Exit Taxes: Tax Consequences Of Moving Away From Canada

Canada is a great place to live, high up the lists in many criteria for what makes a country a good place to be, but sometimes people choose to leave, or may need to move away for various reasons. If you end up seeking your fortune somewhere else in the world, there are things you need to know and plans you should make before you go.

CPA Canada notes,

“[I]f you are thinking of moving abroad, it’s important to remember that the process can be complicated. Among other things, you will need to plan for the tax consequences, especially if you expect the move to be permanent. There are many rules to consider—the key considerations below are a just a few of them—which is why professional advice is important.

“Having a CPA oversee the process helps avoid unpleasant surprises,” says Virginie Vargel, a CPA who specializes in expatriate and non-resident taxation.”

Residency Status Becomes Critical

One of the first considerations is your residency status, as determined by the Canadian government. If the government considers you to have retained your Canadian resident status, you will still need to pay Canadian taxes. If you have changed your resident status, you will lose your ability to contribute to things like TFSAs.

Establishing your residency status is also important for determining which country you will be paying taxes in—you don’t want to end up paying double taxes! RRSP withdrawals can also be affected by your residency status.

Departure Taxes — Yes, You Read That Right

Again, per CPA Canada, “The moment a resident leaves Canada, the CRA deems that they have disposed of certain kinds of property at fair market value and immediately reacquired it at the same price. This is known as a deemed disposition and you may have to report a taxable capital gain that is subject to tax (also known as departure tax).”

Some of your assets will be deemed liquidated on changing your residency status, and taxed accordingly, but not all. This is where your accountant becomes even more critical than usual—figuring out your departure taxes, how to plan for them, how to minimize them, what to sell and when. Disposing of assets after you have left Canada can also have tax repercussions.

Final Tax Return After Departure

Again, this can get tricky, and it is strongly recommended to retain the services of an accountant for your tax returns after leaving Canada. Your final return will be the one the year after you have left, but you might be able to defer some taxes after that point.

CPA Canada adds, ““Leaving the country has significant and costly consequences from a taxation standpoint,” reminds [CPA Annie] Poitras. “However, a CPA can review everything in advance before the tax return is filed. It’s always much cheaper to hire an expert to help you plan than to pay them to fix mistakes.””

For more, here is a great video with lots of good information on the tax repercussions of moving away from Canada

Our knowledgeable staff at Shaw & Associates would love to discuss your business and personal finances with you, whether or not you are planning to leave Canada (but especially if you are planning to leave!).

Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.