Moving from Canada? Some Tax Things to Consider

UPDATE (November 8, 2024): This article has been updated to reflect changes in legislation, regulations, and accounting practices since the date of publication (August 15, 2019).

Moving from Canada is an exciting transition, but it also comes with a host of tax-related implications to be mindful of. This guide covers key considerations to help ensure you’re on top of your tax obligations before and after your departure. Here are some things to know:

Key tax considerations

Each country has its own rules for taxing individuals. Canada will tax you on your worldwide income if you are considered a Canadian resident—whether you live in Canada or temporarily somewhere else—or are a Canadian citizen or not.

If you become a non-resident of Canada, then Canada wants to tax you on the value of certain property before you go (see “Exit Tax” below). After that time, Canada will only tax you on certain Canadian source income.

Whether you remain a Canadian tax resident depends on your facts and circumstances. For example:

• Do you plan on returning to Canada, and is your family staying behind?
• Are you keeping your house/condo, and will it be available for your use?
• Will you keep your provincial driver’s license, provincial health care, and your memberships (e.g., social, professional)?

The Exit Tax

The government wants to tax your accrued gains (i.e., the appreciation) on all property before you go. There are, however, a few exceptions:

• Canadian real estate (and resource and timber property);
• RRSPs, RRIFs, RESPs, TFSAs, stock option plans, CPP, OAS, and certain other types of pension/retirement/profit-sharing plans;
• Interests in certain personal trusts (i.e., you didn’t pay anything to be a beneficiary), such as a Canadian family trust or non-resident personal trusts; and,
• Property you owned when you last became a tax resident (i.e., when you came to Canada), which you still own, if you’ve been a tax resident for no more than 60 months (5 years) during the last 120 months (10 years)

Common examples of property triggering the Exit Tax:

• Publicly traded securities (e.g., shares, debt such as corporate bonds), shares of a mutual fund corporation, and units of a mutual fund trust
• Real estate outside Canada (e.g., your Phoenix or Palm Springs condo)
• Shares of private companies (e.g., your family operating or holding company)

Example

You purchased a condo in Phoenix in 2012 for US$100,000 (C$100,000). The condo is now worth US$150,000 (C$200,000). If you became a non-resident of Canada, you would be deemed to have sold the condo and would need to report a taxable capital gain of C$50,000 (half of the C$100,000 gain) on your income tax return and pay the Exit Tax of up to $25,000, even though you haven’t sold the property.

Planning Considerations

Canadian Tax

You may be able to elect to defer this tax (with limits), post security, or trigger/elect to trigger losses on exempted property (e.g., Canadian real estate) to reduce the Exit Tax.

In some cases, you may elect to carry back a subsequent loss or undo a triggered gain (e.g., you move back to Canada).

Foreign Tax

If you are moving to the U.S., there are additional considerations. The U.S. has significant reporting requirements for assets held outside of the U.S., and penalties may apply for non-compliance. Furthermore, each U.S. state has its own rules for taxing residents.

While our U.S. Tax and International Tax experts will have plenty of insights to provide, we also advise you to consult with an expert in your new country to determine if steps can be taken to avoid double taxation should the new country otherwise tax all or a portion of the same gain.

What to do before you leave

1. Prepare a list of all your assets, their estimated fair market values and the cost of each. You may need to have valuations or assessments done for private company shares (e.g., your holding or operating company), so reach out to one of our Business Valuation advisors if you find yourself in this situation.
2. Notify your bank and investment advisors that you are planning to leave and when you will be a non-resident of Canada for tax purposes.
3. If you have a private company (holding, investment, or operating company), review the corporate structure and consider steps to minimize the Exit Tax and ongoing Canadian (and potentially foreign) taxes for both you and the company.
4. Review trust filing requirements if you are a trustee or a beneficiary of a Canadian trust (such as a discretionary family trust). Canadian tax pitfalls may trigger additional taxes and reporting requirements.
5. Consider the impact of provincial or municipal real estate taxes (e.g., Vancouver Empty Homes Tax and the B.C. Speculation and Vacancy Tax) if you plan on keeping Canadian real estate. Watch for withholding tax and filing requirements if you are renting out property and/or if you sell the property while a non-resident.
6. Speak to an advisor in the country to which you are moving to understand how you will be taxed in your new location.

What not to do

Put simply: It’s costly not to plan ahead and do nothing.

Moving from Canada involves navigating complex tax considerations that can have long-term implications. To ensure you’re making informed decisions and minimizing potential tax liabilities, reach out to your DMCL advisor. They will make sure you’re getting the Canadian and U.S. tax guidance and support you need before, during, and after your move.

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