Understanding Canadian Exit Tax and Taxation for Expatriates

Are you a Canadian planning to move abroad? Join me, Emily Bron and Senior Tax Manager at the Kraft Berger, Justin Abrams as we learn about the crucial tax implications and strategies to consider before leaving Canada. Discover key concepts such as exit tax, residency status, real estate, investments, business ownership, and more. Our expert guide explains the rules and provides valuable insights to help you make informed decisions about your financial future.

TIMESTAMPS: 

0:00 Introduction
4:22 When Emigrating from Canada, What Happens to my Assets?
12:34 What if I don’t have the money to pay the taxes owing upon departure?
21:08 What should I do with my RRSP/TFSA, non-registered investment accounts, principal residence?
27:09 What if I rent my home while abroad?
27:47 What Happens if I own an Investment Company/Operating Business?

Emily: Hello, hello, everyone. It’s me, Emily Bron owner of the International Lifestyle Consulting. And I continue with my series of life events, how to prepare for relocation abroad. And this part, I specifically designed to help our Canadian. People who are looking for relocation option abroad from Canada.

I am Canadian and I know that our Canadian rules, taxation rules, immigration rules. Some people, and now we’re speaking about taxation different from our American neighbors, because we are different country. And to help us with this topic I very pleased to introduce to you Justin Abrams.

Tax partner and senior tax manager at the Kraft Burger company chartered professional accountant in Ontario. Adam will share what Canadians need to know about taxes. Before starting a new life chapter abroad, because I know from my experience and experience of some of the clients people mostly thinking about, you know their life and how it would be nice climate health condition, real estate, it’s all important to know.

It’s all important to consider, and I will speak about it in my other webinars and meetings. But what many people including Canadians, don’t know how to prepare and how to set Your obligations, responsibilities with your home country, because we are still Canadian. We still have our connections and residency for some time with our country.

And we need to know how to do it correctly. So what or what I’m offering to you is how to do it correctly. And now I’m offering the time and opportunity to speak to Justin. Hi Justin, how are you? 

Justin: Hey Emily, how’s it going? Can you hear me okay? 

Emily: I hear you okay, and I hope that all our listeners see us, they hear us, and they need to be prepared really to learn a lot about the questions you will share with us information about again.

And I know from my personal experience, a lot of information can be found online, but not concerning the taxes, specifically international taxes and in a format. That lay person, like, people can understand. It’s what’s important. Sometimes people read it and they think that they understand, but actually it’s not so easy.

That’s why there are professionals like you, who actually explaining the process from international taxation point of view. 

Justin: Yes, thank you. 

Emily: Please share what you think about it, use case study or cases from the people that, you know, are relocated and just one clarification.

Many people who I’m working with, they’re not relocating to United States because I know it’s important to know destination country. They’re thinking about Latin America, for example, thinking about Mexico, or for example, Portugal. I’m just giving you, you know, two direction because I know that it’s really depends, you know, about home country and destination country.

We’re not speaking now about particular situation now, but kind of general information. 

The first question I have for you: what people, Canadians. From Canada need to know about the taxes because some of them really asking what happened with assets to my current assets in Canada. It’s the first question.

Justin: Well, the rule is, when you are, we have to start with this. What is a resident of Canada? Okay? A resident of Canada is two things. People like you and me who live here, we are a resident of Canada the Income Tax Act has a very short definition. It says someone who is ordinarily resident in Canada.

That’s the definition. So what does that mean? There is a bunch of case law, CRA interpretations and guidance, but generally speaking, if somebody Ordinary mode, mode of living is in Canada. They look at your ties. Okay. Do you have a house here available to you? Do you have spouses and dependents? Those are the main ties.

Then you have secondary ties, passport, bank accounts, citizenship, cars you know, a bank account, bank accounts social club memberships, you know, all of these sort of investments. All of these things, those are secondary ties, okay? So, me, I am a resident here, you are a resident here, because we have all those things here.

Someone else who is just visiting Canada, they can also be a resident here if they are here for more than 183 days. Okay? You and I are here. Even if we were not here for 183 days, like let’s say I took a job you know, and I went to whatever the United States for seven months of the year, if I left my house, I left my kids, my kids are in school here, blah, blah, blah, all of these things, Canada would say you are still a resident, even though you’re only here for 120 days, let’s say.

