Leaving Canada to live or work abroad? Here is some important information about the reporting requirements for income tax when emigrating from Canada.
Determining Your Residency For Tax Purposes
Residency status is the primary issue that needs to be established before determining your tax liability to Canada. It’s often very difficult or complex to determine the various factors needed to properly determine one’s classification between a resident or non-resident.
You are classified as a non-resident for tax purposes on the latest date of the following three scenarios:
1) The date you leave Canada;
2) The date your spouse or common-law partner and dependents leave Canada;
3) The date you become a resident of the country to which you are immigrating.
Items to consider:
- Do you maintain a home in Canada?
- Do you have a spouse/common-law partner or dependent children (under 18 years of age) in Canada?
- Do you have personal property remaining in Canada such as a car, furniture?
- Do you maintain social ties to Canada (membership in professional associations, clubs, organizations)?
- What are your economic ties to Canada (shareholdings, banking, etc.)?
- Is your license or insurance maintained in Canada: (health card, driver’s license, health insurance in a province or territory)?
Tax Obligations When Leaving Canada
You need to file a tax return by the usual filing deadline and report your worldwide income for the period of time you were resident of Canada. As a non-resident, you are subject to Canadian tax only on your Canadian source income.
When you ceases to be a Canadian resident, you’re deemed to have disposed of almost all of your property at its Fair Market Value and to have acquired it for the same amount right after emigrating. This departure tax applies to most properties but there are some exceptions.
The capital gain or loss resulting from the deemed disposition must be reported on Form T1243, Deemed Disposition of Property by an Emigrant of Canada. This gain or loss is then reported on Schedule 3 of your tax return.
If the Fair Market Value of all the property owned on the date of departure is greater than $25,000 then Form T1161, List of Properties by an Emigrant of Canada must be completed and filed with your tax return.
Your Tax Obligations After Emigration From Canada
As a non-resident, you need to pay tax on income received from Canada. A non-resident receiving Canadian income is subject to Part XIII tax or Part I tax.
In most cases, Part XIII tax is applicable to dividends, rental and royalty payments, pension payments, and OAS/CPP/QPP, retiring allowances, withdrawals from RRSP/RRIF, annuities, and management fees. Part XIII tax is calculated at 25% (unless reduced by a tax treaty).
Part I tax is applicable to such items as employment income in Canada, carrying on business in Canada and the disposal of taxable Canadian property.
You can elect to file a Canadian tax return if Part XIII tax was withheld on the following:
- Canadian rental income or timber royalties; and,
- Certain Canadian pension income.
Electing to file a return may result in a refund of all or part of the Part XIII tax withheld.
Payers of income to a non-resident are expected to withhold Part XIII tax or Part I tax as applicable. Interest income received or credited is generally exempt from withholding tax if the payer is unrelated to the non-resident.
What Should I Do When I Know That I Will Be Classified as a Non-resident?
- Let CRA know of the date you leave Canada or when your residency status changes. It affects your eligibility to receive: GST/HST credits, Canada child tax benefits, and Universal child care benefit.
- Advise your payers that you are a non-resident for income tax purposes. The country of residence you have moved to will affect the amount of withholding tax that needs to be deducted from your Canadian source income.
- If non-residency status is desired and your residency would likely be classified as such, take the administrative measures to show that ties to Canada are in fact severed. Be sure to keep this documentation for tax purposes. (ie. Obtain confirmation dates for cancellation of health insurance carrier, letters documenting cancellation of credit cards, memberships and licences).