Adjusting to a new culture can be both exciting and challenging. Embrace the opportunity to expand your horizons, but also be prepared for potential hurdles. Understand the cultural norms, language barriers, and social customs of your new country. Seek out local support networks, expat communities, and cultural exchange programs to ease your transition and make lifelong connections.
Assets and Residential ties – If you are going to maintain assets like a house, car and personal effects in Canada, it will be likely that you will remain a taxable resident. You should review the NR73 with a professional to determine your status.
Taxation – Plan to obtaining non-resident for taxation to avoid being taxed on your earnings in a new country by Canada authorities.
Health care – When you leave Canada, you will need to arrange for international health care insurance.
Citizenship – You will maintain your Citizenship even if you depart for tax purposes.
Canada – Departure tax and reporting requirements when you leave Canada
Individuals that depart Canada and become non-residents of Canada for tax purposes are subject to specific rules regarding their assets. These individuals also may be required to file specific forms with the Canada Revenue Agency (CRA). This article examines the departure tax, the election to defer departure tax and what this means for individuals ceasing Canadian residency for tax purposes.
Canada imposes an “Exit Tax” on individuals who cease to be residents for tax purposes. This tax is designed to address any accrued gains on certain assets, such as stocks, real estate, and businesses. Our business can offer tax planning services to help Canadians minimize the impact of the Exit Tax and comply with tax regulations in both Canada and their new country of residence.
The Departure Tax is applicable to Canadian residents who emigrate and become non-residents for tax purposes. It is essential for our business to provide expert advice on how to handle assets, investments, and other financial matters to reduce the impact of the Departure Tax on our clients’ wealth.
Canada levies a departure tax on residents when they leave Canada. Individuals are expected to dispose of their assets (with some exceptions) at fair market value on the date they cease Canadian tax residency. Half of any net gains resulting from the deemed disposition are included in income and taxed at normal marginal rates. This ensures that Canada collects the tax related to the portion of the gain that accrued while the individual was a Canadian tax resident.
Individuals who were residents of Canada for less than 60 months are subject to departure tax only on assets purchased during their Canadian tax residency period.
Departure tax does not apply to certain types of assets, including but not limited to:
Canadian real estate;
Canadian business property and inventory; and
Assets held within registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), company pension plans, registered education savings plans (RESPs) and tax-free savings accounts (TFSAs).
Along with the tax return for the year of departure, individuals must file Form T1243, “Deemed Disposition of Property by an Emigrant of Canada,” listing information including the property’s year of acquisition, its fair market value on the date of departure and the adjusted cost base.
For marketable securities, such as stocks, bonds and mutual funds, a broker can generally provide assistance in determining the fair market value and the adjusted cost base. An appraisal may be required for other property.
If the total value of all property owned at the time of departure is more than CAD 25,000, an individual must also file Form 1161, “List of Properties by an Emigrant of Canada.” This form must be filed regardless of whether an individual must otherwise file a tax return for their departure year.
Payment of departure tax
Departure tax is generally due by 30 April of the year after an individual departs Canada, unless the individual files an election to defer the departure tax. Individuals may elect to defer the tax on their deemed dispositions until the asset is actually disposed of, or they repatriate to Canada, whichever occurs first.
Individuals who wish to make this election must do so by completing Form T1244, “Election, under Subsection 220(4.5) of the Income Tax Act, to Defer the Payment of Tax on Income Relating to the Deemed Disposition of Property” by the normal filing deadline of 30 April.
Post-emigration dispositions
When departure tax is deferred, and the assets are actually disposed of in a subsequent year, the deferred tax must be paid to CRA April 30 of the year following the year of disposition. If the capital gain on the actual disposition is also subject to tax in the country where the individual has moved to, the individual may be able to claim a foreign tax credit for the foreign capital gains tax.
Factual Residents Of Canada For Income Tax Purposes
You are a factual resident of Canada if you keep significant residential ties in Canada while you are living or travelling outside of the country. You could be a factual resident of Canada if you are working temporarily outside Canada, teaching or attending school in another country, commuting (going back and forth daily or weekly) from Canada to your place of work in the United States, or vacationing outside Canada.
Deemed Residents Of Canada For Income Tax Purposes
Certain people who live outside Canada and who sever their residential ties with Canada may be considered to be deemed residents of Canada for tax purposes.
Non-residents of Canada for income tax purposes
You are a non-resident of Canada for income tax purposes if you normally or routinely live in another country and do not have significant residential ties to Canada or stay in Canada for less than 183 days in the tax year. Non-residents of Canada are required to pay taxes only on certain income from Canadian sources.
Deemed non-residents of Canada for income tax purposes
If you are a factual resident or a deemed resident of Canada and are considered to be a resident of another country that has a tax treaty with Canada, you may be considered a deemed non-resident of Canada for income tax purposes.
Investments: Managing Assets and Accounts from Abroad
You will likely need to setup a brokerage account designed for international residents so that you can effectively manage your assets and accounts from abroad. Stay informed about investment regulations and opportunities in your new country and get advice from financial advisors who specialize in international investments. Monitor your portfolio remotely and utilize online banking platforms to stay connected and in control of your finances.
As a non-resident, it’s important to understand how Canadian tax laws will now apply to you. You may earn interest, dividends or rental income and as a non-resident you need to be aware of the rules regarding income earned in Canada. This includes tax treaties between Canada and your new country so keep track of your days spent in each country and maintain detailed records. Consult with our tax professionals who specialize in international taxation to ensure compliance.
Returning to Canada
If you had previously departed Canada for tax status, and then, for whatever reason, decide to subsequently resume residency in Canada, you can do so since you are still a Canadian Citizen. When you return, the individual is generally deemed to reacquire all assets held at that time, at fair market value on the date that residency resumed. Please consult a tax professional before you plan on returning.