Leaving Canada as a tax resident isn’t as simple as packing your bags and relocating. For those with multiple assets and investments, the tax implications can be complex and daunting. In a recent presentation to Real Estate Investors, the focus was on understanding the tax implications of leaving Canada and moving to a different country. Here, we’ll delve into the intricacies of tax residency determination, departure tax, managing rental income from abroad, and the impact on registered accounts like RRSPs and TFSAs.

What Determines Tax Residency?

First and foremost, understanding tax residency is crucial. Simply having Canadian citizenship doesn’t necessarily mean you have to pay Canadian taxes. Tax residency is determined by factors such as owning property, having a spouse or dependents in Canada, and more. These “residential ties” can lead to being considered a Canadian tax resident. To avoid worldwide income taxation, severing these ties is essential.

Departure Tax: Understanding the Implications

Departure tax is one of the key considerations when leaving Canada. It involves disposing of assets at their fair market value upon departure. While there are exceptions for certain assets like primary residences and registered accounts, others like investments in non-registered accounts and shares of private corporations are subject to departure tax. Understanding the tax implications of each asset category is vital.

Managing Rental Income from Abroad

For non-residents owning rental properties in Canada, the tax obligations are multifaceted. A withholding tax of 25% on gross rental income must be remitted monthly to the Canada Revenue Agency (CRA). However, an election allows for withholding tax based on net rental income. Despite this, ongoing filing obligations and tax clearance certificates are necessary for property sales, making the process cumbersome.

Filing Obligations for Non-Residents

Non-residents must file annual tax returns reporting rental income and expenses. Additionally, they need to notify the CRA of their intent to use the net withholding tax election. Even after selling a property, tax reporting obligations persist, making compliance a continuous responsibility.

Effects on RSP and TFSA

For registered accounts like RRSPs and TFSAs, there’s no departure tax upon leaving Canada. However, contributions to these accounts cease once residency is relinquished. Maximizing contributions before departure can help minimize departure tax liabilities.

Conclusion

Navigating tax implications when leaving Canada requires careful planning and understanding of Canadian tax laws. From determining tax residency to managing departure tax and ongoing filing obligations, each step is crucial for smooth transition and compliance. Whether you’re a real estate investor or an expatriate, seeking professional advice can ensure you navigate these complexities effectively, allowing you to enjoy financial freedom beyond Canada’s borders. If you are in need of assistance in deciding what impactions are applicable in your unique case, please contact us today.