Okay. So that is a resident of Canada. Now, if you want to escape the Canadian tax net, you need to, you know, not be a resident of Canada anymore. So you’re going to take steps. Maybe, you know, if you have a family, they’re moving with you. If they’re kids, you’re putting them in school. If you have a house here, you were selling your house.

You are maybe getting rid of OHIP. You are the Ontario, you know, health plan. Maybe you’re getting rid of your driver’s license. You are cutting all these ties that says I am not a resident here anymore. Okay, so then you’re moving, you know, to the new place and, and fine, you’re not a resident of Canada.

But Canada says, not so easy, Canada says you’re welcome to do that. You will pay a tax for that privilege. Okay, Canada is a very high tax jurisdiction. So that can be, it can be a bit of a problem. So basically Canada says all this wealth you accumulated while here, We don’t want you to bring it to another country and pay tax on it when you realize it there.

We want you to realize it now when you leave Canada. So for example now there are some exclusions to that. The exclusions are, I’m giving broadly, real estate owned in Canada. You know, if you own rental properties or your house. The reason for that is if you move to Mars, it doesn’t make a difference.

Canada will… Tax that house when you sell it. The reason is the house is here. You don’t pay tax. They’re just gonna go put a lock on the house. So when you leave Canada, they’re not deemed to sell that. Same with RRSP, TFSA what else? Life insurance. Those are the main sort of things. Now you are not deemed to dispose of that.

Everything else though, meaning foreign properties, you’re deemed to dispose of, foreign real estate, you have a vacation place in Florida, you’re deemed to sell that when you leave Canada, for fair market value. Okay, so if it’s worth a million, you bought for 100,000, we have a 900,000 gain that will result in about 250,000 of tax.

You are deemed to sell your non registered securities. And you are deemed to sell, privately owned companies that can create some, some issues with the privately owned companies. I don’t want to get into the specifics, but, but those are the type of things. So, now, so that is what you have to do.

Now, most people do not have the money. Like, let’s say you’re leaving and, you know, you have assets the type I described that is deemed to be sold. I’m just going to use a big number, okay? 7 million dollars. 

Emily: As far as I know, many of prospective clients, or existing clients, rely on their current real estate. Many of them, their home or maybe additional cottage vocational properties, are part of income that they think you know, they will take with them, they rely on when they’re relocating. 

So what in this case? 

Justin: Yeah, yeah. Like I said, if the real estate is located in Canada, then you don’t have this problem. You can leave Canada and there is no tax on those properties. 

Emily: No, no. But they plan to sell this property. 

Justin: That’s fine. If you sell the property. Okay. While you are a non-resident of Canada, so you, you’re saying you leave Canada and then you want to sell?

Yes. If you do that, that is fine. You will pay tax to Canada at that time when you sell. So if you leave Canada 2023 and you sell in 2030, you will pay tax in Canada 2030 now because you are, it’ll be exit tax. No, no, no, not an exit tax. The exit tax does not apply to Canadian real estate. So you leave Canada five years later, you sell the real estate.

Now you pay tax in Canada because if you don’t, if you say, Oh, they’re never going to come find me. That is true. They will not go after you. But because you are a non resident now, there’s a special rule that the buyer of your property has to pay the Canadian government. If you don’t, right, so the buyer is gonna say, the buyer, this happens all the time.

I do this all the time. They will say, are you a non-resident? You say, yeah, I live in Florida. They say, before I give you all the money you need to prove you paid tax on this in Canada, or, I’m not giving you all the money. I will send 25% to the CRA.

If you are selling Canadian real estate while a non resident, there are hoops and procedures to follow. They are a little bit annoying. Because you will not get all your money for maybe six, seven, eight months because you have to deal with the Canadian government.

I don’t want to go too in depth on the process, but suffice to say that you need to do that. Okay. But that, that has nothing to do. So leave in Canada, the main takeaway, Canadian real estate, you know, you don’t have a departure exit tax. What else? Now you owe the government this departure tax, but you don’t have physical money.

You don’t have cash. So the government is very good at, depending on the type of security, accepting security for this tax, meaning, let’s say I owe shares of Bell Canada with a million, you know, 10 million accrued gain. There’s 2.7 million of tax. If I were to leave Canada, the government will accept the Bell Canada shares as security as payment.

Okay. Now they will not charge interest on it as long as they hold the security. So eight years later. Okay. If you sell the Bell Canada stock, you will then pay the tax that you posted security for in 2023. So I leave 2023, I owe 2.7 million. I give them my stock as pledged security. Okay. 2030, I’m now in Portugal.

