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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i hope you can help me out with my question.
I was a Canadian Immigrant & did my landing in 2001. In 2003 or 2004 i got my Permanent Resident Card. I was filing for my taxes all these years.
In 2005 i got my Canadian Citizenship & had the opportunity to move abroad almost immidiately after. i had no assets & properties in Canada, then & even today.
I was verbally told by my accountant that if I closed my bank account & cancelled my OHIB card (which i did), then as a non-resident Canadian living abroad with no property or asset in Canada, I would not be liable to any taxes & also dont need to file.
Have i been given the correct information or do i need to pay taxes on my worldwide income or am i required to file / need to file with zero taxes?
Please advise.
Thanking you.
@ Z:
It sounds right given these facts.
thanks for your prompt response, but even if i am not liable to taxes, must i file for taxes (even if zero)?
@ Z:
You have to file a Canadian tax return if you have sold capital property such as investments or real estate. Otherwise, propobably not.
Tax Guy
We live in Canada, born & raised. We have our own business and plan to keep it. We have an oppurtunity to buy a piece of equipment with personal money in the U.S. and send it overseas where an international company will rent it. If the money is earned abroad, and stays in a bank account in say Spain, what taxes am i responsible for in Canada. As well, if we do transfer money into Canada is there any tax relief as the money was earned abroad. Basically asking the question; Can a guy get a break from personal/corporate income tax by getting into business overseas.
Thanks
@ Jason:
A resident of Canada, you are taxed on your worldwide income. A corporation is generally resident in the country where the core management of the company resides. As a result, the physical location of your assets is not important because the income generated is taxed in Canada. If the equipment is rented or leased out, you will be able to claim the Capital Cost Allowance against your rental income.
The revenue you receive outside of Canada may be subject to foreign withholding or other foreign income taxes. Generally speaking these taxes may be claimed as a credit in Canada to offset the foreign tax already paid.
I am a Canadian who has been working abroad for about three years. I live in Taiwan, a country that does not hold a tax treaty with Canada. I was wondering if the non-resident status still holds true with countries that do not have a tax treaty with Canada?
Also, I have not paid taxes while living abroad. When I re-enter Canada, will I be subject to paying back taxes? As well, as I have no significant ties to Canada, will this be equated in automatically, or must I motion for this on my own accord?
Thanks for any help you can provide
@ Susan
Good questions!
If you are not a resident of Canada, you do not have to pay Canadian income tax. However, any Canadian source income (dividends from Canadian companies or interest earned on balances in regular bank accounts) are subject to non-resident withholding tax. You do not file a Canadian tax return if you are subject to non-resident withholding taxes on Canadian source income.
When you return and become a resident again, you will only be required to pay Canadian income tax on income earned from your date of Canadian residency forward. There would not be any back tax since you were not a resident.
I am a Canadian who has been living and working in the US for several years under TN and H1 visas but I have never completed the non-resident status form. I’ve been paying US taxes but not Canadian, do I owe Canadian taxes?
@ Chris – Your status in the U.S. does not have an impact on whether you are a resident of Canada. Whether you are a resident of Canada depends on the facts in your given set of circumstances.
You should have a read through the following CRA Interpretation Bulletin (particularly paragraphs 4 through 15): http://www.cra-arc.gc.ca/E/pub/tp/it221r3-consolid/it221r3-consolid-e.html
I am a canadian citizen and i currently got a swedish temporily student working visa. When i work here i understand i will have to pay the swedish tax on my pay cheques. I was wondering when i move back to Canada after my visa is up, will i receive all my money back from the swedish government that i payed in taxes? If so how do i go about doing this?
@Scott:
You wouldn’t get a credit for tax paid in the past. When you leave Canada and stop being a resident you stop paying tax in Canada and start paying tax in Sweden. When you come back you begin paying tax in Canada and stop in Sweden.
If you happen to be a resident of both countries and have to pay tax in both countries on worldwide income, then the treaty between the two countries will apply and you will get credit on one or the others tax.
Hi
I immigrated in Quebec in January 2009 with my son under 18. My husband moved to canada in Feb 2010. I only have bank interest around 80 dollars, no work, and I don’t plan to claim any GST refund or child benefit. or any other plans. In that case, do I or my husband need to file a return for 2009? Does he need to pay tax for 2009 (outside Canada income 40000 dollars) when he hasn’t resided in Canada yet? Married couples file returns seperately in Canada, if he does not file a return, but I do with stating spouse income 4000 in 2009, will I be penalted? Can we file a return till next year?
Thank you.
@Faye: Yes. Under the residency rules for income tax, if you had a spouse or dependant child residing in Canada, then you must file a Canadian income tax return. Therefore, both you and your husband must file an income tax returns and each report your worldwide incomes for 2009.
Your husband may be able to claim treaty relief (if there is treaty between the two countries) for double tax or may be able to claim foreign tax credits or deductions to offset foreign taxes paid.
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