March 13, 2017 Leave a comment
The first thing to consider if you leave Canada is whether you leave for good or whether you may come back. In CRA language, if you leave for good, they call this “severing ties” with Canada. Ties are immediate family, residence, assets or investments, bank accounts, drivers’ licences, OHIP cards or membership to Canadian associations. If you give up, sell or move all of these things to another country, you have severed ties with Canada and you would then be considered a non-resident. If you still have these things but temporarily leave Canada and may decide to return, you may still be considered a resident and you would be taxed as you would normally. There are a series of rules which try to determine if you really intend to leave Canada or not in case you have some ties in Canada and some ties in another country. Depending on what the other country is, there are tax treaties between Canada and most countries to determine whether you are a resident of Canada, the other country or sometimes both or neither. This situation would have to be dealt when at the time when it arises. If you leave Canada, there is a tax form T1161 that would be filled out which is telling the CRA the assets that you have on the day you leave.
“Deemed Disposition” of Assets
The general rule for tax purposes in leaving Canada is that everything that you own is deemed to be sold. “Deemed to be sold” or “deemed disposition” means that you don’t necessarily have to sell everything, but taxes are calculated as if you had sold them. This only has an impact if you have assets that have capital gains and you did not sell them until the day you leave Canada.
As examples, for cash there are no capital gains if you leave at any time. If you are receiving dividends from anywhere, they are taxed each year so leaving Canada will not result in more taxes. If you have stocks or funds and they have gone up in value and you have not sold them, the amount of money that you made since buying them would be considered a gain or loss and there would be taxes to pay.
There are many exceptions to this rule in that some things do not need to be sold or taxed when you leave. The relevant examples are if you own a house, there are no taxes up until the time of leaving Canada. If you have RRSP, TFSA or pension accounts, these can stay as they are without paying any taxes until the money is withdrawn. You would not be able to contribute any more money to these accounts, but they can stay as they are without changes. The same rules apply to RESP accounts.
If you choose not to actually sell these assets, they can be sold later on as a non-resident. The capital gain would then be reported at that time. In the case of owning a house, if you do not live in Canada any longer, the capital gain would be taxable after the date of departure whereas if you live here, there would not be any tax. If you know you are leaving Canada, you can either have the house deemed sold until the day you leave and pay no tax, and then pay taxes on a capital gain later on if you keep the house, or sell the house before you leave and avoid paying taxes.
Any income that you have as a non-resident after you leave Canada is taxed at 25% and this is withheld at the source. This number may be different if there is a tax treaty between Canada and another country you may be a resident of. Examples of this income would be RRSP withdrawals and pension plan payments. You may or may not have to file a tax return as a non-resident. It depends on what kind of income you have and where it comes from. If taxes are withheld before you receive the income, you would not need to file a tax return, but if you are selling anything that creates a capital gain or loss, then you may have to file a tax return to report this.
Find Out More Information
This topic is very complex and situations can vary from one person to another. Make sure you have all of the facts relating to your situation before making any decisions. Ideally, it would be good to do this homework prior to deciding if you will leave Canada or not. If you decide to leave Canada, knowing if you are leaving for good or not will also make the research much easier. This article discusses the tax implications of giving up residency. Note that it does not mean you are giving up citizenship as the Canadian tax system is based on where you live, not on what passport you have. A passport may be considered as one of the ties in the CRA decision making process, but it is typically not a major factor. Lastly, this type of decision has many personal and intangible factors pertaining to lifestyle, future prospects or what can happen in another country to name a few. Minimizing taxes may not be a priority if there is a more compelling reason to leave Canada.