Leaving Canada Permanently? : A Simple Tax Guide

Introduction:

For people permanently leaving Canada,  there are significant tax considerations. This guide simplifies the important points for easy planning and preventing unexpected issues during your move to leave Canada.
Key Takeaways

Key Points	Details
Residency Status	Decide if you still need to pay Canadian taxes.
Departure Tax	A tax on certain assets when you leave.
Final Tax Return	Must file a final return and may need to pay taxes on worldwide income.
Tax-Free Savings Account (TFSA)	Contributions stop, but withdrawals are possible.
Registered Retirement Savings Plan (RRSP)	Contributions can continue if you have unused room.

Understanding Your Residency Status
The initial step is determining your residency classification. The Canadian government takes into consideration your connections to Canada, which may include owning a residence, having a partner or family members in the country, and other personal affiliations. Having significant connections could lead you as a tax resident.
Example: If you relocate to a different country but maintain your residence and family in Canada, the government could still count you as a resident for tax purposes.
Departure Tax
When you leave Canada, you might have to pay a “departure tax.” This tax applies to certain types of property, like investments and real estate, which are considered sold at reasonable value when you leave.
A departure tax is basically a tax on certain types of property when you leave Canada as a resident. The Canadian government considers it as if you have sold these assets at their current market value on the day you leave the country.
Here is a simple breakdown:
·       What is subject to tax? 
1.      Funds in Stocks, bonds, mutual funds, and other securities.
2.     Personal belongings like artwork, jewelry, and collectibles.
3.     Business Interests: Shares in a private corporation or interests in a partnership.
·       What is Exempt from tax?
1.      Retirement Policies: RRSPs, RRIFs, and TFSAs
2.     Items like clothing, furniture, and vehicles used for personal purposes.
3.     Certain Types of Real Estate.
·       How is a method of calculation? 
Based on the reasonable value of your assets.
Example: You purchased shares for $12,000, and their value is now $26,000. You need to pay taxes on profit when you leave Canada.
Calculation:  $26,000 (current value) - $12,000 (purchase price) = $14,000 (your profit)
·       When is Deadline? 
When you submit your last tax return.
Form T2062:
When a non-resident sells property in Canada, they need to make sure they pay the correct taxes. Form T2062 will help get a Certificate of Compliance from the Canadian tax office, which shows that the taxes are sorted out.
*For more details check our next upcoming blogs…
Final Tax Return
Prior to your departure, make sure to submit a last tax filing. This report will cover all your earnings until the day you depart from Canada. Depending on your circumstances, you may also have to disclose income earned globally.
Example: If you leave Canada in July, your final tax return will encompass all earnings from January to July of that year.
Key Components of the Final Tax Return
1.      Income Reporting: Employment income, Investment income, Rental income, and others like pension.
2.     Deductions and Credits: RRSP contribution, Medical expenses, Charitable donation.
3.     Departure Tax Reporting:
4.    Worldwide Income
5.     Filing Deadlines
Form T1244:
When you leave Canada, the government proceeds like you sold most of your belongings (properties), even if you did not sell. This can mean you owe taxes on any increase in value (profit). Form T1244 allows you delay paying these taxes until you actually sell the belongings.
*For more details check our next upcoming blogs…
Tax-Free Savings Account (TFSA)
Once you depart Canada permanently, you can not add fund in your TFSA. Although, you can withdraw your money from the account. Possibly, if you take out part of the money from the account when you leave Canada, you will be eligible to add the same amount if you return to Canada.
What Happens to Your TFSA When You Leave Canada?
1.      Contributions Stop: You are no longer qualified to add money to your TFSA. (as you become a non-resident of Canada)
2.     Withdraw money: You can take away money from your TFSA. (without paying taxes)
3.     Contribution Possibility: You can add money back to your account with the possibility of the same amount you take out while departing Canada if you return.
Example: You have $16,000 in your TFSA (When you depart or become non-resident) and you take out $4,000. You can repay that $4,000 if you move back to Canada but, you cannot add money more than $16,000.
*For more details check our next upcoming blogs…
Registered Retirement Savings Plan (RRSP)
In the case that you have unused payments in your RRSP, you may keep adding money. However, it is not advisable and also depends on the tax rules of your new nation.
What Happens to Your RRSP When You Leave Canada?
When you leave Canada permanently, you can still maintain your RRSP, but there are specific considerations:
1.      Contributions: You can only add money to your RRSP if you have a vacant payment. On the other side, it is possible that this fund requires additional taxation in your new resident country.
2.     Withdrawals: when you take out money from your RRSP account as a non-resident or when departing Canada, the Canada government may charge 25% taxes on your fund. You might need to pay less taxes if your new residence country has a tax treaty with Canada.
3.     Tax: Depending on local or provincial taxation rules in a new country, taking out money from an RRSP may also be taxed in your new country.
Example: You hold $70,000 in your RRSP. You withdraw $20,000 when you depart from Canada, you will need to pay 25% ($5,000) as tax. Furthermore, you need to report this income in your new country, and you require to pay taxes in the new country.
*For more details check our next upcoming blogs…
Conclusion
Leaving Canada permanently involves several tax considerations. Understanding your residency status, dealing with departure tax, and knowing how to oversee your TFSA and RRSP are essential steps. Planning ahead and seeking professional advice can help you navigate these complexities smoothly.
*Please read our upcoming blogs for a detailed explanation of taxes when you depart Canada.

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