Know the Tax Implications of Immigrating to or Emigrating from Canada

Canada tax residency is a key factor when relocating to or from Canada, a great life change with significant tax considerations. Whether you are immigrating to Canada or emigrating to another country, understanding the tax implications will help you plan effectively and avoid potential financial pitfalls. Here’s what you need to know.

Tax Residency in Canada

Taxation in Canada is based on residence, not citizenship. If you are a resident of Canada for tax purposes, you must report your worldwide income to the CRA, no matter where it was earned. Non-residents, however, are taxed only on their Canadian-sourced income.

Determining Residency

The CRA considers several factors in determining your tax residency status, including:

  • Significant residential ties – Owning a home in Canada, having a spouse or dependents in Canada, or maintaining personal property in the country.
  • Secondary residential ties – Bank accounts, driver’s licenses, memberships, or social ties within Canada.

For individuals immigrating to or emigrating from Canada, residency status may change partway through the tax year, resulting in a “part-year resident” status.

Immigrating to Canada

Once you move to Canada and are considered a tax resident, your tax obligations take effect on the day you become a resident.

Key Considerations

  • Worldwide Income Reporting – Once a person becomes a resident, they must submit worldwide income on their Canadian return. Income earned before becoming a resident is usually not taxed in Canada.
  • Foreign Tax Credits – Canada has tax treaties with most countries. If you pay taxes in another country, a foreign tax credit may be available on your Canadian return.
  • Date of Arrival and Moving Expenses – When filing your first tax return as a resident, the CRA requires your arrival date. You might also be eligible to deduct part of your moving expenses if you moved for work or study.
  • Foreign Property Reporting – If the total cost of specified foreign property exceeds CAD 100,000, you must file Form T1135, the Foreign Income Verification Statement, in your second year of residency. This includes real estate, investments, or bank accounts outside Canada.
  • Tax Benefits in Canada – Depending on your income and family status, you may be eligible for benefits such as the Canada Child Benefit or the GST/HST credit.

Emigrating from Canada

Once you leave Canada and break your residential ties, you generally cease to be a resident for tax purposes. However, there are certain obligations and implications.

Key Considerations

  • Deemed Disposition – You are deemed to have disposed of certain capital assets at their fair market value at the time of emigration, potentially triggering capital gains taxes. This excludes Canadian real estate, RRSPs, and some pension plans.
  • Departure Tax – The gains arising from deemed disposition are subject to departure tax. You may delay this tax by paying a security deposit to the CRA.
  • Non-Resident Taxation – As a non-resident, you will pay tax only on specific Canadian income sources, such as rental income or dividends. Withholding tax typically applies at 25%, unless a tax treaty reduces it.
  • Final Tax Return – In the year of emigration, you must file a “final” Canadian tax return, reporting worldwide income up to the date of departure. You must also notify the CRA of your change in residency.
  • Tax Treaty Considerations – Canada’s tax treaties help clarify residency status and determine which country has taxing rights over specific income types.

Seeking Professional Advice

Navigating the tax rules related to immigration and emigration can be complex, and errors may lead to significant penalties or missed tax-saving opportunities. Contact us for a one-on-one consultation to discuss your specific situation.

Conclusion

Moving to or from Canada is more than just a change of address. Understanding tax obligations ensures compliance with the CRA and helps you make the most of your financial situation. By being proactive and seeking expert advice, you can confidently manage the transition and embrace new opportunities.