Business between Canada and Australia continues to increase and, along with this, comes an increase of employee movement between the two countries. Furthermore, many individuals are taking it upon themselves to move from one country to another, be it a temporary or permanent move. This is not surprising given that both Australian and Canadian cities continue to rank the highest amongst the world’s most livable cities given their high quality of life, educational standards and healthcare, with low crime rates and stable infrastructure developments. When considering a move most companies and individuals focus on the logistics of moving, immigration, and housing and often forget about the tax implications. Too often they are surprised by the tax consequences until it is too late.
When moving from Canada to Australia there are some unique tax implications that have both negative and positive tax outcomes. When looking at the tax implications individuals must first determine their residency status in both countries and this may involve using the tax treaty signed by both countries. The treaty contains ‘tie-breaker’ rules which seek to overcome situations where an individual is treated as resident of both Canada and Australia. The determination of resident status under these tie-breaker rules overrides the operation of the domestic resident status tests.
In Canada, your Canadian residency for tax purposes is determined based on an individual’s residential, economic and social ties to Canada. As such, the factors involved in residency determination includes where your family is located and where you have a home available for your use (primary ties) and where you work, have bank accounts, social memberships, drivers license, etc. (secondary ties).
If one ceases to be a resident of Canada there are many issues to consider. One of the most common is the departure tax. In general, if you cease to be a resident of Canada, you’ll be deemed to have disposed of and reacquired your capital property at its FMV on that date. You’ll be subject to tax on any taxable capital gain resulting from this deemed disposition. Other issues to consider are the tax implications of your RRSP’s, company and public pensions, TSFA’s, RESP’s etc. You may also consider the tax implications of selling a Canadian home while a non-resident of Canada or renting it while in Australia. Many Canadians are surprised to learn about some of the administrative burdens and negative tax consequences associated with the above scenarios. The implications do not only revolve around Canadian taxes. Australian taxes must also be considered.
In Australia residency works in a similar way with some exceptions. Residents are subject to tax on worldwide income and taxable capital gains (although a foreign income tax offset is generally available to take account of tax paid on taxable income and gains from foreign sources). In Australia, growth in RRSP’s may be taxed without any foreign tax offsets as no tax is paid in Canada resulting in a potential double tax scenario. Also, if moving permanently to Australia, there are certain timeframes in which you have to transfer foreign pensions to Australia or face a potential tax burden. Waiting more than 6 months may have negative consequences.
The good news is that most Canadians who work in Australia are on a Temporary Work (Skilled) (subclass 457) visa which allows them to meet the requirements of being a temporary tax resident of Australia. From 1 July 2006 a concession applies for temporary residents in respect of all personal income (ordinary and statutory) which is sourced outside of Australia. Most of your foreign income is not taxed in Australia except income earned from employment. A temporary resident is not liable to capital gains tax (nor is treated as having made a capital loss) unless the asset is ‘taxable Australian property’ (Australian real estate as one example). This means that a Canadian working in Australia can potentially avoid capital gains tax in both Canada and Australia after departing Canada.
Another tax benefit could arise by withdrawing your RRSP’s as a non-resident of Canada. The Canadian Revenue Agency (CRA) will charge a non-resident withholding tax on the RRSP withdrawal. However, with proper tax planning you can optimize the tax outcome with respect to your RRSP's and most locked in pension plans. As a temporary resident you would not be subject to tax in Australia. As a temporary resident of Australia, any Canadian rental income, interest or dividend income will not be taxable in Australia. In the case of interest income you may not be liable to tax in Canada resulting in a tax free scenario.
In Australia all employees (with some limited exceptions) are required to pay into Superannuation (retirement plan). The Australian superannuation system requires your employer to make regular contributions into your super account. This is the ‘Superannuation Guarantee’, and it is equivalent to 9.5% of your wage. As a temporary resident when you leave Australia, you will be able to claim your super as a departing Australia superannuation payment (DASP). A DASP is the payment of superannuation money to an eligible temporary resident who has left Australia. The bad news is that this payment is subject to a final DASP tax of 38%. There may be an opportunity to transfer this amount to your RRSP upon your return to Canada.
If you have a rental property in Australia the rental income will be taxed at non-resident rates. If the property makes a loss, these losses can be carried forward to offset against any future Australian income, including Australian sourced salary income upon returning to Australia. This could result in a huge tax savings in the year you return to Australia.
Unlike a temporary resident of Australia, Australians resident in Canada will be subject to tax on their worldwide income. That means any Australian rental, interest and dividend income will also be taxed in Canada. However, foreign tax credits usually eliminate any double tax.
Above are just a few of the tax Canadian and Australian tax implications of moving between countries. There is no doubt that the entire process can be onerous from a reporting and compliance perspective. However, with proper planning and advice many Canadians and Australians are able to capitalize on the many advantages of living and working in another country, especially the two most livable in the world.
About the Author:
Dimitrios Zaravinos is Senior Tax Manager of Expatriate Tax with Trowbridge and has over 17 years’ experience in providing companies with expatriate tax compliance and consulting solutions, advising on complex tax issues that arise from the global deployment of employees.
He began his career in 1997 in the International Assignment Solutions group at PwC in Toronto before moving to the Global Employer Services group at Deloitte in 2006. During the next few years he also worked for 6 years in Melbourne, Australia with PwC and Deloitte. From Australia to Toronto, he moved to Trowbridge Professional Corporation working in the Expatriate tax group in 2015. He has expertise in Canadian, US and Australian tax and has advised on many technical issues including tax effective remuneration packaging, employee share plans, pensions, and tax equalization issues. He has also advised on and drafted expatriate policies for a number of multinational organizations.