A Canadian Tax Lawyer’s Tax Guide For ‘Digital Nomads’ Moving to Canada: What You Need to Know About Canada’s Tax System

Introduction: Who is a Digital Nomad?

A digital nomad is someone who earns income through digital means while living a location-independent lifestyle. Digital nomads might be freelancers working with clients across different time zones, remote employees contracted by companies in or outside of Canada, entrepreneurs running e-commerce platforms or SaaS businesses, or even online content creators who monetize through social media or other platforms.

In the age of remote work and global connectivity, the digital nomad lifestyle has become more than just a trend—it is now a viable long-term career path for millions. Digital nomads are people who harness the power of technology to work from anywhere in the world while maintaining a flexible, travel-oriented lifestyle. However, while the freedom to work from anywhere may seem limitless, digital nomads still face grounded realities—particularly when it comes to taxation.

Navigating tax obligations in Canada can be particularly complex for digital nomads due to Canada’s self-assessment tax system. Although the concept of a digital nomad is relatively new, the tax obligation of taxpayers who frequently travel internationally has long been a complex issue that requires case-by-case analysis.

To start, however, a general understanding of the potential issues can be very helpful before any taxpayers delve into their specific cases. This article thereby aims to offer a general overview of how taxation works for digital nomads moving to Canada or who are already in Canada. For tax and legal advice specific to your case, please consult with one of our expert Canadian tax lawyers.

The Foundations of the Canadian Tax System: Residence-Based and Self-Assessment

Canada does not tax individuals simply based on citizenship, unlike the United States. The Canadian tax system is based on tax residence status, which differs from one’s immigration status. Thereby, understanding one’s tax residence status is essential to determining Canadian taxation, as it determines the scope of taxable and reportable income in Canada.

A Canadian tax resident is required to report worldwide income on his or her Canadian income tax return, while a non-resident of Canada is required to pay tax on Canadian source income. Taxes paid outside of Canada on foreign income may be claimed as Foreign Tax Credits (FTCs) to reduce the taxpayer’s Canadian tax liability.

For Digital Nomads who may be receiving income from outside of Canada, whether the income is characterized as capital gains, self-employment income, or employment income, once the Digital Nomads become Canadian tax residents, they must report their worldwide income on their Canadian income tax returns.

For example, for Digital Nomads who hold shares of a foreign corporation and then subsequently sell those shares after they become Canadian tax residents, the proceeds from the sales of these shares are taxable capital gains, which must be included on the Digital Nomads’ corresponding Canadian income tax returns.

The determination of an individual’s tax residence status in Canada is fact-specific. A person is generally considered a tax resident of Canada if he or she maintains significant residential ties, such as owning a home or having a spouse or dependents residing in the country.

Alternatively, if someone spends 183 days or more in Canada within a single calendar year, this person may also be considered a tax resident in Canada. Such an individual, who has not established sufficient residential ties with Canada to be considered factually resident in Canada, but who has been physically present in Canada for a total of 183 days or more in any calendar year, is called a sojourner and is deemed a tax resident in Canada. This rule is known as the Sojourner rule.

There are also other factors to determine whether an individual is a tax resident in Canada. You can nevertheless file an NR74 to request the CRA’s determination of your residence status after you arrive in Canada (or at any time). The form can be submitted online, via mail, or by fax.

A very important case that impacts the determination of an individual’s tax residence is still the Supreme Court of Canada decision in Thomson v MNR, [1946] SCR 209, although the decision was issued nearly 80 years ago.

Specifically, the case set the definition for a taxpayer’s residence for tax purposes in Canada: The place where, in the settled routine of his life, he regularly, normally, or customarily lives; and the degree to which a person in mind and fact settles into or maintains or centralizes his ordinary mode of living.

Furthermore, when two or more countries are relevant to the determination of an individual’s tax residence, the tie-breaker provisions in the tax treaties provide further tests in relation to the determination.

It can be quite challenging for Digital Nomads to determine their tax residence status due to their frequent travel. Nevertheless, Canada takes the position that an individual must be a tax resident somewhere and that tax residence is “sticky”. If you were previously a tax resident of your home country and have not yet established tax residence in Canada, Canada likely considers you a tax resident of your home country. If you were previously a tax resident in Canada, left Canada, but have yet to establish tax residence elsewhere, Canada likely considers that you remain a Canadian.

For Digital Nomads, it is important to understand, before spending extended periods in Canada, whether they will be considered Canadian tax residents or tax residents of their home country or previous country of residence. However, spending more than 183 Days in Canada in any calendar year invokes the Sojourner rule and therefore a presumption of Canadian residence, which may be rebutted by a tax treaty tie breaker rule determination.

Furthermore, Canada also has a self-assessment tax system, which requires individuals and entities to be responsible for calculating and reporting their own income, deductions, and taxes owing, in addition to filing their own returns each year.

The CRA bears the responsibility only to review returns to ensure compliance. This can be quite different from the Pay-As-You-Earn (PAYE) systems adopted by other countries, such as the United Kingdom. As a result, if you’re new to Canada, you must learn what reporting and tax obligations you have to avoid any non-compliance with the Canadian tax law.

Deemed Disposition and Reacquisition of Your Worldwide Assets At the Time of Arrival

A Canadian tax resident is required to report his or her worldwide income each year. The CRA usually recognizes the date on which an individual first arrives in Canada in the year he or she becomes a Canadian tax resident as the start date of the individual’s Canadian tax residence.

