Unlike the United States, Canada taxes its Citizens based on their residency, rather than their Citizenship. But, giving up residency is not a step to be taken lightly. The Canada Revenue Agency (CRA) will diligently check that you have indeed severed all residential ties with Canada before they consider you tax-exempt, this can be greatly complicated if your spouse or dependants are still residents of Canada.
How to Give Up Your Canadian Residency and Remain a Citizen
Giving up your Canadian residency does not mean giving up your Canadian Citizenship, giving up residency means that you have, for certain reasons – such as to avoid high tax rates – decided to give up your Canadian residency and become a resident of another country.
Unlike the United States, Canada taxes its Citizens based on their residency, rather than their Citizenship. But, giving up residency is not a step to be taken lightly. The Canada Revenue Agency (CRA) will diligently check that you have indeed severed all residential ties with Canada before they consider you tax-exempt, this can be greatly complicated if your spouse or dependents are still residents of Canada.
The first thing the CRA will check is whether you, your spouse or dependants have a dwelling place in Canada (owned or leased), such as a house, apartment, flat, etc. – non-residents generally do not. If you and your spouse are separated, they will not be considered as a significant tie to Canada.
After the CRA has verified that you do not own landed property, they will check if you have any lesser ties to Canada, such as:
- Personal Property: Cars, boats, motorcycles, furniture, clothing, etc.
- Social Ties: Club memberships, memberships to religious organizations, union organizations, etc.
- Economic Ties: Bank accounts, investment accounts, credit/debit cards, involvement in Canadian businesses, etc.
All ties to Canada are factors and will be considered by the Canada Revenue Agency. But they will also look at your ties to the country you have emigrated to and whether or not you have significant residential ties to that country.
Since Canadian citizens are taxed on their residency status, the CRA does not take its job lightly; they will endeavor to verify that you have indeed severed all residential ties with Canada. If you are planning to give up your Canadian residency, be very sure that you are willing to cut all residential ties.
Giving up Canadian Residency for Tax Purposes
If you have properties, businesses and assets in Canada, giving up residency for tax purposes can be complicated, you might want to consider hiring a professional (lawyer, accountant) to assist you with the details. If you choose to start the process without professional assistance, you should check out this resource from the CRA which should give you a basic idea of the steps that will need to take and the consequences of giving up your Canadian Residency. Once you have changed your residency status you will lose certain benefits and privileges, such as provincial health insurance and tax credits, such as
- The goods and services tax/harmonized sales tax (GST/HST) credit;
- The Canada child tax benefit (CCTB) payments (including those payments from certain related provincial or territorial programs);
- The universal child care benefit (UCCB) payments.
If you receive any of the benefits listed above after you leave Canada, you have to contact the International and Ottawa Tax Services Office as soon as possible to avoid legal issues. Of course, you’ll no longer be paying Canadian taxes, so this is a small price to pay!
If you have a Tax-Free Savings Account (TFSA), you can still maintain it after you leave and continue to benefit from your Tax-Free Savings Account; however you cannot continue to contribute to it as a non-resident of Canada, therefore your contribution limits will not increase. For more information on Tax-Free Savings Accounts (TFSA)
We recommend you do some research about the country you are thinking of relocating to. For example, we did a search for the keywords, “Panama Expat Entrepreneurs”, and found a few community and aggregate website helping expats. You will not only need to make sure your paperwork is in order before leaving but also the country you are going to.
Before Departing Canada
Before departing from Canada you might want to check your residency status, this can be done by filling out form NR73 Determination of Residency Status (Leaving Canada). After you have determined your residency status, you should calculate your total assets; if your total assets exceed 25 thousand Canadian dollars then you will need to fill out form T1161.
Form T1161 will be scrutinized by the Canada Revenue Agency; do NOT leave out any assets as this will result in the CRA not recognizing your change of residency status. The list of assets form T1161 List of Properties by an Emigrant of Canada should be filled out diligently.
The next step you need to take would be to complete Form T1243 Deemed Disposition of Property by an Emigrant of Canada; this form is used to calculate and report any capital gains or losses on property that you are deemed to have disposed of on the day you cease to be a Canadian resident.
After you have filled out these forms, you will need to start severing all residential ties. It is best to start with your bank accounts – close all Canadian bank accounts and inform the banks that you are changing your country of residence; inform all income remitters (security brokers, etc) that you will be changing your country of residence too. Just leaving Canada will not change your residency status, you need to prove to the CRA that you are indeed planning to give up your residency for an extended period of time and that you have set down roots in another country or are planning to settle down in another country.
Settle all your Canadian Tax Obligations Before you Cease to be a Canadian Resident
Make sure to settle all your tax obligations before leaving Canada. If you have no tax returns, you still need to inform the Canada Revenue Agency (CRA) the date you left Canada. This should be done as soon as possible.
Hire a Professional to assist you in your Change of Status
If you are truly set on giving up your Canadian Residency for tax purposes, it is highly recommended that you consult with a professional in Canadian tax law to assist you – the steps required to change your residency status can be complicated so you might also want to consider hiring an accountant , especially if you have a substantial amount of assets, as giving up your Canadian residence can result in a substantial tax hit, Canadian tax laws will deem you to have sold some of your assets at fair market value even if you have not sold the items and any capital gains could be subject to tax.