Filing taxes as an NRI (Non-Resident Indian) in Canada can feel overwhelming, especially if you have income from both Canada and India. The Canada taxation system has specific rules about residency, global income, and foreign asset reporting. If you don’t understand these rules, you could end up paying more tax than necessary or even facing penalties. This guide breaks it all down in simple terms.
Are You a Canadian Tax Resident?
The Canada Revenue Agency (CRA) determines your tax residency based on your ties to Canada and how long you stay in the country. Your tax residency status impacts how your Canada tax on salary, capital gains, and investments is calculated.
Key Factors in Determining Tax Residency
- Significant residential ties: If you own a home, have a spouse or dependents in Canada, or maintain strong social and economic connections in the country, you may be considered a tax resident.
- The 183-day rule: If you stay in Canada for 183 days or more in a calendar year, you are considered a tax resident and must report your Canada tax income globally.
- Other factors: Maintaining a Canadian driver’s license, bank accounts, or health insurance can also indicate tax residency.
If you are a non-resident, you only need to pay tax on your income from Canadian sources, such as rental income, business earnings, or capital gains from Canadian investments.
How Different Types of Income Are Taxed in Canada
Salary & Employment Income
- Income earned in Canada: Subject to Canada taxation rates, including federal, provincial, and payroll taxes based on Canada tax slabs set by the CRA.
- Income earned in India: If you are a tax resident in Canada, you must report your Indian salary in your Canadian tax return. However, foreign tax credits can help reduce double taxation.
Investment Income (Stocks, Dividends, Capital Gains)
- Dividends from Canadian stocks: Typically subject to a 25% withholding tax for non-residents, but tax treaties may reduce this rate.
- Capital gains on Canadian investments: If you sell assets like stocks or real estate, you may be liable for Canada tax on capital gains based on your residency status.
- Investment income from India: As a tax resident of Canada, you must report Indian investment earnings, including mutual funds and dividends, but foreign tax credits can reduce your liability.
Rental Income from Canadian & Indian Property
- Rental income from Canadian property: Non-residents face a 25% withholding tax but can file a tax return for net taxation, allowing them to deduct expenses like mortgage interest and maintenance.
- Rental income from Indian property: If you are a Canadian tax resident, this income is taxable in Canada, but you can claim foreign tax credits for taxes already paid in India.
Bank Interest & NRE/NRO Accounts
- Canadian bank interest: Taxable for residents but non-residents are generally exempt.
- NRE account interest: Tax-free in India but taxable in Canada if you are a resident.
- NRO account interest: Taxable in both countries, but foreign tax credits can help offset double taxation.
Also read: SBI NRI Account Opening in Canada: Easy and Simple Way
Avoiding Double Taxation with FTC & DTAA
Canada and India have a Double Taxation Avoidance Agreement (DTAA) to prevent NRIs from being taxed twice on the same income.
How to Reduce Double Taxation
- Foreign Tax Credit (FTC): Offsets taxes paid in India against your Canadian tax liability.
- Form T2209: Required when claiming FTC in Canada.
- DTAA regulations: Help determine where income such as dividends or capital gains should be taxed first.
Many NRIs overpay taxes because they fail to utilize these provisions properly, leading to higher tax payments than necessary.
Foreign Income & Asset Reporting: CRA Compliance
NRIs with foreign assets worth over CAD 100,000 must file Form T1135 with the CRA to disclose their offshore holdings.
Common Mistakes NRIs Make
- Not reporting NRE/NRO account income in their Canadian returns.
- Failing to claim foreign tax credits, resulting in higher tax payments.
- Incorrect residency declarations, leading to penalties or unexpected tax bills.
- Non-compliance with CRA reporting rules, which can lead to heavy fines.
Why Working with a Tax Expert Can Help
Navigating Canada tax on capital gains, salary, and investments as an NRI requires specialized knowledge of cross-border tax laws, deductions, and credits. A CPA experienced in NRI taxation can help with:
How a CPA Can Assist You
- Accurate tax return preparation to ensure compliance and maximize refunds.
- Applying foreign tax credits correctly to reduce double taxation.
- Avoiding CRA audits and penalties through proper reporting.
Final Thoughts
Canadian tax rules for NRIs can be complex, but understanding your residency status, global income obligations, and tax treaties can help you save money and stay compliant. Seeking professional advice ensures that you don’t overpay and that you get all the tax benefits you are entitled to.
Need help with tax filing? Our CPA specialists make the process simple. Connect with our CPA today!
