What is the 183-day rule?

The 183-day rule in Canadian tax law determines if an individual is a "deemed resident" for tax purposes. Staying in Canada for 183 days or more without significant residential ties results in deemed residency, requiring the filing of a Canadian income tax return on worldwide income. Exceptions exist for those with residential ties in countries with tax treaties, and non-residents are taxed only on Canadian-source income.

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Written by Peyton Bieda on August 20, 2024

The 183-day rule is a crucial concept in Canadian tax law, particularly for digital nomads and any individuals who spend a significant amount of time in Canada but do not have significant residential ties. Here's a breakdown of what the rule entails and how it affects your tax obligations:

What is the 183-Day Rule?

The 183-day rule is used to determine whether an individual is considered a "deemed resident" of Canada for income tax purposes. According to this rule, if you stay in Canada for 183 days or more during a tax year and do not have significant residential ties with Canada, you may be deemed a resident for tax purposes² ⁴.

How the Rule Works

Counting Days: When calculating the number of days you stayed in Canada, include every day or part of a day you were present, such as days spent attending a Canadian university, working, or vacationing in Canada. However, commuting days from the U.S. to Canada for work are not included² ³.

Deemed Residency: If you meet the 183-day threshold and are not considered a resident of another country under a tax treaty with Canada, you will be treated as a deemed resident. This means you are subject to Canadian income tax on your worldwide income for that year, similar to a factual resident² ⁴.

Implications of Being a Deemed Resident

As a deemed resident, you are required to file a Canadian income tax return and report your global income. This status also affects your eligibility for certain benefits, such as the Canada Child Benefit, although you may not qualify for related provincial or territorial benefits during your absence from Canada².

Exceptions and Considerations

Tax Treaties: If you establish residential ties in a country with which Canada has a tax treaty, and you are considered a resident of that country, you may be deemed a non-resident of Canada. In this case, the same tax rules apply to you as they do to non-residents² ⁴.

Non-Residents: If you stay in Canada for less than 183 days in a tax year and do not have significant residential ties, you are generally considered a non-resident and are only taxed on income from Canadian sources⁴ ⁶.

Understanding the 183-day rule is essential for anyone who spends significant time in Canada without establishing strong residential ties. It helps clarify your tax obligations and ensures compliance with Canadian tax laws.

Rotaru CPA

What is the 183-day rule?

What is the 183-Day Rule?

How the Rule Works

Implications of Being a Deemed Resident

Exceptions and Considerations

Citations

What is the 183-Day Rule?

How the Rule Works

Implications of Being a Deemed Resident

Exceptions and Considerations

Citations