I sell the stock, CRA will say, Oh, you sold it now, now hand over the 2.7 that you owed us in 2023. Follow me? 

Emily: Yes, but what really if I don’t have money to pay this exit tax upon departure? 

Justin: That’s what I said. If you don’t have money, you can give them the asset. 

Emily: And there’s no securities.

Justin: It will be pretty rare that there will be no security because okay, let me give you an example. If you have public company stock, you will have security because the public company stock is your security. If you have a private corporation, you can give them the shares of that private corporation.

The only thing I could see being a problem, one thing in particular, is if you own foreign real estate, they will not, and that’s all I have, let’s say all I have was 10 properties in Florida. If I’m leaving to Florida, I have nothing else, hypothetically, they will not take security in a foreign country for obvious reasons.

They cannot go, you know, enforce that security with the IRS, right? The United States. Sure. So, in that particular case, you would have to maybe sell one or two of the properties to come up with the money. If you might say, well, what if I don’t do it, right? How are they going to come get me?

Emily: But by the way, what if my property is left to my children, to my adult children in Canada? So they live in it. 

Justin: property in Canada. Remember is not subject to exit tax. Okay. So if you have a property in Canada and you are deemed to dispose of a property in the United States that you have tax on.

Then you, you can pledge a security, the property in Canada, but I’m using a hypothetical example. Let’s say you don’t have any Canadian property. You only have American property. Then there is no, there is no security that they will accept. You don’t, you don’t have anything else in this example. So that case, you will have to sell one or two of the properties to pay the tax to the Canadian government because they will not accept security.

If you don’t do that. We have arrangements with a lot of foreign countries. Now, maybe if you move to maybe somewhere in the Caribbean, you don’t pay your bill to Canada. Maybe the foreign country will not, you know be cooperative with Canada. It’s possible. Okay. But maybe the foreign country will say, no, no, no, no, no.

We’re going to take money from you. We’re going to freeze your bank account here in Guatemala or whatever. And we’re going to give it to the Canadian government. It’s possible. So if you don’t have security, you don’t have money. You will have to sell an asset. Full stop. 

Emily: Can you approximately explain how this exit departure tax is calculated?

It’s percentage of. 

Justin: Pretty straightforward. It’s as if you sold it while you were a resident of Canada. It’s as if that happened is deemed. So for example, on any accrued gains that you have, it will roughly be about call it 27%. So if you have a $10 million gain on a property subject to this tax, you will owe Canada $2.7 million, give or take.

Now if you are coming back to Canada five years, six years, seven years, eight years, maybe. Maybe you plan on coming back or you don’t plan on coming back. If you post security and you do come back, you can get the security back as long as it held its value. And you can basically, it’s like you never left Canada, you can unwind, that’s not the correct word, but I don’t want to get too technical.

You can basically put yourself in the same place as if you never left Canada. You get your security back. And now you are here in Canada again. So if you’re coming back… 

Emily: So you continue with your residency. Continue with your Canadian residency from the point of exit. 

Justin: Let’s say you leave for 10 years and then you come back, you can re establish Canadian residency and get your security back and move on with your life.

I’m simplifying, but… That is one possibility. So, if you want to leave Canada for five years, no taxes here, but you know, maybe I want to come back because maybe when I’m older, I want to have access to OHIP. I want to see my grandkids. Very, very, very common. I want to see my grandkids. I want OHIP again.

Then, I post security, so for five, six years, I’m not paying Canadian tax. And then I come back, I get my security back, and I move on as if I never left. That is a possibility. 

So that is a high level general overview of how that, how that sort of works.

And so you need to take steps. If you know this is happening, don’t call, don’t call somebody, you know, one month, two months in advance. If you own a lot of assets that are subject to this departure, we need to plan for it. If you have if you’re moving to the United States, okay, it’s one thing. But for your audience, if you’re moving to Portugal, if you’re moving to Portugal, specifically or Mexico, when you leave Canada and you’re deemed to sell an asset, with a fair value, you don’t necessarily get that same cost base going forward in your new country. So you could have double taxation. You see what I mean? When I leave Canada, 

Emily: Yeah, but they have treaty. 

Justin: Yeah, well, there, yes, there are treaties but not all the treaties have this.

