With recent tax changes in the 2024 federal budget, many successful Canadians are contemplating moving abroad. Whether it’s the United States for a better business environment, Saudi Arabia for no income tax, or Australia for its climate, there are significant financial considerations to keep in mind before making the move.
Determining Residency
Residency status is critical for tax purposes. A factual tax resident of Canada is a Canadian living abroad whose global income is subject to Canadian tax. An emigrant, however, is considered to have severed ties with Canada, with their global income typically taxed only in their new country.
Canadian-born citizens may become non-residents if they establish residency in another country or spend more than 183 days outside Canada in a tax year. However, maintaining significant residential ties to Canada, such as a residence, spouse, or dependents in Canada, can still classify someone as a factual resident.
Tax Implications
Factual residents must pay tax on their global income and may receive credits for taxes paid in other countries, but any shortfall must be paid to Canada. Emigrants face a departure tax on Canadian assets, which can be substantial. This tax is on unrealized capital gains and can sometimes be deferred by establishing a hypothecation with the Canada Revenue Agency (CRA).
Investment Considerations
Non-residents can maintain registered accounts like RRSPs and TFSAs but cannot make further contributions. There may also be new tax implications based on the tax code of the new country. For example, the U.S. taxes earnings within a TFSA, which are tax-free in Canada.
Real Estate and Rental Income
Non-residents can own Canadian real estate and earn rental income but must withhold 25% of the rental income and remit it to the CRA. Failure to comply results in interest and penalties. Selling Canadian real estate as a non-resident involves notifying the CRA to avoid a 25% withholding tax on the total sale proceeds.
Corporation Shares
Emigrants with shares in a private Canadian corporation will have these deemed sold at departure, triggering a capital gains tax. Additionally, the corporation may lose its Canadian-controlled private corporation (CCPC) status, eliminating certain tax benefits.
Leaving Canada is complex and requires careful planning to address all financial and tax considerations. Consulting with a financial team, including a tax lawyer, is essential to ensure a smooth transition and to evaluate whether the move will be financially beneficial in the long term.