Moving from Canada to another country is a complex process that requires more than just logistical arrangements. Cardinal Point Wealth Management is drawing attention to the essential tax considerations Canadians must be aware of when planning to emigrate, ensuring individuals and families fully understand and comply with Canadian tax laws. Whether the move is prompted by work, retirement, or personal reasons, comprehensive tax planning is necessary to avoid costly surprises and maintain financial well-being.
Tax Residency: A Crucial Determinant
Understanding tax residency status is a vital step in managing tax obligations when leaving Canada. Cardinal Point emphasizes that tax residency determines whether Canadian tax laws apply to an individual’s worldwide income. Significant ties to Canada, such as a primary residence, family, or economic interests, generally result in maintaining tax residency.
When a person severs these residential ties, they may cease to be a Canadian tax resident. This status change often coincides with the latest of the following dates: the day the individual departs from Canada, the date their spouse or dependents leave, or when they establish residency in their new country. For individuals facing uncertainty about their residency status, Form NR73 can be used to seek a formal determination from the Canada Revenue Agency, although it is not mandatory to submit.
Taxation of Income Upon Departure
In the year of departure, Canadians are taxed as residents on their worldwide income up to the date they cease to be residents. Afterward, they will be considered non-residents, only taxed on income derived from Canadian sources. Cardinal Point highlights that understanding this distinction is crucial for proper income reporting.
Deemed Disposition and Departure Tax
A key aspect of Canadian tax law for emigrants is the departure tax, which applies to certain assets that are considered “deemed disposed” at fair market value on the date of departure. This measure ensures that Canada taxes the appreciation of these assets during the individual’s residency. Fifty percent of any net gains are included as income and taxed at regular marginal rates. Cardinal Point underscores the importance of evaluating asset portfolios and understanding which assets are subject to this tax.
Investments and Pensions
Investment and pension assets present specific challenges and opportunities. For example, non-registered investment accounts are subject to deemed disposition rules, and investment income earned post-departure is subject to withholding tax. Those moving to the United States may file for a basis adjustment under the Canada-U.S. Tax Convention and should consider transferring accounts to a U.S. custodian. Cardinal Point, uniquely registered in both Canada and the United States, can manage these accounts seamlessly.
Canadian employee stock options are not subject to deemed disposition upon emigration, but any benefits from exercising options will be taxable in Canada. The implications for shares of a Canadian-Controlled Private Corporation (CCPC), Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESPs), and Registered Retirement Savings Plans (RRSPs) vary, and planning is crucial to optimize outcomes.
Real Property in Canada
Real estate held in Canada is not subject to deemed disposition. However, Cardinal Point notes that rental income from Canadian properties will incur a 25% non-resident tax on gross income. Proper tax planning can mitigate this, and electing to file Form NR6 allows taxation on net rental income, often resulting in a more favorable tax outcome.
Filing Requirements
Those emigrating from Canada must file a T1 Emigration Income Tax Return, reporting worldwide income up to the departure date. The deadline is April 30 of the following year (June 15 for self-employed individuals). Additional forms, such as T1161 for property disclosures and T1243 for listing properties subject to deemed disposition, are essential to ensure compliance.
For those continuing to earn rental or Canadian Benefits income, Section 216 and Section 217 returns provide options to optimize tax efficiency. Cardinal Point advises that working with a cross-border wealth management expert can help navigate these requirements.
About Cardinal Point Wealth Management
Cardinal Point Wealth Management is a leading provider of cross-border wealth management and cross-border tax planning services. With expertise in managing complex cross-border financial scenarios between Canada and the United States, Cardinal Point is dedicated to providing personalized solutions that ensure compliance and financial efficiency. Their team of experienced professionals is well-versed in the intricacies of cross-border tax planning and tax laws, helping clients seamlessly manage their assets and investments across borders.
Disclaimer: This press release may contain forward-looking statements. Forward-looking statements describe future expectations, plans, results, or strategies (including product offerings, regulatory plans and business plans) and may change without notice. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements.
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