The United States has something that can deal with this, but Portugal, for example, my memory, I don’t know all the treaties off the top of my head, but from memory, a lot of the treaties do not have this. But Canada. Canada has a mechanism. I’m, I’m trying to remember for sure it is for real estate, but I’m trying to see if it is for something else for other stuff, stuff, for example, like for you know, Bell Canada securities and marketable securities and, and things like that.

If you leave Canada and, you don’t have compensation for that deemed cost in the new country where you sell the property in the foreign country. If you are subject to the same. Tax on the same portion of the game, Canada will let you go back and recoup that tax.

So there is a mechanism in the Income Tax Act that if I pay tax in two countries, Canada and let’s say Mexico on the same value, Canada will let me go back. And take away the Canadian tax. So I’m only paying tax in Mexico. So these are the things we need to look at when we’re leaving. What’s going to happen now?

And what’s going to happen when you start selling stuff in the foreign jurisdiction?

Emily: To your clients to prepare the tax strategy before they leaving and after then, you know, with time plans are changing to come back to you again to review based on the new changes in taxation law. What is your advice? 

Justin: Well, I say before you’re leaving, you gimme a list of assets.

And what you paid for it and how much they are worth, number one. Number two, what is your plan? Like, are you leaving for one year? In which case, maybe we just keep you resident of Canada. Are you leaving for two years? Okay, if you are leaving for twelve years, you know, you’re applying for a green card, you have your wife and kids down there, I mean, that is, you know, you are now leaving Canada’s tax net. So I need to know a list of assets. I need to know your plans. One year, two year, 12 years. I need to know if you’re going to come back or not. 

If you don’t know. Then you try to pick a flexible approach. One flexible approach is posting the security because if you’re going to come back, like I said, you can get the security back.

But if you just pay the tax, And it’s not security, it’s just tax, well then you can’t get it back. So one method of flexibility is to put it as not a payment, but as security. The government will hold it. If I come back, great, I get it back. If I don’t come back, then when I die… Or sell the property. Tax will be paid then.

Emily: But what if people are selling their property and securities before they kind of officially leaving? They’re renting, I don’t know, they’re in Canada and a year after the sale of property they’re leaving. No exit tax? 

Justin: Yeah, if they don’t owe anything, if they sell before they leave, then there’s no obligation.

Because, they are going to pay the tax when they sell here, in Canada, they will sell before they leave. So Canada will get their piece of the pie. 

Emily: Yeah, but it’s a different tax. Okay. Oh, it’s a different tax. I mean, it’s not the exit tax. 

Justin: It’s not, it’s not the right way to look at it.

It is the same tax. We call it an exit tax. Okay. I’m referring to this exit tax, but it’s really, think about it. As if, it’s the same tax as we pay every year, but you are deemed to sell it, you are deemed to sell it. That’s why we call it exit tax. It’s the same tax though. 

It’s paid on exit. We call it that, we call it that as like a nickname. 

Emily: Okay, and next question, what should I do with my RRSP, TFSA, and non registered funds investment accounts? 

Justin: Yeah, so your RRSP, which is very, very common, or RIF okay, if you’re leaving Canada, there’s no consequences to that.

Now, if you are going to withdraw as a non resident of Canada, The RRSP custodian, RBC, BMO, TD, whoever, will have to withhold 25% of all the payments that go to you, they will have to give to the CRA. That is why Canada doesn’t deem you to dispose it when you leave. Because, when payments are eventually made from the RRSP, Canada will get its piece of the pie.

25% will go to the CRA. Full stop. That’s from Canada. You need to know how the RRSP is taxed in the country you’re going to. If the RRSP, which is tax deferred in Canada, is not tax deferred in, like, for example, I don’t know, Portugal, then it is probably best at that point to just get rid of the RRSP because the advantage is gone, right?

Like, every year that you’re earning the income, It’s just taxed in Portugal anyways. The United States is not the case. The United States treats the RRSP for the most part like it’s treated here. Tax deferred. It’s okay. So if you’re moving to the United States, you can keep your RRSP, you should do that.

But there’s a little trick also with RRSP moving to the United States specifically, is before you leave, you want to crystallize your property in the RRSP, meaning sell. And buy back the gains. Why for Canada, that is a non event. There’s no tax to selling in your RRSP for US purposes, that value that you recognized when you take it out in the United States, it is not subject to tax in the United States.

All that will be levied is 25% going to Canada. But if you are in a high tax bracket. You will not be taxed on that withdrawal in the United States. If you do that mechanism maneuver before leaving Canada. So RRSP, if you’re moving to the United States specifically, I think you want to crystallize any gains in there so that that value from the date you moved to the United States is exempt from US taxation.

