If you have left Canada to work in another country or are considering it, you need to consider your income tax options.
Everyone who is a resident of Canada is required to pay income tax on their woldwide income. However, leaving Canada to take up residency in another country may not be enough to avoid Canada’s income tax. When you leave, you need to ensure you understand Canada’s residency requirements for income taxes and pay the exit tax.
What Is A Resident For Income Tax?
When determining if a person is a resident of Canada, the CRA will look at the fact surrounding each case. They will first look for residential ties. Residential ties include:
- A Home Available for Occupation: If you have a home in Canada that is available at will for your use is seen as a significant residential tie. If the property is leased to an unrelated third party weakens the tie to Canada.
- Spouse or Dependents: If you leave Canada but leave your spouse or dependent children here, this is seen as a significant residential tie to Canada.
Even if none of the above applies, the CRA will the look for secondary tests of residence. These items are looked at on a whole as opposed to individually and the more of these you have, the more likely you may be a resident. Secondary tests of residence include:
- Furniture, clothing, cars and RV’s in Canada,
- Memberships in clubs or other social organizations in Canada,
- Canadian bank accounts,
- Employment in Canada,
- Credit cards,
- RRSP’s, RRIF’s or other savings plans,
- Brokerage accounts,
- Actively managing a business,
- If you have landed immigrant status or have work permits in Canada,
- You have hospital or medical insurance in Canada,
- A Canadian driver’s license,
- A motor vehicle registered in a province or territory of Canada,
- A seasonal dwelling place in Canada,
- a Canadian passport, and
- Memberships in Canadian unions or professional organizations.
Even if you do not meet any of the primary or secondary tests for residency, you can still be considered a resident of Canada for tax purposes if you are in the country for 183 days in any given calendar year.
The Canada Revenue Agency has a number of resources available for those thinking of leaving Canada.
- Determination of an Individual’s Residence Status
- Residency for Individuals
- Leaving Canada (emigrants)
- NR73 Determination of Residency Status
The Exit Tax
Once you have left Canada, and severed your residential ties with Canada, the final tax hurrah is the so-called exit tax.
When you are no longer considered a resident of Canada, you are deemed to have sold all of your assets at their fair market value. Any net taxable capital gains will be included in your income.
You can sever tax residency for a period of time and then re-establish residency later. This is a highly complex set of rules, but cal allow you to come back and unwind the exit tax at a later date.
Final Words of Wisdom
If you are planning on leaving Canada and sever tax residency, be sure you plan accordingly. Get help from a tax accountant before you depart.
Related Articles
- Tax Implications For Canadian Marrying Foreigner And Residing Abroad
- Am I A Resident Of Canada?
- Becoming A Non-Resident & Taxes
- US Citizen & Resident Working in Canada
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Hello.
I was researching the pension and residency subject, trying to count the years to see my eligibility. It says that I will be able to collect my pension while living outside of Canada only if I have been a resident of Canada for 20 years. I am a Canadian citizen, after immigration. After a few years in Canada I left for Japan for a few years, studying there. No income, as I had sponsors and homestay. I kept the driver’s lisence, of course the passport. Then I returned. I moved to another province, and had no problems with updating and getting any new documents. I did all the taxes as I zero income. I was actually accepted on medical income assistance. After a few years, I left traveling for a few years, visiting many countries. I kept my drivers license, banks, etc. Then came back, worked, stayed a few months, then left traveling. All income tax returns are up to date. It’s been traveling using my save in Canada money, no income abroad. I have never considered severing ties with Canada.
My question is: do those years of travel add to my 20 years residency in Canada or not?
I can’t comment on whether you are a resident of Canada or not. I would suggest you contact accountant to assist you.
Dear Tax Guy,
This is a great site! I’ve learned quite a lot from the responses you’ve offered.
My situation is an interesting one and a bit complicated so I’ll attempt to explain in point form.
1. have lived in the Middle East for about 15 years.
2. filed taxes on the year I left.
3. moved back to Canada in 2002 for about a year as husband moved to Africa and I was supposed to join him. This never happened as the country was too dangerous. I stayed in Canada until 2003. Filed my income tax as a resident that year (husband is a Eurpoean with no status in Canada).
4. moved back to the Middle East in 2003 to work for a company who ensured me I was a tax payer. Paid tax with them for 2 years.
5. When I filed my taxes in 2005 the government informed me that I was a non-resident.
6. Spent about a year and a lot of money sorting this all out. I hired a reputed tax specialist company in Calgary. They advised me to not submit the NR73 as the government had already informed them that I was considered a non-resident.
7. Everything was fine, but now I am going to work for a Canadian company in the Middle East who require a letter from CCRA which indicates I am a non-resident.
8. have contacted the tax specialist company, but they are not responding to my emails.
9. Last summer I began construction of a seasonal dwelling in Canada. I have absolutely no intention of ever living there again, but am afraid that this further ‘residential tie’ may change my status.
10. I do not want to contact CCRA to raise any red flags.
I realize this is a very complicated case and am well aware that each case is considered different with CCRA. I guess my question is, ‘Would you contact CCRA’ if you were me? I believe I am a non-resident who simply has a rental property and, soon, a seasonal residence. I don’t believe the tax specialist company will reply to my emails as I haven’t used their services since 2008 as my tax filing became much more straightforward after all my issues were sorted out.
Any advice would be greatly appreciated. If you can’t offer any, thank you just the same.
Lynnie
I can’t provide advice on this. I suspect that as long as it is vacation property, you are probably OK. You should work with someone you have hired.
Sorry. I forgot to mention that I purchased a rental property the year I was back in Canada (2003). It’s all legitimate with a property manager who manages it and withholds the 25% tax. This is the other residential tie I was kind of referring to in my previous post.
Thanks again.
Lynnie
Hello Tax Guy,
Thank you for the informative website.
I just accepted a job to move to a country that has no tax treaty with Canada. I am considering declaring non-residency, however this year I will also be receiving a lump sum of money from my life insurance that’s coming to an end.
I will be declaring non-residency as of Feb 01, 2012. But the insurance money will not coming until at least June/July, 2012. What will happen then? Will I require to file that insurance income next year as a non-residence? or I should be reporting that income to the new country I will be paying tax to?
Thank you for your time.
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