The global COVID pandemic and the means to deal with public safety during these times has created uncertainty when it comes to residency, work, travel, and the tax implications that can arise.
The CRA's COVID-19 policy is occasionally updated as the national and global situation continues to change. The CRA has recently provided guidance on taxation and residency for the following four potential issues:
- Factual residency
- Deemed residency
- U.S. residents typically employed in the U.S.
- Canadian residents typically employed in the U.S.
You'll find a brief overview below for each of these four scenarios and their tax implications. More details that may apply to your situation are available on the CRA's COVID-19 policy page.
Factual Residency
For tax purposes, your Canadian residency mostly depends on whether you have residential ties to Canada. You're still considered to be a factual resident if you've been outside Canada for part of the year but have substantial residential ties, and aren't deemed to be a resident of another country under a tax treaty. For non-residents who have had to remain in Canada solely due to international travel restrictions, their non-resident status won't change.
This relief policy was extended until December 31, 2021.
Deemed Residency
If you lived outside Canada for part of the year but were in Canada for 183 days or more, you may have deemed residency. The CRA doesn't consider involuntary travel-restricted time spent in Canada to count toward the 183-day rule for deemed residency.
This relief policy was extended until December 31, 2021.
U.S. residents usually employed in the U.S.
U.S. residents who work in Canada for less than 184 days in a year may have no Canadian tax on such Canadian-sourced employment income due to the Canada-U.S. income tax treaty.
For those affected by COVID travel restrictions who were forced to work in Canada for more than 183 days, the CRA will discount the travel-restricted days up to December 31, 2020. Each day worked beyond that day will be counted toward the allotted 183 day maximum for 2021.
Similar relief applies under any days-of-presence tests in any of Canada’s other bilateral tax treaties.
Canadian residents usually employed abroad
For tax purposes, Canadian residents working abroad for a non-resident employer who remained in Canada to work due to involuntary travel restrictions (or those who were issued a return home order) aren't subject to any changes in their withholding tax, providing they have a letter of authority from the CRA.
Canadian resident employees of a non-resident employer or workplace can have their income considered to be foreign-sourced for 2020. Those individuals may file their tax returns as in the past and claim Canadian foreign tax credits for monies paid to the foreign revenue services. Those affected should keep records for a possible CRA review. On the other hand, an employee may choose to report their income as Canadian-sourced, given that the work was actually done in Canada. For a detailed breakdown of the full rules, see Supplemental guidance Section VII.C(ii).
If you need more information about residency and its associated tax implications, you can call the CRA at:
- 1-800-959-8281 from inside Canada or the U.S.
- 613-940-8495 from elsewhere