How to Avoid Tax Trouble When You Move Out of Canada

Avoid Tax

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 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.

Listen to the Podcast:

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.

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Hi, I am Emily Bron.

After living and working in 4 countries (3 continents), experiencing several immigrations, changing several professional fields and being an avid traveler, I created International Lifestyle Consulting to help you to find the best matching place and to relocate abroad for a better quality of life, work, or retirement.

As a professional Baby Boomer and Remote worker, I am relocating again!

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