Tax for Canadian Expatriates: Back to Basics
Residential ties with Canada
Residential ties with Canada are typically seen as primary or secondary. It is important that you sever all primary residential ties when ceasing residency. Maintaining any significant primary ties could be looked at by the Canada Revenue Agency (CRA) as causing your residency to be maintained in Canada. Secondary residential ties are looked at collectively by the CRA. No one secondary tie would likely be seen as causing you to be viewed as maintaining Canadian residency, however, efforts should be made to sever all ties to Canada.
Some common examples of primary ties are maintaining a residence(s) in Canada that is available for your use, leaving a spouse or common-law partner in Canada and supporting dependants in Canada. Some common secondary ties are personal property left behind in Canada, maintaining Canadian bank accounts, Canadian credit cards, and professional and/or club memberships in Canadian organizations.
In addition, it is important that you inform any Canadian residents making payments to you, such as financial institutions that you have investments with, that you intent to be a non-resident of Canada. Not only does this show the CRA your intention to be a non-resident, but is also ensures that payments made to you after your departure are subject to the appropriate non-resident withholding taxes. If these non-resident withholding taxes are not withheld by the Canadian payer, you will be required to voluntarily remit the withholding tax after you have left Canada.
If your residency status is questioned by the CRA, they may ask you to submit a form NR73 – Determination of Residency Status (Leaving Canada). It is advisable that you fill in this form at the time of your departure and keep a copy for your records, in case it is requested. It is not advisable that you submit this form to the CRA unless you and your tax advisor have difficulty determining your residency status and you are not willing to accept the risk of being wrong.
If you become a non-resident of Canada for tax purposes, you must file a final departure tax return in Canada, due April 30th after the year in which you sever your residential ties with Canada. There are various tax implications that could arise in this final return. The most common example is the deemed disposition of certain assets you own, based on fair market value. Another example is the pro-ration of personal tax credits for your period of residency. Apart from the departure tax return itself, rental properties owned by non-residents have specific filing requirements in Canada on an annual basis. This is just a sample of some of the issues that should be considered on your departure from Canada. It is important that you seek professional advice to ensure that all your departure tax issues are taken into consideration in your final tax return.
Maintaining Canadian Residency
If significant ties to Canada cause you to be seen as a resident, keep in mind that you will have to file a Canadian tax return on an annual basis reporting your worldwide income, even if this income was earned in another country. In most cases, you will be allowed a foreign tax credit for foreign taxes already paid on this income, but you must still meet your tax files requirements in Canada. If you do not file your tax return, you may receive a request at some point from the CRA requesting you to file.
For more information, please contact: Arun (Ernie) Nagratha, CPA CA, CPA (Illinois) Partner, Corporate Tax Services T: 416.214.7833 x102 F: 416.214.1281 firstname.lastname@example.org