Are you planning to leave Canada for the foreseeable future? While we will certainly miss you, you do still have some tax filings to complete, and you may have continued tax filing obligations after you leave. We’ve outlined a few of these key decisions and filing requirements below.
Would I be considered a non-resident for tax-purposes?
When leaving Canada, the Canada Revenue Agency typically has several key criteria when evaluating if you have become a non-resident in the year. They will review various aspects of your move to determine if you have severed ties with Canada, which may include if your principal residence in Canada had been sold, where your family resided when you left the country and other personal property held in Canada. Because it requires a fair bit of interpretation to determine if you have in fact become a non-resident in the year, we suggest setting up a time to discuss with your tax advisor to help determine if you have met the requirements of severing sufficient ties before continuing.
What is the exact date you left?
If you do meet the definition of a non-resident, the date you are determined to leave is the latest of
a) The date you leave Canada
b) The date your spouse or common-law partner and depends leave Canada
c) The date you become a resident of the country to which you are immigrating
In practice, this date is often somewhat difficult to pinpoint such as when there are a few trips back and forth, for example.
What tax return would I need to file when I am emigrating from Canada?
The Canada Revenue Agency requires that a personal tax return be filed for up to the dates you leave the country. Basic personal tax credits will be prorated for only the portion of the year to which you reside in Canada. In other words, if you leave, halfway through the year, you will receive half of the credits otherwise available.
Disposing of assets – what has to go vs what can stay
When you leave Canada, you are deemed to have disposed of ALL assets at fair market value except for a few exceptions, including:
1. Pensions plans, registered retirement savings plans, and registered retirement income funds
2. Canadian real property
3. Canadian business property if you have a business which maintains a permanent establishment in Canada after emigrating
4. Rights to certain benefits under employee plans
5. Life insurance plans
6. Rights or interests in a trust
As many investments will be deemed to be disposed of when you are determined to be a non-resident, you will certainly want to proactively reach out to your investment advisors to obtain the fair market values of investments at this date. Your assets will be listed for the CRA at the time of emigration showing their values so the CRA can verify there is no last chance to tax you and what items, such as personally owned real estate, they still have the opportunity to tax in the future.
In addition, certain investments will be subject to withholding taxes while you are a non-resident of Canada. You will want to advise your investment advisor to change your residency status to non-resident for their records so that they can correctly withhold the amounts for you.
Any additional filings after I have become a non-resident of Canada?
If you personally hold any real property in Canada, you will be required to file a section 216 personal tax return for all years in which you earn rental income after leaving. In addition, there is typically withholdings on gross rentals. There is an election available regarding this withholding amount, which allows you to be taxed on the net income as compared to the gross income which will almost always be to your benefit to ask for.
If you sell any of the real property held in Canada a personal tax return will need to be filed in the year the property is sold, and is separate from the section 216 personal tax return filed. You will want to file a clearance certificate in a timely fashion of the sale of the property in order to prevent certain withholdings and avoid unnecessary filing penalties. Typically, we coordinate with your lawyer in the preparation of the applicable clearance certificate. Ideally, the certificate is requested before you sell the property, as it can take quite awhile to get approval, although at times this timeframe can be very short.
Finally, if you have discussed with your investment advisors, ideally, the correct amount of withholdings have been taken from your investments in the year. However, if an incorrect amount of withholding tax has been taken from income, a section 217 return can also be filed for the excess withholdings to be refunded to you.
As you can see, a wide range of potential issues and filings are required both when emigrating from Canada, as well as after emigration. Further, we have not even touched on planning related to corporations where shareholders emigrate. While this blog post serves to highlight several of the main concepts behind non-residency, we encourage you to arrange a time to discuss these further to ensure that any advice or guidelines are specifically tailored toward your specific situation and needs. It is much easier for your advisor to assist when there is ample time to plan as compared to finding out you are about to move or are touching base from your new home!
George E. Dube, CPA, CA (email@example.com), and Edmond Ho, CPA, CA (firstname.lastname@example.org)Tags: emigration, non-residents