There are numerous tax impacts that must be very carefully considered when deciding to leave Canada to live elsewhere.
Analyzing the termination of your tax residence is a question of fact. Generally, the Canada Revenue Agency will consider that you have left Canada if you sever your residential ties with Canada to create new ones in the host country.
Analyzing your residential status generally involves examining your significant and secondary residential ties.
Significant residential ties are:
- The location of your dwelling place;
- The location of your spouse’s and dependents’ dwelling place.
Secondary residential ties include:
- Economic and social ties with Canada (such as employment, financial accounts, interests in Canadian companies, social and recreational activities);
- Personal property in Canada (such as furniture, clothing, automobiles);
- Other ties (such as medical insurance coverage, drivers license, etc.).
Severing Ties with Canada, the Tax Implications
When you leave Canada, you are deemed to dispose of all of your property at its fair market value immediately before you cease to reside in Canada (even if you have not actually sold it). This deemed disposition triggers a departure tax on the gain accrued on this property before your departure.
Some property is specifically excluded from the deemed disposition rule, such as your residence, pension plans (including RRSPs and RRIFs), RESP and stock options.
Home Buyers’ Plan
If you withdrew funds from your RRSP as part of the Home Buyers’ Plan (HBP), the balance is payable at the earliest of the following two dates:
- Before the date you file an income tax return for the year you become a non-resident;
- 60 days after leaving Canada.
What do I need to do before leaving Canada?
1. List your property at the time of departure from Canada
If the fair market value of the property you own when you leave Canada is more than $25,000, you have to report this property to the Canada Revenue Agency or, failing this, you could be liable for a penalty of up to $2,500.
Some property is excluded from the mandatory reporting requirement, including:
- Pension plans (including RRSPs and RRIFs);
- Personal use property (such as clothing, household effects, automobiles) with a fair market value of less than $10,000.
2. Notify Canadian payers of your change of tax residence status
If you plan to keep financial accounts in Canada that generate passive income (interest, dividends), you need to notify your financial institutions of your non-resident status so they can ensure appropriate deductions at source are made on income paid after you leave Canada and issue the appropriate tax slips at year-end.
3. Repay your Home Buyers’ Plan balance
You can repay your HBP balance by making RRSP contributions before you leave Canada. Otherwise, the HBP balance will be included in your taxable income in the year of departure.
4. File a departure tax return
You have to file a tax return by April 30th of the year following the year of your departure from Canada.
The purpose of this tax return is to:
- Record the date you leave Canada and change your residence status;
- Report property you own at the time you leave Canada;
- Prepare the appropriate tax election forms;
- Report and pay the departure tax or elect to defer payment of the tax by providing a sufficient guarantee to the tax authorities.
5. Talk to an international tax expert
Our team of international taxation experts can support your emigration process by providing integrated consulting and tax compliance services tailored to your situation.
This article was drafted with the assistance of Kais Yousfi.