Emily: What about other countries with. Double taxation treaty like Mexico and Portugal. 

Justin: No, they might not have that rule. Mexico and Portugal, I, I don’t know how they tax the TFSA, the RRSP. So, if, if you came to me, I have networks all around the world in all these countries, right? So, I would speak with my colleague, how is the RRSP taxed in, in Mexico?

Is there some sport, a special treatment? If the answer is yes, then we deal with it. If the answer is no, probably… We will consider, you know, maybe winding up the, you know, the, the RRSP and, and, and paying tax maybe, but depending on the size of the RRSP, we might just keep it intact so that the, so that we delay the 25% withholding tax to the Canadian government.

So we have to look at the size of the RRSP and all that stuff, but TFSA similar it’s different. TFSA, you’re not deemed to sell when you leave Canada. TFSA. When distributions are made from it, there is no withholding tax to Canada. The logic is, Canada, this is a tax free account. Canada gets nothing.

Yeah. Okay? But if you move to the United States, for example TFSA is not recognized as tax deferred. So, any income you earn in it is taxed in the United States anyway. Number one. Number two, you cannot contribute to a TFSA as a non resident of Canada. Or you can, but there’s a big penalty. It’s like one per it’s a penalty to doing so.

If you’re leaving Canada, TFSA you probably will get rid of, and RRSP, depending on where you’re going, you will maybe, in most cases, you know, maybe you will keep it, depending on where you’re going. 

Emily: Okay. So what about annuities, by the way, if people receive annuities from insurance companies? 

Justin: Yeah, annuities yeah, that, so insurance when you leave Canada, if it’s a life insurance product, you’re not deemed to sell it, but again, when you get these sort of periodic payments, annuities and RIFs and everything those are subject to like a withholding tax, the custodian will have to, you know, withhold tax on those payments to CRA.

Emily: Okay. And we have some small remaining part in this question about principal residence. We, you already kind of covered it, but again, just to summarize, what you should do with principal residence? 

Justin: Okay. Well, it depends. Assuming you are going to not sell it, you’re going to keep it and you’re going to rent it out?

So when you say what, what should you do if you want to break ties with Canada, then you should either sell it, sell your principal residence or rent it out on a long term basis so that it is not made available to you. 

Emily: But it’s rented out. It’s still on title. 

Justin: Yeah, that’s fine. Remember, it’s not deemed to be sold because it’s Canadian real estate.

If you are renting it out, then this is what happens. Now you are a non resident of Canada receiving rent from Canada. The payer, the tenant, must withhold 25% and give to the Canadian government of all the gross rental payments. Why? Because Canada… They can’t track you down, so they move the responsibility to the tenant.

So you have to tell your tenant, I am a non resident of Canada, and they have to pay this to the Canadian government. Now, there are ways to reduce that 25%, but that would include you filing a special tax return in Canada to report the rent, and another form to instead of the tenant withholding on 25% of the gross rent.

They can withhold on 25% of the rent after expenses, interest, property taxes, all that stuff. So there, there is an obligation when you leave Canada and you are earning rent. You don’t need to file a tax return here if you don’t want to, but the tenant needs to give 25% to the government. If a tenant does that, Canada doesn’t care.

If you file a tax return because they’re getting 25% of the gross rent already, so they don’t care what you do. 

Emily: But it’s kind of additional responsibility on the tenant if he would agree to do. 

Justin: Yeah, now you can get as a non resident, you can get an agent here, you know, you have, let’s say I leave and my mother or something lives here.

My mother can deal with the tenant. So the tenant can pay my mother. As normal, and then my mother will pay the CRA. 

Emily: Okay, so you can rent when your family members are leaving? 

Justin: Well, yes, the answer, if they’re paying rent, yes, but I was more talking about they, if you have a family member here, they can help facilitate, you know, in between the tenant and you, who now lives in Mexico, they can act as a sort of a CRA, you know, intermediary.

Emily: Okay. The next question people have about the company operating business And what happens with it and what the advice or strategies they need to consider. 

Justin: If you own one of these things, like a private corporation that has this, you are going to be deemed to sell it when you leave Canada.

But again, you don’t have the money. You didn’t sell anything. So either you have to liquidate everything before you leave. Pledge the shares of these companies to the government as security,

but that is very difficult because once you give private company shares to the government, if you want to make big distributions, if you want to bring on partners, if you want to do all these things that the government has to approve, because this is their security, right? They can’t let you do whatever you want with it.