On that date, the CRA also deems that the individual has disposed of all of his or her worldwide assets at the fair market value (FMV) of the assets and then immediately reacquired these assets at the same value. This deeming rule does not result in any tax liability in Canada for the individual taxpayer. Instead, the rule is used to determine the cost base of the individual’s assets for capital gains purposes.

For example, if Jane Nomad moved to Canada on January 31, 2025, and became a Canadian tax resident on the same day, the start of Jane’s Canadian tax residence is then January 31, 2025. Jane has a residential property located in another country, and the property was purchased by her for $100,000 two years ago. The fair market value of the property on January 31, 2025, is $150,000 CAD. Jane then sells the property on March 31, 2025, for $175,000, which is characterized as capital gains.

Jane also has crypto assets. She initially paid $50,000 for the crypto assets prior to 2025, and then sells all of them on March 31, 2025, for $100,000, all of which is characterized as capital gains. The fair market value of the investment on January 31, 2025, however, is $150,000.

As a result of the deeming rule, for Canadian tax purposes, on the assumption that Jane receives no other income in 2025, Jane’s cost of the assets would be: $150,000 for the property, and $150,000 for the crypto assets.

Jane incurs a capital gain of $25,000 for the sale of the property, and a capital loss of $50,000 for the sale of the crypto assets.

As a result, Jane’s net capital loss will be $25,000 in 2025 if she has no other capital transactions. If Jane chooses not to sell her property and crypto assets, in contrast, she will have nothing to report on her 2025 Canadian income tax return.

However, since the value of Jane’s property and crypto assets exceeds $100,000 CAD, Jane would be required to file T1135 forms for subsequent tax years in Canada (she is exempt in her first year of residence) if she continues to hold her property and crypto assets outside of Canada.

GST/HST Rules for Self-Employed Persons and Corporations: Do You Need to Register For GST/HST?

A lot of Digital Nomads are self-employed or have an incorporated business, which allow them to work remotely from anywhere in the world. A business in Canada, whether it is a sole proprietorship or a corporation, is required to register for GST/HST if the business provides taxable supplies and gross revenues exceed $30,000 in a year or over any four consecutive calendar quarters.

If the business is a public service body, such as a college, a non-profit organization, or a hospital, then the threshold increases to $50,000. A business that does not meet the minimum threshold registration requirement may also voluntarily register for GST/HST to claim Input Tax Credits (ITCs) for the GST/HST paid for business expenses.

Once a business becomes a GST/HST registrant, the business is then required to collect and remit GST/HST, the rate of which depends on the business’s location. In Ontario, the GST/HST is 13%. A business is also required to file a GST/HST return and remit collected GST/HST, after deducting ITCs, for each reporting period.

For businesses making more than $6 million a year, the assigned GST/HST reporting period is monthly. For businesses making between $1.5 million and $6 million a year, the assigned GST/HST reporting period is quarterly. For all other businesses, the assigned reporting period is annual. However, a business can always choose to report monthly or quarterly, even if it is not required to do so.

For Digital Nomads, one of the most common scenarios is that they are working as consultants in the tech or business industries for various clients located in different countries. If the client is located in Canada and if the Digital Nomad is a Canadian resident and is a GST/HST registrant, the Digital Nomad must charge GST/HST accordingly based on the client’s province. If the client is located outside of Canada, no GST/HST is payable.

Pro Tips – Understand Your Tax And Reporting Obligations Before Your Move to Canada

Failure to file your income tax or GST/HST returns correctly or failure to pay your tax liability in Canada can result in significant tax liability. Due to the Canadian self-assessment tax system, it is a taxpayer’s responsibility to file his or her taxes in Canada accurately. As a result, it is very important to understand your tax and reporting obligations before you move to Canada, especially if you are a Digital Nomad providing services to foreign and Canadian clients.

If you believe that you need advice on your tax matters, whether it is related to your personal income tax, GST/HST, or other types of taxes, you should engage with one of our expert Canadian tax lawyers. Our expert Canadian tax lawyers can help review your tax matters and provide advice specific to your case.

FAQ

Can I Ask the Canada Revenue Agency to Confirm that I Have Become a Canadian Tax Resident?

Yes, you can request the CRA to confirm the date on which you have become a Canadian tax resident by filing an NR74 Determination of Residency Status (Entering Canada). Once the form is submitted, the CRA will determine the date on which you officially become a resident in Canada for tax purposes.

However, if the CRA’s decision differs from your position, you will need to file an objection to request a formal review of your tax residence. If you require further assistance or more information on filing NR74 or disputing a CRA’s decision on your tax residence status, please consult with our experienced Canadian tax lawyer.

What Do I Need to Report On My Canadian Income-Tax Returns as a Tax Resident in Canada?

As a Canadian tax resident, you will be required to report your worldwide income, whether such income is exempt from taxes in its country of origin or in Canada. For example, if you receive tax-free pension income in the United Kingdom, that amount needs to be reported on your Canadian income tax return in the year you receive it, even though it’s not taxable in the UK.

Whether the amount is taxable in Canada depends on the characterization of the income following the Canadian Income Tax Act. You may also claim Foreign Tax Credits (FTCs) for taxes you pay outside of Canada, to reduce your Canadian tax liability, subject to any applicable restrictions.

 

Disclaimer: This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.