Canadian Taxation of Employees of International Organizations

Under the Canadian income tax system, an individual's liability for income tax is predicated on his or her status as a resident of Canada. An individual who is resident in Canada during the year is subject to Canadian income tax on his or her worldwide income from all sources. Conversely a non-resident individual is generally only subject to Canadian income tax on income from sources inside Canada. An individual may be resident in Canada for only part of a year, in which case the individual will only be subject to Canadian tax on his or her worldwide income during the part of the year in which he or she is resident; during the other part of the year, the individual will be taxed as a non-resident.
In many countries, residency for tax purposes is consistent with the physical notion of residence that most people are intuitively familiar with. Under Canadian tax rules however, physical presence outside the country, even for a prolonged period of time, may not be enough to make an individual a non-resident of Canada.

The most important factor to be considered in determining whether an individual leaving Canada remains resident in Canada for tax purposes is whether the individual maintains residential ties with Canada while he or she is abroad. While the residence status of an individual can only be determined on a case by case basis after taking into consideration all of the relevant facts, generally, unless an individual severs all significant residential ties with Canada, he or she will continue to be a factual resident of Canada and therefore subject to Canadian tax on his or her worldwide income.  Courts and the Canada Revenue Agency look to a set of criteria of varying importance to determine whether residential ties to Canada continue to exist.

However, individuals working abroad for an international organization but who remain residents of Canada for tax purposes may still enjoy a break from Canadian taxes. Indeed, the Income Tax Act provides such persons with a deduction equivalent to the remuneration received from the organization that is declared as income in the individual’s tax return. A word of caution however: certain international organizations do not fit within the Act’s definition. This would be the case of organizations that have no member states, for example the Geneva-based Global Fund to fight AIDS, Tuberculosis and Malaria.

Finally, an individual who ceases to be a Canadian resident is deemed to have disposed of all of his or her property - one important exception to this is real estate located in Canada - and will be required to pay, or post acceptable security for, the Canadian tax payable with respect to capital gains arising from such deemed disposition.  Interestingly, the CRA will look at whether this requirement has been met as an indication of the individual's intention to permanently sever his or her residential ties with Canada.

As usual, please ensure that you seek legal advice before proceeding. For any information regarding the above, please contact Martin Aquilina at 613-747-2459 x 308 or at maquilina@hazlolaw.com