They need to approve. You’re embed with them. You are tied to the government for as long as they have the security. Now, if you are okay with paying some tax before you leave, there is a strategy to, you know, you have to pay tax now, but going forward in your new country, we will make sure that that value is not taxed again.

So your options are liquidate before you leave. But if you don’t want to do that, you want to keep things going. You either need to post as security, the shares, or you need to pay the tax in a certain manner while holding the shares going forward. So you don’t liquidate, but you do something to pay the tax so that you don’t pay it anymore going forward.

So those are your three options. If you’re an American, if you’re moving to the United States, there’s a lot of reporting if you continue to own a Canadian company. If you continue to own a Canadian company while you are an American, There’s all sorts of reporting and it could be adverse tax effects to that.

So you can maybe change the nature of the company into a special kind of vehicle that is taxed a little more favorably, let’s say in the United States specifically. For Mexico, Portugal, I don’t think from, just from my memory, there’s, you know, maybe there is a special type of company, but I don’t think there’s a special kind for those entities.

So, so there. We will just need to consider the foreign countries rules before making a decision which option to choose with respect to the business.

Emily: Thank you very much, very interesting. You know, many people these days have online based business, like consulting, web design this kind of professional services. Provide online. What about this type of businesses? 

Justin: Well, yeah. If you’re a sole proprietor, meaning you’re not incorporated, you mean like you, you don’t have a corporation.

Emily: Yeah. So proprietor partnership, even all business, like LLC, but providing online services. 

Justin: Yeah, it doesn’t really matter that you’re providing online services or not. So it just matters what structure you have. So if you are, same thing, if you’re a sole proprietor, you are deemed to sell Your assets when you leave and your assets would be probably maybe goodwill the brand name value, right?

All of these things technically you would have a value now, maybe depending on the size of the business Maybe you say there’s not much value. You just leave Canada and that’s it. You know, you argue there’s not much. 

Emily: No, but I don’t want to sell I’m taking my with me. It’s not question about right selling.

Justin: If the business has substantial value Right? So technically the rule is you are deemed to sell the assets of that business when you leave Canada. Assets being maybe goodwill, you know, personal goodwill inventory, you name it. All those things. Canada wants the tax. So I’m just saying, if the business is not…

You know, too valuable, right? I mean, if it’s kind of a small, small business, maybe you say, okay, there’s no real value here. The tax is so small. There’s actually a deeming rule in the Income Tax Act that if the tax you owe is 50,000 or less, that is actually deemed security. It’s deemed security. So 50,000 or less, you actually don’t need to pay is deemed security that the CRA will accept until you dispose of the assets in the business.

If the amount you owe is more than 50,000, you have to go through a process, apply, they have to accept it. If you owe 50,000 or less it’s just, there’s a deemed security. They say, yeah, yeah, yeah. It’s like you paid it. When you sell the assets, then you will actually pay it. You don’t have to go through the process of applying for security.

Emily: I see, I see. Thank you very much. It’s a lot of information and I believe for listeners a lot of to digest to go through. maybe you’ll share with us. Just, you know, some cases from your professional experience about what kind of mistakes people made.

Because I would like really, you know people to avoid mistakes, to, to be better prepared to be you know, tax compliant and in the countries they’re moving to. 

Justin: I mean, I think the main problem is not starting in advance, not being proactive, you just, you, oh, you call me and you say, we moved five months ago.

Well, now it’s a bit of a tricky thing. You know, especially if you’re going to the United States. Because we might want to change, as I said, the corporation type to a favorable vehicle in the United States. Now it is too late. I want to, I need to know what assets you own. You know, you don’t tell me because with the assets, then we can maybe plan certain things.

What did you do with, what are you doing with your principal residence? Are you renting out the house? Well, you didn’t tell me about it. Remember that withholding tax I told you, 25%? You didn’t tell me. TFSA, remember I said, is taxed badly in a lot of other countries? Well, you still have it. So now you are taxed on the, you know, the income that you earned from when you left Canada.

You didn’t tell me about it. So those sort of things, not talking about it.

Emily: our Canadian Snowbirds, they coming to spend six months, say, in Mexico or in Florida, and after then, oh, they so like that they decided to be there kind of full time, or something happened so they were kind of not prepared in advance, but things happened, and now they decided not to go back to Canada.

