Leaving Canada?

Here’s what you need to know before you move

Taking advantage of opportunities abroad, like a new career, business venture or lifestyle change, can be exciting. But from a financial and tax standpoint, leaving Canada can create complications you may not be aware of.

Whether you’re planning to move soon or well down the road, make sure you know how a change in residency will affect your tax obligations, investments, and long-term wealth strategy.

Here are some considerations you should discuss with your professional advisors before you take the leap.

Step 1: Determine your tax residency

First things first. Your residency status for tax purposes determines how and where you pay tax:

• Residents of Canada pay tax on worldwide income and can rely on treaty benefits.
• Non-residents of Canada pay tax only on certain Canadian-source income.

It’s important to note that tax residency is not the same as immigration status. For instance:

• A Canadian citizen who permanently relocates abroad is typically a non-resident for tax purposes.
• A Canadian who moves abroad temporarily but intends to return may remain a Canadian tax resident.

The Canada Revenue Agency (CRA) determines residency based on your residential ties, grouped into two categories:

Significant residential ties (most important):

• A home in Canada
• A spouse or common-law partner in Canada
• Dependents in Canada

Secondary residential ties (considered collectively):

• Personal property
• Social or economic ties
• Canadian driver’s licence, memberships, etc.

If your goal is to become a non-resident, you’ll want to sever as many significant ties as possible. Because residency determinations can be nuanced, talk to your tax and legal professionals for the best advice.

Finally, keep in mind that your country of destination has its own residency rules, and tax treaties between Canada and other countries may include “tiebreaker” tests if both jurisdictions consider you a resident.

Step 2: Be aware of departure tax

When you become a non-resident of Canada, you may trigger what’s known as the departure tax. Essentially, Canada deems you to have sold certain assets at fair market value immediately before leaving. Any resulting capital gains or losses must be reported on your departure-year tax return.

Assets that are subject to departure tax include:

• Non-registered investment accounts
• Shares of private companies
• Real estate located outside Canada

Assets that are not subject to departure tax include:

• Canadian registered accounts
• Canadian real estate owned directly
• Interests in Canadian personal trusts
• Most Canadian life insurance policies

The departure tax is typically due by April 30 of the year following your departure, and additional disclosure forms may be required.

Deferring the departure tax

You may elect to defer payment of the departure tax until the asset is actually sold. Also be aware that you may need to post adequate security in order for the CRA to accept the deferral election — such as cash, publicly traded securities, a mortgage on Canadian real estate, or Canadian private company shares.

Both the deferral election and any required security must be submitted by April 30 of the year after you leave.

If you return to Canada before disposing of the property, you may be able to reverse the departure tax, subject to certain rules.

Step 3: Know what assets you can keep in Canada

There are certain assets and accounts you can continue to hold in Canada after you depart, including:

• Registered accounts
  RRSPs and RRIFs can remain in place; income continues to grow tax‑deferred, and withdrawals are subject to withholding tax (generally 25%, or less under a treaty). TFSAs will continue to grow tax-free, but contribution room will not increase while abroad and contributions should be avoided while non-resident. RESP and RDSP contribution rules also change once the beneficiary becomes a non-resident.
• Real estate
  Canadian real estate is not subject to departure tax, but issues may arise if the use changes (e.g., from personal to rental), if the property is sold, or if you earn rental income as a non-resident. Withholding taxes and special reporting rules apply.
• Private company shares
  Departure tax, potential loss of Canadian-controlled private corporation (CCPC) status and withholding tax on capital dividends all require careful planning.
• Other considerations
  Public pensions (CPP/QPP and OAS), life insurance owned personally or through a corporation, and estate planning documents may all be affected when you change residency. Your new country may also have restrictions or tax treatment that impacts how you hold or report Canadian assets.

Need to know more? Let’s talk

Leaving Canada is a major life event with significant tax and wealth planning implications. Meeting with your Richardson Wealth Investment Advisor and your legal and tax professionals early on will help you build a clear, coordinated plan – with no surprises.