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Online Tax Overview for Individuals Departing Canada

Your resource on the numerous tax implications to consider for those planning a departure from Canada

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Tax Overview for Departing Canada

It is critical for individuals emigrating from Canada to understand the tax implications prior to departure in order to plan for and/or avoid potential pitfalls. This document has been designed to highlight key areas for consideration.

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Chapter 1

Canadian Tax Residency

A person is generally considered a resident of Canada if they have established significant residential ties. Important factors include duration of stay, location of family, housing arrangements, and the nature of personal, economic, and social ties to Canada. If a person departs Canada without severing their residential ties, they may remain a tax resident of Canada and be subject to tax, in Canada, on worldwide income.

Actions to Consider:

  • Consider your residency status for income tax purposes prior to departing.
  • Determine your residency end date in Canada (if applicable).
  • Consider the residency status of your spouse and/or dependents as their statuses may affect yours.
  • Have flexibility with respect to your departure date if it is shown to be beneficial from a tax planning perspective.

Chapter 2

Income Tax

In the year of departure, a resident individual in Canada will be taxed on their worldwide income earned up to the date that they cease their Canadian residency. Income earned after the date of departure will be taxed in Canada to the extent that it was earned in Canada or attributable to a Canadian source. The Canadian tax return for the departure year is due on April 30 of the subsequent year.

Actions to Consider:

  • Inform Canadian financial institutions of your departure status so appropriate non-resident withholding taxes can be withheld from amounts paid or credited to you.
  • After your departure, consider ceasing Canadian tax deductions from salary if you will continue to be paid by a Canadian company.
  • Discuss the Canadian and foreign country tax implications of any employer equity plan.

Chapter 3

Canada Pension Plan and Other Benefits

Depending on your scenario, it may or may not be possible to continue participation in the Canada Pension Plan or any other benefit plans that are being offered by your Canadian employer.

Actions to Consider:

  • Determine whether you will remain covered under the Canada Pension Plan.
  • Determine whether your absence from Canada has any effect on participation in company pension or other benefit plans.
  • Review your medical insurance and disability coverage for the period post-departure from Canada.

Chapter 4

Pensions and Investments

Although you are departing Canada, it is possible to continue to hold many types of Canadian investments, including RRSPs, TFSAs, and RESPs. However, it is critical to understand how any change in your Canadian tax residency position may impact your ability to contribute or withdraw funds from the investment(s). It is also critical to understand how ongoing participation and/or distributions may be treated for tax purposes in your new country of residence.

Registered Retirement Savings Plan (RRSP)

Key Departure Considerations:

  • You may continue to hold your RRSP as a non-resident.
  • Contributions to your RRSP can be made for the year of departure subject to the normal limitations.
  • You will no longer generate additional RRSP contribution room while you are a non-resident of Canada.
  • If a RRSP withdrawal is made, a non-resident tax of 25% would be applicable in Canada.
  • Withdrawals from your RRSP for either the Home Buyers Plan and Lifelong Learning Plan that have not been repaid must be paid within 60 days of departure or the amount will be included as income in the year of the departure tax return.

Actions to Consider:

  • Prior to departure, consider the foreign country’s taxation of income within the RRSP.

Tax-Free Savings Account (TFSA)

Key Departure Considerations:

  • You may continue to hold your TFSA as a non-resident.
  • You will no longer generate additional TFSA contribution room while you are a non-resident of Canada.
  • While you're a non-resident of Canada, any contribution made to a TFSA is subject to penalties until the amount is withdrawn.

Actions to Consider:

  • Consider the foreign country's taxation of income within the TFSA.

Registered Education Savings Plan (RESP)

Key Departure Considerations:

  • You may continue to hold your RESP as a non-resident.
  • You will no longer be able to make contributions once you are a non-resident of Canada.
  • If a withdrawal is made from the RESP, a non-resident tax of 25% would be applicable in Canada.

Actions to Consider:

  • Consider the foreign country's taxation of income within the RESP.

Chapter 5

Sale or Rental of Canadian Real Estate

If you have real estate property situated in Canada, understanding the Canadian tax considerations prior to departure is critical to allow for appropriate tax planning and understanding of compliance requirements.

Key Departure Considerations:

  • A sale of Canadian real estate is subject to a non-resident tax of 25% of the gross proceeds unless the appropriate tax certificate of compliance is obtained in a timely manner. The Province of Quebec may require a separate certificate.
  • If the above certificate of compliance is obtained, the non-resident tax remains at 25% but is reduced to amount of the net gain instead of the proceeds.
  • This non-resident withholding tax may also apply to the sale of your former principal residence.
  • A separate Canadian tax filing may be required for the year of the sale.
  • The gross rental income is subject to a non-resident withholding tax at 25%.

Actions to Consider:

  • Will you sell your principal residence or convert into a rental property?
    • Discuss the impact of the sale post departure with your tax professional.
    • Discuss the change-in-use election with your tax professional.
  • You must give notice of the sale to the CRA no later than 10 days after the date of disposition.
  • The sale of the Canadian real estate property will require a tax return to be filed.
  • If converting to a rental property, consideration should be given to file Form NR6 (before rental income commences) so the 25% non-resident withholding tax can be based on net income instead of gross income.
  • File an elective Canadian tax return by June 30, reporting the net rental income.

Chapter 6

Departure Tax

Key Departure Considerations:

  • When departing Canada, you are considered to have sold certain types of property at its fair market value, commonly referred to as Departure tax.
  • If you owned property prior to establishing Canadian tax residency, there may be exceptions from Departure tax.

Actions to Consider:

  • Review your exposure to departure tax rules on assets which have accrued gains.
  • Consider whether you will pay or elect to defer the Departure tax. If you elect to defer, you may have to post acceptable security to the CRA on or before your filing deadline.
  • Maintain a record of the value of all publicly traded stock and other securities you own both on arrival to Canada and on departure.
  • Additional forms, including T1243, Form T1244, and T1161 may be required to be filed with your tax return.
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