such as the Canada child benefit, the GST/HST credit (which the government has announced will be replaced by the Canada Groceries and Essentials Benefit) and the Canada workers benefit. Budget 2025 introduced automatic filing for some low-income individuals, with returns prepared from CRA information starting with the 2025 tax year and expanding in later years.

Spouses must report their marital status and their spouse's net income, because many credits and benefits depend on it. The return for an individual who died in the year is filed by the legal representative, generally by the later of 30 April of the following year and six months after death, and the death triggers deemed dispositions covered in lesson 10.