When contemplating a move abroad, it is important for Canadian citizens to be well aware of their tax obligations to the Canada Revenue Agency. This is just as important whether this is a temporary move or a more permanent relocation. The most important thing to remember is that Canadians are taxed on their worldwide income. As long as you maintain an active residency in Canada, you will be required to file the appropriate tax returns on a regular basis. This is applicable to all income sources; both foreign and Canadian. This may also be in addition to any filings that you may be required to make in the country where you are currently residing. If you are planning on leaving Canada permanently, you also will be obliged to file what is known as a Departure Tax Return. Notwithstanding these basic facts, let us also look at some additional details that are important for you to appreciate.
The Possibility of a Lower Taxed Income
There are many countries around the world that will obligate you to pay less taxes into their system than the CRA. This is one of the reasons why it may be worthwhile considering to sever your Canadian ties. Obviously, you will be no longer taxed on any subsequent income that you will make by doing so. One important aspect to note is that while this decision needs to be carefully examined, severing your tax status will NOT affect your Canadian citizenship or domestic status; this is ONLY for tax purposes.
Do you plan to return to Canada in the future? Do you currently hold a good amount of tangible assets in the country (such as a house or property)? These are some of the main questions that you need to ask. Also, remember that there is no definite time frame that you will be seen as a non-resident. So, it is always wise to seek the advice of a professional to determine your individual situation.
There are two types of Canadian ties: primary and secondary. These aforementioned variables (property, substantial financial interests, a spouse, a home, etc.) are seen as primary ties. These will be important to negate, for the CRA may otherwise view you as a current resident.
Secondary ties will be looked at as an entire group. In other words, no single tie will cause you to be viewed as a resident. Still, you should make an effort to do away with these variables as well. Examples of secondary ties include Canadian bank accounts, credit cards and even regional memberships to clubs and organizations.
Also, do not forget that you should also let others know that you are attempting to sever your residential status for tax purposes. This is critical for those who are sending or handling your funds. So, banks, lending institutions and credit card agencies should be notified. This will accomplish two purposes. First and foremost, it will allow the CRA to view evidence that you are indeed intending to ablate your residential ties. Secondly, the institutions that are sending you money will be able to enact the correct non-resident withholding taxes. If this is not done, you may very well be responsible for this remuneration even after your have departed.
You may be required to submit a form that is known as an NR73 to the Canada Revenue Agency. This is otherwise known as a Determination of Residency Status (Leaving Canada). Still, you should not need to submit this form (or your tax adviser) unless it is made clear that the CRA needs to determine your tax status.
A Departure Tax?
When you decide to become a non-resident of Canada, you will need to file what is known as a final departure tax form. This will need to be submitted to the Canada Revenue Agency by the 30th of April on the year AFTER you completely sever your taxable ties.
There are several outcomes that can take place. The most frequent is that you may be reassessed of the fair market value of the assets that you currently own. Also, your personal tax credits may be pro-rationed. Any properties (such as rentals) that are owned will likewise have certain taxation obligations that must be met. This will still need to occur on an annual basis, even if you have left the country.
Of course, many of these and other conditions will depend upon your individual situation. As each case is unique in its very nature, your best option is to consult with a qualified tax attorney. This will help to guarantee that any departure tax variables can be adequately addressed before you leave; thus saving potential problems further afield.
If You Decide to Maintain Your Domestic Canadian Residency
There may be times when it will prove wise to instead retain your Canadian tax status. This can be due to a spouse, a dependent or a substantial amount of equity that you hold in the country. Should this be the case, it is critical that you remember that you will need to file a Canadian tax return each and every year you are abroad. Most importantly, you will still need to show your earnings; even if they come from a foreign country.
However, the good news is that in the majority of cases, the Canada Revenue Agency will allot you a foreign tax credit for the taxes that you have already paid to the country abroad. Still, this does not exempt you from legally filing a tax return with the Canadian authorities. If you fail to do so, there is a chance that you may be contacted by the CRA in the future and file such a return.
Of course, this is not common knowledge to most people. Foreign tax obligations in relation to Canadian requirements can be complicated and these will vary depending on your unique situation. It is for this reason that you would be wise to seek the advice of a qualified tax professional.