Whether you’re seeking warmer weather, an opportunity to study abroad, or simply a change of scenery, moving out of Canada requires careful planning. From managing finances to understanding tax implications, here’s what experts say you need to know before becoming a non-resident.
Is Becoming a Non-Resident Right for You?
Jamie Golombek, managing director of tax estate planning at CIBC Private Wealth, advises that the decision to move should be more than just financial. Discuss the move with family and ensure it aligns with your lifestyle goals. Some people find places like the Cayman Islands attractive for their zero tax rates but often return to Canada after a short period due to lifestyle preferences.
Selling Your Residential Properties
To be considered an emigrant for income tax purposes, you must sever all residential ties with Canada. This includes selling your primary residence. Holding onto your property might suggest you haven’t truly severed ties, and you could still be taxed as a resident. Additionally, you should end club memberships, organization affiliations, and private health insurance. Some even give up their Canadian driver’s license, although this may not be necessary.
Tax Implications for Non-Residents
As a non-resident, you pay Canadian income tax only on Canadian source income. You must inform the Canada Revenue Agency (CRA), your payee, and your financial institution about your new status. Some income types, like Canada Pension Plan benefits, are subject to a 25% Part XIII tax unless there’s a tax treaty with your new country of residence.
Understanding Deemed Disposition
Before leaving, you’ll face a departure tax, also known as deemed disposition. The CRA assumes you’ve sold certain properties at their fair market value and reacquired them, taxing you on any capital gains. For example, if you own shares that have appreciated in value, you’ll need to pay capital gains tax on the increase in your final tax return, even if you haven’t sold the shares.
Seeking Professional Advice
Len Saunders, a U.S. immigration lawyer, recommends obtaining U.S. citizenship if you plan to move to the United States. He notes that while the U.S. health-care system has benefits, it can be very expensive, especially for older individuals.
Golombek stresses the importance of consulting a tax professional to review your entire net worth, assets, and liabilities. This preparation ensures you won’t face unexpected tax demands after leaving Canada.
Thorough preparation and professional advice are key to a successful move. Ensure you understand the financial and tax implications to avoid surprises and make your transition smooth and beneficial.