Justin: I mean, exactly, right? Like, that’s a, that’s a perfect example. So, that is fine. When you’re using Mexico or the United States, we have a treaty with them. So, if you’re in Mexico, as long as you’re sort of paying tax to the Canadian government, you’re treating yourself like a resident of Canada, okay?

And then you decide, I’m not going back. If you are living in Mexico or the United States, I don’t know Mexico rules, I know the United States, but let me use the United States as an example. If you are there for more than 183 days in a year, you are a resident of that year. If you are also a resident of Canada because you have a home there, you have a family there, you have whatever, all these things all these ties, then you’re a resident of both places.

So the treaty will tell you which one you are closer to. So if you want to leave the Canadian tax net. You can do that if you minimize your ties to Canada, if you minimize your ties to Canada, you can do that. You will have the exit tax at that time. That is fine That is fine, we can still do that, because you are a resident of Canada.

Because you are sitting physically in the other country, it’s not as big of a deal if you were still a resident of Canada up to that point. So if you were sitting physically in Florida, and you tell me after five years, oh, I’m severing ties with Canada, that’s fine. As long as, until that time, you were filing as a Canadian resident.

Emily: Even if the property is still in Canada? Even if the property is still in Canada, but they physically now, more in United States, not only more than 183 days, but actually spent a whole year in other country. Are they Canadian resident anymore? 

Justin: Well, look, if you spent more than a year in the other country, but Canada, you still have, like this is what I said before, if you still have house some family, maybe bank accounts, this, all that stuff that’s available to you, you can argue that you’re still a Canadian resident because Canada will see that you have all these ties.

So like I said, Canada might see you as still a resident, the United States will see you as a resident, and then you go down the list of tiebreaker. Where do I have a permanent home available to me? If both places, next test, where’s my center of vital interest? Where are my friends? Where’s my family?

Where’s my bank account? Where’s my social club? Where’s all that stuff? If that proves inconclusive, where’s my habitual abode? Where’s my normal mode of life? Right. And then for citizenship, usually you don’t get past, you know, maybe number one, you get past number two is where, you know, or three, you’re going to break the tie.

I’m speaking for the United States, but a lot of the treaties in the OECD, you know, Mexico I, I don’t know off the top of my head, Mexico, but if I looked at it, it has similar tests to that, the OECD, the, you know, organization for economic cooperation development, those countries have those sorts of tests in their treaties.

Emily: Very interesting information. Thank you. And please tell me how people how can connect with 

Justin: you to have more detailed analysis. The best way is, is email.

I can give you, I don’t know if you can write my email here or if you, if you have it already written down in the, in the chat or something. 

Emily: Yeah. I will share the email. 

Justin: Yeah, is I’m going to I typed it to you on on LinkedIn, or, or my phone number. So, it’s jabrams@kbllp.Ca, or 905-415-4476.

Emily: So I understand the general overall advice before people considering relocation already started the process. It’s Justin Abrams, and I will share the detailed contact information.

Justin: Yes. Yes, it’s Justin Abrams, 905 -415-4476, or jabrams@kbllp.Ca. Emily will, will share it.

Emily: Thank you very much, again we we’ve had pleasure to, to listen and I had pleasure to have conversation with Justin Abrams accountant from Markham Ontario. And I’m Emily Bron owner of the International lifestyle consulting and my mission is to help professional baby boomers and remote workers with families to find the dream destination of Canada.

And set up the process, relocation process correctly. And I would help people get to other country with the help of professionals such as Justin Abrams financial advisor we’ve had on our previous interview live streaming event. And in the future. I will invite other professionals who would share their knowledge to provide some overall and all this in order to help Canadians to be tax compliant.

And actually, you have the best possible relocation experience. Thank you very much, Justin. And have a good day. Thank you everyone. 

Justin: Bye.

Justin Abrams

CPA,CA, Tax Partner at Kraft Berger LLP Chartered Professional Accountants

Justin Abrams,CPA,CA, is a Tax Partner at Kraft Berger LLP Chartered Professional Accountants and has been at that position since January 2018; he joined the firm in 2013 as a Senior Manager (from 2006-2013, Justin was at Deloitte LLP), specializing in private company taxation, including corporate restructuring, estate planning, corporate and personal compliance and trusts. Although the main focus of his practice is on private companies, Justin also has a breadth of expertise with respect to the taxation of public companies, including the preparation and review of provisions under IFRS, cross-border taxation planning/restructuring and compliance. Justin has also been a member of the M&A taxation team since 2011 and has worked extensively in this field on a number of high-dollar, high profile projects. Justin has also completed parts I, II and III of the CPA Canada’s In-Depth taxation program and has tutored the Part I and II of CPA Canada’s in depth tax program. Since joining Deloitte in 2006 and Kraft Berger in 2013, Justin has been a valued member of his taxation group and is sought after as a resource for technical, organizational and managerial expertise.

