Do Canadian expats have to pay tax on income earned outside the country?

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Q: I am Canadian citizen living in Pakistan since 2002. I have no home or family in Canada. I do not take any Canadian benefits for myself or for my family. Q1) Do I have to file income tax and wealth statements in Canada? Q2) If I ever plan to come back to Canada, will I have to pay tax on money I earned while living in Pakistan? —Adnan A: Canadian taxation is based on residency, Adnan. So, a Canadian citizen generally only files tax returns while resident in Canada, although there are some exceptions as well as some tax implications for certain investments a non-resident has in Canada. Ask a Planner: Leave your question for Jason Heath » If you and your family are living and working in Pakistan, it is likely that you have a “permanent home,” whether owned or rented, in Pakistan, not Canada. This permanence is what causes you to be exempt from Canadian taxation under the Canada-Pakistan Income Tax Convention (other than a few exceptions below). When a Canadian resident becomes a non-resident, as it sounds like was the case for you and your family in 2002, you file a final tax return to declare your departure from Canada. From that point onward, the only tax payable to Canada may be on investments that remain in Canada while you are abroad that are subject to Canadian tax.

READ: Work abroad? Your income is fair game for the CRA

If you have non-registered investments in Canada, Adnan, your financial institution should be withholding the appropriate tax rate on dividends, interest or trust (mutual fund or exchange-traded fund) distributions. Capital gains are not subject to withholding tax unless it’s a capital gain on real estate (like a rental property). Rental income is also subject to taxation and is an exception that requires annual tax filings in Canada. RRSP and other registered account withdrawals are also subject to withholding tax. Otherwise, a non-resident living in Pakistan shouldn’t likely have tax obligations in Canada. That is, until they return. It sounds like you may retire to Canada, Adnan. You asked if you will have to pay tax on the money you earned in Pakistan. You won’t have to pay tax on the money you earned retroactively, if that’s what you’re asking, but future income earned on savings that you accumulated in Pakistan is not exempt from Canadian taxation, even if you leave it in Pakistan. Upon taking up residency in Canada again, you are taxable on your worldwide income, including investment income earned on savings that is located in other countries.

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Pakistani investment income will be taxable in Canada, although a Pakistani pension may be exempt from tax under the treaty. There may be withholding tax in Pakistan that you can claim as a credit towards any Canadian tax payable. Many Canadians who return to Canada repatriate their investments to Canada as well, Adnan. Foreign reporting requirements on a Canadian tax return can be onerous, particularly for those with more than $250,000 of foreign investments. And given the income is generally taxable in Canada anyway, leaving it in Pakistan doesn’t save you tax. Hopefully that helps, Adnan. It sounds like you may not need to worry about Canadian taxation unless you return to Canada. Ask a Planner: Leave your question for Jason Heath » Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

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About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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Comments Cancel reply

Mahmoud Kadoura says:

May 11, 2020 at 4:31 pm

Hello Jason,
I am a Canadian living and working in the UAE. I do have some ties in Canada (a rental property, a drivers license, a bank account, but no family), and would like to consider myself a resident of Canada.
I understand that if foreign income is taxed, it won’t be double-taxed in Canada. In the UAE, income is tax-free by design. Does this mean that it will inevitably be taxed in Canada? Can you shed some light on the Canada-UAE treaty for Canadian residents living in the UAE?

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1. MoneySense Staff says:
  
  May 12, 2020 at 9:31 am
  
  Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
  
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Hasan Wasty says:

July 2, 2021 at 8:42 pm

i am a canada citizon &receiving pensions old age cpp & superannuation as ex postal worker +i have investment with my wife i am 75 years old
i want to get back to pakistan but my wife does not want so in this case what kinds of taxes i have to pay to cra & if i can still have my old age pension cpp etc as an older man i do not know how many years i can be alive ,

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1. Courtney Reilly-Larke says:
  
  October 19, 2021 at 1:41 pm
  
  Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with a qualified advisor.
  
  Reply