In this article, we will discuss the pros and cons of becoming a non-resident of Canada as follows:
- Canada Child Benefit
Upon becoming a non-resident of Canada, you will stop receiving the Canada Child Benefit.
- GST/HST Credits
Upon becoming a non-resident, you will stop receiving GST/HST tax credits from the CRA.
- Repay Home Buyers Plan and Life-Long Learning Plan
You have 60 days to repay any outstanding amounts that you owe under the Home Buyers Plan or the Life Long Learning plan. 60 days’ time period will start on the date you leave Canada. Failure to make such payments will result in the increase in taxable income for your final Canadian tax return.
- Stop TFSA Contribution
You will not be able to accrue additional TFSA contribution for any years in which you are a non-resident of Canada. If you make a contribution, as a non-resident, you will be subject to charge with 1% penalty for each month the contribution remains in the account.
- Stop RRSP Contribution
For a non-resident of Canada, contributing to RRSP will become unnecessary, as you will be unable to deduct any contributions made. If there is a high income on your final Canadian tax return, it is recommended to make an RRSP contribution in the year of departure.
- To Inform your Banker & Financial Advisor
It is mandatory for a non-resident to inform the banker and to the financial advisor about the change in the residency status so that withholding tax rates can be reduced by a Tax Treaty that Canada has with your new country of residence.
- Disclose All Canadian Assets
Non-resident of Canada must disclose all of the property on Form T1161 of your final personal tax return. Such disclosure of property is classified as ‘reportable properties’. In case of non-disclosure, the CRA may impose penalties up to $2,500.
- Disposition of Property
Non-resident is required to dispose of all property at its fair market value. Selling your home after leaving Canada requires you to pay 25% tax on the gross selling price. In order to avoid high tax on the disposal of property, there is a special tax election that you can make to reduce the amount of tax.
Most of the Canadians choose to rent out their property which requires them to file a Section 216 Tax Return to report the rental profits earned.
- To file Final Canadian Personal Tax Return
Upon leaving Canada, you must file a final Canadian tax return and disclose your date of departure on the final tax return.
If you become a non-resident of Canada, you should call the CRA to stop receiving GST/HST credits, and the Canada Child Benefit. You should repay any balances owing under the Home Buyers Plan and Life Long Learning Plan. You should stop contributing to your RRSP and TFSA. You should also inform your banker and financial advisor about your change in residency status and disclose all Canadian assets. You are deemed to dispose of your property at its fair market value and any unrealized gains will be subject to departure tax. If you plan on selling your Canadian residence upon departure, you will have to pay 25% tax on the gross selling price of your home. Lastly, you should not forget to file a final Canadian personal tax return for the taxation year you leave before heading abroad.
You must be aware of the primary and secondary ties and the potential impact of the change in your residency status with Canada. If your goal is to become a nonresident, then you should cut off your primary ties and most of your secondary ties and file a departure tax return. Moreover, you will no longer have Canadian provincial health care once you have become non-resident and may wish to investigate private health insurance.
Returning to Canada
This may be the last thing in your mind, but if you become a non-resident and at a later point you wish to return back to live in Canada, that can be easily accomplished. Simply come back home!
If CRA perceives that you moved to another country to avoid taxation and had intended to return, they may deem that you never left and charge you the taxes that you might have avoided while you were out of Canada. There are no custom or import taxes on your furniture and personal belongings that you want to bring back.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.