Tax information: Leaving Canada
Welcome to the tax guide on leaving Canada, produced by Deloitte. Looking for tax information about going to Canada, Click here
This document has been prepared based on the legislation and practices of the country concerned as at 1 April 2009. Tax legislation and administrative practices may change, and this document is a summary of potential issues to consider. This document should not be used as a substitute for professional tax and immigration advice which should be sought for the country of arrival and departure in advance of moving in order to discuss your specific circumstances.
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Before/once you departQ. Should I complete any documentation prior to leaving Canada?
A. No procedures, reporting, or tax payments are required before final departure from Canada. Tax returns for the final period are due on the regular due dates, and no clearance from Canada Revenue Agency (CRA) is required.
You report your non-residence status on filing a part-year return and disclosing a date of departure to CRA.
Q. Is it beneficial to open an offshore bank account compared to an account on the French mainland?
A. An offshore bank account may assist you in claiming Canadian non-residence
Q. Will I be regarded as not resident in Canada during my period overseas?
A. An individual leaving Canada will often want to be considered a non-resident and in disputes with CRA the issue is usually whether the person has truly become non-resident. Some of the steps that are generally taken by an individual to be considered a non-resident of Canada are:
• Close Canadian bank accounts if possible. Ensure that banks where accounts will be maintained are informed of the change in residency. This would include any Registered Retirement Savings Plans (RRSPs) or other deferred income plans
• Advise clubs or professional associations of the change in status from a resident member to a non-resident member. Alternatively, such memberships may be discontinued
• Cancel Canadian credit card accounts, particularly department store, gas company and other domestic credit cards
• Change the address on your driver's license to be in care of a relative or friend in Canada
• Cancel Canadian brokerage accounts and maintain investments directly or through a broker located outside of Canada. Alternatively, ensure Canadian broker has on file that you are a non-resident of Canada
• Rent out or sell any Canadian property, or otherwise arrange matters so that a residence is not available in Canada for personal use during the period of Canadian non-residency. It may be advisable to avoid renting property given CRA's current trend to view a rental property as being considered a residential tie for factual residency and considered available for use for Treaty purposes
• Ensure legal counsel is informed of your change in residency
• Cancel provincial health care coverage. Non-residents are not covered by provincial health care when returning for a visit
• Limit recurring personal visits to Canada
Please note that you may incur significant gains from the deemed disposition of assets so you may not want to cease Canadian residency (see below for further details on the deemed disposition rules).
An individual’s tax residency is a question of their facts and circumstances and in some cases the position is relatively straightforward, in terms of the above checklist, the key considerations are ensuring that you can demonstrate a fixed and settled pattern of life outside Canada and do not have available accommodation outside Canada.
Q. Will I still need to complete a Canadian tax return after my departure?
A. You are required to file a tax return in the following circumstances:
- If tax is payable for the year in excess of amounts which were withheld on your behalf
- If you dispose of taxable Canadian property in the year (regardless of whether the disposition resulted in a gain or loss
- If you have a taxable capital gain or disposed of property in the year
- If you have to repay any Old Age Security or Employment Insurance benefits.
- If you or your spouse are entitled to receive a Child Tax Benefit
- If you had self-employment earnings in excess of C$3,500 (the return is filed in order to determine the amount of Canada Pension Plan contributions which are payable on that income)
- If you have rental property in Canada
- If you have not repaid all of the amounts you withdrew from your RRSP under the Home Buyer's Plan or the Lifelong Learning Plan.
- If the Canadian tax authorities (CRA) have issued a demand to file
Q. Will I have to pay Canadian tax in respect of the employment income I will earn overseas?
A. This will depend on your residence status. If you remain resident in Canada you will be subject to Canadian tax on worldwide income. In this case a foreign tax credit will usually be claimed on your Canadian tax return, equal to the lesser of the Canadian taxes attributable to foreign source income or the total foreign taxes paid during the year.
If you become a non-resident of Canada you will be liable to Canadian tax only on income sourced in Canada.
Q. Will I have to pay tax in respect of Canadian investment income earned while overseas?
A. Yes. Canadian dividends and pensions paid to non-residents are subject to withholding tax at 25%, subject to the reduced tax rates for treaty countries or certain other elections. Canadian interest can typically be received by a non-resident free of any withholding tax after 1 January 2008. Before 1 January 2008, the 25% withholding tax rules also applied to interest.
Q. I plan to sell my Canadian property while overseas. Are there any capital gains tax implications?
A. The gain on the sale of a principal residence may be tax exempt if the residence meets certain requirements. There is an exemption calculation to determine the exempt portion of the gain on the disposition of a principal residence. The formula calculates the numerator as one plus the number of taxation years in which the property is designated as a principal residence. The denominator is calculated on the period of ownership.
When taxable Canadian property (which includes a principal residence) is sold by a non-resident of Canada, there is a requirement on the part of the purchaser to withhold tax of 25% of gross proceeds and remit these funds to the CRA. A clearance certificate can be obtained from the CRA to have 25% tax withheld on the capital gain of the property. If you decide to sell your principal residence you should ensure that your legal counsel files this form on your behalf.
Q. I have a number of Canadian company shares. Will I remain liable to Canadian capital gains tax if I sell any of these while outside Canada?
A. Generally, all capital gains arising from the disposal or deemed disposal of capital assets are taxable, regardless of the location of the asset sold, but non-residents are taxed only on gains arising from the disposal of taxable Canadian property. The tax rules deem assets to have been disposed of in a number of situations including upon ceasing to be a tax resident of Canada (although it is usually possible to make an election to defer the tax due, until such time as the property is actually sold).
Canadian Departure Tax
As mentioned above at the time you cease to be a resident of Canada, your capital assets are subject to a deemed disposal which effectively crystallizes any gain or loss, with an election available to defer any tax that may become payable, until such time as the asset is sold or you resume tax residence in Canada. The rules are relatively complex and do not apply to all capital assets. You should seek advice on the implications of these rules if you hold capital assets (shares etc) outside registered vehicles Registered Education Savings Plans (RESP), Registered Retirement Savings Plans (RRSP), etc. It should be noted that the rules do not apply to Canadian real estate, but would apply to non Canadian real estate.
Q. What Social Security contributions will I pay when abroad?
A. This will depend upon whether you retain some form of continuing contractual link with your Canadian employer. If you do not retain a connection you will become liable to social security contributions in the country that you are going to. If you do retain a connection your ability to remain in the Canadian system, and be exempt from social security in the country you are going to, will depend on the existence and nature of a social security agreement between the two countries.
