Who has to pay Canadian income tax
Tax payable by persons resident in Canada
Section 2 establishes that every person resident in Canada at any time during a tax year must pay income tax on their taxable income.
Plain-language explanation
Section 2 is the foundation of the Canadian income tax system. It says that every person who is resident in Canada at any time during a tax year must pay income tax on their taxable income earned that year.
Residency is determined by facts — your home, family ties, bank accounts, drivers licence, health card, and social connections. CRA uses a "common-law residency" test: if Canada is your primary home, you're a resident. Part-year residents pay tax only on income earned while resident.
Non-residents are not subject to Part I tax. Instead, Part XIII applies — a 25% withholding tax (reduced by treaty) on Canadian-source income like dividends, rents, and royalties.
Corporations are treated like individuals under s.2. A corporation incorporated in Canada is always a resident; a foreign corporation may be a resident if its central management and control is in Canada.
Example
Ahmed lives in Toronto and earns $90,000 from his employer. He is resident in Canada, so s.2 subjects him to Part I tax on that $90,000. His tax bill is calculated under s.117 (federal rates) and Ontario rates combined.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Common-law partners recognized as equivalent to spouses for tax purposes under Bill C-18, expanding residency and income-attribution rules to include same-sex and opposite-sex common-law partners meeting cohabitation requirements.
Before
Only legally married spouses recognized; common-law partners treated as unrelated individuals
After
Common-law partners (cohabiting 12+ months, or with a child) treated the same as married spouses for most ITA purposes
Deemed disposition at death clarified. On death, a taxpayer is deemed to dispose of all capital property at fair market value under s.70(5). S.2 residents at death trigger full income inclusion; estates managed by CRA rules for testamentary trusts.
Before
Deemed disposition rules applied inconsistently for estates with foreign property
After
Clarified deemed disposition applies to worldwide property of Canadian residents at death
Common questions
What makes someone a resident of Canada for tax purposes? +
Residency is a question of fact. CRA considers where your home is, where your family lives, your social and economic ties to Canada (bank accounts, health card, drivers licence). If Canada is your primary home, you are a resident.
Do temporary workers pay Canadian income tax? +
Yes, if they are resident in Canada. A person working on a temporary work permit who establishes residential ties is taxed like any other resident. If they have no Canadian residential ties, they are non-residents taxed under Part XIII on Canadian-source income.
Can a corporation be a Canadian resident? +
Yes. A corporation incorporated in Canada is automatically a Canadian resident. A foreign corporation is also a resident if its central management and control is exercised in Canada.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 2. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.