Moving abroad can be a complicated process. Perhaps you are a professional moving for work or a retiree looking for a warmer location. There are tax consequences if they choose to leave Canada permanently.
Understanding the penalties that may arise when terminating your Canadian tax residence can ease the process and reduce implications. Under Canada’s tax system, your residence status determines your income tax commitments to Canada. Upon leaving, the government may require you to pay a departure tax return on specific assets if your assets exceed certain dollar thresholds.
A taxpayer’s departure return will generally contain all of their global income up to the date of departure from Canada, as well as any capital gains or losses on a presumed sale of property that happens at the time of departure.
Who Has to Pay Departure Tax?
The departure tax is imposed by the Canada Revenue Agency (CRA) on persons departing Canada and terminating their ties with the country.
Determining your residency status is the basis for seeing if you need to continue to pay tax in Canada. The government will assess your residential status by first determining if you have maintained significant ties in Canada, such as a home, spouse, or common-law partner and dependants in Canada. The government will also check your secondary residential connections, including personal property, social memberships, recreational or religious, valid driver’s license, and Canadian bank accounts.
If you leave Canada but have residential ties, generally, you are considered a factual resident of Canada.
While Canadian residents are taxed on their worldwide income, a non-resident of Canada is taxed solely on income earned in Canada. In general, you are a Non-Resident if you meet the requirements of leaving Canada to live in another country and severing all Canadian residential-ties. Specifically, Non-Resident status is achieved by selling or renting a property in Canada, moving to another country permanently, having your spouse or common-law partner and children leave Canada, ending social links, such as a church or recreational membership. Because each host nation has its tax regulations and, in many cases, a treaty with Canada, switching to Non-Resident status is critical.
Taxpayers planning to leave or have left Canada permanently can obtain an opinion from Canada Revenue Agency(CRA) regarding residential status by completing Form NR73 Determination of Residency Status.
When to File a Departure Tax Return
Individuals’ departure tax returns need to be submitted by April 30 of the year after leaving Canada. And it would be June 15 for individuals reporting business income. If you hold property or goods in Canada, although no income is earned for the year of departure, submitting a departure tax return is mandatory. All capital properties are assumed to be disposed of at a fair market value.
Assets Subject To The Departure Tax
When you leave Canada, the departure tax applies to the following assets:
- Real estate outside of Canada
- Unincorporated companies outside of Canada
- Shares in private or public companies in Canada or abroad
- Mutual funds in Canada or elsewhere
- Partnership interests
- Non-Resident inter-vivos (living) trust interests
- Other portfolio investments
- Property for personal use as well as listed personal property, including works of art, jewelry, stamps, coins, and rare manuscripts
Before moving out of Canada, all the above steps and information can help you avoid adverse tax implications. This article is a summary of general-tax rules in Canada. Refer to Canadian Revenue Agency for specific details, or you can reach out to us directly for further information.
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