Last Updated on September 5, 2024 by Rashad Bolbol

Leaving Canada: Understanding the Tax Implications and Next Steps

Are you considering a major life change, such as moving abroad to work, live, or retire? Before making your move, it’s crucial to understand the leaving Canada tax implications. This guide walks you through the steps and financial obligations involved, ensuring you remain compliant with Canadian tax laws.

What You’ll Lose When Leaving Canada: Tax and Benefit Implications

Upon becoming a non-resident, several Canadian benefits and credits will no longer apply. Here’s what you need to know:

1. Canada Child Benefit (CCB): Once you’re considered a non-resident, you’ll stop receiving the CCB. Make sure to notify the CRA to discontinue payments.
2. GST/HST Credits: As a non-resident, you’ll no longer receive GST/HST credits.
3. Repayment of Home Buyers’ Plan (HBP) and Lifelong Learning Plan (LLP): When you leave Canada, you have 60 days to repay any amounts owed under these plans. If not, the unpaid balances will be included in your taxable income on your final Canadian tax return.
4. Tax-Free Savings Account (TFSA): Your TFSA can remain after you leave Canada, but contributions made as a non-resident will incur a 1% penalty per month. Earnings and withdrawals, however, are still tax-free in Canada.
5. Registered Retirement Savings Plan (RRSP) Contributions: As a non-resident with little to no Canadian income, contributing to your RRSP becomes unnecessary. However, if you expect significant income on your final Canadian tax return, an RRSP contribution before leaving may still provide a tax deduction.

For more details on specific financial implications, you can check the official Canada Revenue Agency’s Departure Guide.

Your Tax Obligations and the Tax Consequences of Leaving Canada

When you leave Canada, your tax obligations don’t end immediately. Here are the key steps you’ll need to follow:

1. Notify the CRA: Inform the CRA of your change in residency status to stop receiving benefits you’re no longer entitled to. If you filed a departure tax return indicating your date of departure, you may need to call the CRA to confirm.
2. Notify Financial Institutions: Let your bank, financial advisor, and pension administrators know about your residency change. As a non-resident, you may be subject to a 25% withholding tax on interest, dividends, and pension payments. Without notification, payments such as CPP and OAS may continue at full amounts, leading to potential repayments with interest and penalties.
3. File a Departure Tax Return: If you’re deemed a non-resident, you’ll need to file a final tax return in the year you leave. This will include any departure tax on certain assets.
4. Disclose Certain Canadian Assets: When leaving Canada, you must report certain property with an aggregate cost of $25,000 or more using Form T1161. This includes investments, shares, and other non-exempt property. Personal-use property, such as your home, vehicles, and household items, is typically exempt. Failing to disclose reportable properties can lead to penalties of up to $2,500.
5. Deemed Disposition of Property: When you become a non-resident, you are deemed to have sold certain properties at their fair market value, which may trigger capital gains taxes. This includes items like stocks, mutual funds, and other investments. However, real estate located in Canada is generally not subject to this rule.

Selling a Home and Handling the Tax Implications as a Non-Resident

If you choose to sell your Canadian home after becoming a non-resident, be prepared to face a 25% withholding tax on the gross selling price. However, you can make a tax election to have the tax calculated on the capital gain instead of the full sale price. Additionally, the principal residence exemption can be applied to the time you lived in the home, helping to reduce any capital gains tax due on the sale.

Filing Your Final Canadian Personal Tax Return: Managing Departure Tax and Assets

Before leaving Canada, it’s essential to file your final Canadian tax return for the year. Key steps include:

• Indicating your date of departure on the return.
• Adjusting personal tax credits based on the number of days you were a Canadian resident in the year.
• Reporting all relevant assets, using Form T1161 if necessary.
• Paying departure tax or deferring it by filing the appropriate forms, if eligible.

Conclusion: Understanding the Tax Implications of Leaving Canada

The tax implications of leaving Canada are intricate and require careful planning, especially when it comes to tax obligations and reporting assets. Understanding how benefits, contributions, and tax obligations change when you leave will help you avoid complications. Whether you’re relocating for work, retirement, or simply seeking new opportunities abroad, it’s crucial to file your departure tax return, sever primary ties to Canada, and inform relevant institutions of your new residency status.

Ensuring compliance with Canadian tax laws will make your transition abroad much smoother. If you need personalized assistance to manage your tax situation, contact us today to navigate the process confidently.

 

Rashad Bolbol

Enrolled Agent, US/Canada Tax advisor.
Expert in US and Canada’s cross-border taxation. I assist individuals and businesses that earn income on either side of the border to plan ahead and save on their tax bills.