How to Avoid Tax Trouble When You Move Out of Canada

Are you dreaming of living in another country? Whether you want to enjoy the sun in Mexico, the culture in Europe, or the opportunities in the United States, moving abroad can be an amazing adventure. But before you pack your bags, you need to think about how your move will affect your taxes. If you don’t plan ahead, you could end up paying more than you expected or getting into trouble with the tax authorities. In this article, we’ll share some expert tips on how to handle your taxes when you leave Canada.

Are You Still a Canadian Resident?

The first thing you need to figure out is whether you’re still a Canadian resident for tax purposes. This is not the same as your citizenship or immigration status. It depends on how much you’re connected to Canada and your new country.

If you live most of the time in Canada and have a home, family, and money here, you’re probably a Canadian resident. This means you have to pay taxes on your worldwide income, no matter where you earn it.

But if you cut most of your ties with Canada and settle down in your new country, you might stop being a Canadian resident. This means you only have to pay taxes on your Canadian income, like interest, dividends, or rent.

Justin says that determining your residency status can be tricky, as there is no clear-cut rule or test. He says that you should consult a tax professional to help you assess your situation and plan accordingly.

What Happens When You Leave Canada?

When you stop being a Canadian resident, you might have to pay an “exit tax”. This is because the government treats you as if you sold some of your assets at their current value on the day you leave. If your assets have gone up in value since you bought them, you might have to pay tax on the difference.

But don’t worry, you have some options to avoid or reduce the exit tax:

• Sell before you leave: You can sell some of your assets before you move and pay the tax then. This might work for assets that are easy to sell and not taxed by Canada, like stocks or bonds.
• Pledge as security: You can promise to give some of your assets to the government if you don’t pay your taxes. This might work if you plan to come back to Canada someday, as you can get your assets back then.
• Pay the tax: You can pay the exit tax and keep your assets. This might work for assets that are hard to sell or might go up in value, like real estate. Justin mentioned that the exit tax can be a significant cost for expats who leave Canada, especially if they have appreciated assets.
• Check the tax treaty: You can see if the country you’re moving to has a tax agreement with Canada. Some agreements can help you avoid or lower the exit tax.
  
  

What About Your Property and Investments?

If you own property or investments in Canada, you need to know how they will be taxed after you leave. Here are some things to consider:

• Your home: Your home is not subject to the exit tax, but if you sell it later, you might have to pay tax on the profit. You can avoid this by selling your home before you leave or by keeping it as your principal residence.
• Your rental properties: Your rental properties are subject to the exit tax, and you also have to pay tax on the rent you receive. Your tenants have to withhold 25% of the rent and send it to the government unless you get a special certificate.
• Your retirement savings: Your retirement savings, like RRSPs and TFSAs, are not subject to the exit tax, but they might be taxed differently in your new country. For example, the United States might tax your TFSA as a regular account, not a tax-free one. You should talk to a tax professional to find out how your retirement savings will be treated in your new country.
  
  

What If You Own a Business or Have Investments?

If you own a business or have investments, your tax situation can get even more complicated. Here are some things to watch out for:

• Your private corporation: If you own a private corporation, some of your assets, like shares or loans, might be subject to the exit tax. You can use the same options as above to deal with the tax, or you can plan ahead for how your corporation will be taxed in your new country.
• Your online business or sole proprietorship: If you have an online business or a sole proprietorship, the tax implications depend on how your business is set up and how much it’s worth. You should think about the potential tax consequences of selling your business assets when you leave Canada.
  
  

Preparation is Key

One of the most common mistakes Canadians make when moving abroad is not starting the tax planning process early enough. Being proactive and seeking expert advice well in advance of your move can help you navigate the complex world of international taxation and make informed decisions about your assets, investments, and residency status.

Remember, each individual’s situation is unique, and tax laws can be intricate. Seeking advice from professionals who specialize in cross-border taxation can help you develop a personalized tax strategy that maximizes your financial well-being while complying with the tax regulations of both Canada and your new country of residence.