Are you a Canadian citizen thinking of emigrating to the US to work or for retirement? If so, you’ll want to consider the tax implications of doing this before you actually make the leap. Failure to plan ahead could result in your being deemed a resident of both countries, meaning you could be liable to pay double the income tax.
Severing Residential Ties With Canada
To be deemed as an emigrant, you need to make the move to the US and leave no residential ties to Canada. What do we mean by breaking residential ties? In order to do this effectively, you must take the following steps:
- Dispose of or give up your home in Canada and establish a permanent home in another country;
- Your spouse or common-law partner or dependants must also leave Canada;
- Dispose of personal property and break other ties to Canada, including things like your driver’s licence, bank accounts, memberships, etc.
If you move to the US but maintain some form of significant residential ties, you risk being deemed a factual resident of Canada by the Canada Revenue Agency. This means that you will still need to file a Canadian tax return and pay income taxes to the CRA. This would be impacted by the tax treaty between Canada and the US that minimizes double taxation.
Ties to Canada are divided into primary and secondary ties. If you have any primary ties, you will likely be considered a resident. If you have no primary ties, but several secondary ties, you may still be deemed a resident. The ties are broken down as follows:
Primary Ties to Canada
- a home or residence in Canada
- a spouse or common-law partner who resides in Canada
- dependants who reside in Canada
Secondary Ties to Canada
The more secondary ties one has, the more likely they will be considered a resident.
- personal property in Canada, such as a car or furniture
- social ties in Canada, such as memberships in Canadian recreational or religious organizations
- economic ties in Canada, such as Canadian bank accounts or credit cards
- a Canadian driver’s licence
- a Canadian passport
- health insurance with a Canadian province or territory
When determining residence status, the CRA will take all of the relevant facts into consideration, including the length of time, object, intent, and continuity of any ties while living inside and outside Canada.
Residence Statuses: When do They Apply?
To illustrate when each status might be applied by the CRA, we have provided some specific examples below:
Factual or Deemed Resident of Canada
- If you are working temporarily outside Canada, vacationing outside Canada, commuting (going back and forth daily or weekly) from Canada to your place of work in the United States, or attending school in another country, and you maintain residential ties with Canada, you may be considered a factual resident of Canada.
- Further, if you left Canada and you are a government employee outside Canada, which includes members of the Canadian Forces posted abroad, you will usually be considered a factual resident or a deemed resident of Canada.
Emigrant or Non-Resident of Canada
- If you left Canada and established a permanent home in another country and severed your residential ties with Canada ceasing to be a resident of Canada in the tax year, you may be considered an emigrant for tax purposes.
- If you were in Canada for fewer than 183 days in the tax year or more and you did not have significant residential ties with Canada throughout the year, you may be considered a non-resident.
- If you established ties in a country that Canada has a tax treaty with and you are considered a resident of that country, but you are otherwise a factual resident of Canada, meaning you maintain significant residential ties with Canada, you may be considered a deemed non-resident of Canada.
What is the timing of becoming a non-resident of Canada? you usually become a non-resident for income tax purposes on the latest of:
- the date you leave Canada
- the date your spouse or common-law partner and/or dependants leave Canada
- the date you become a resident of the country you settle in
Tying up Loose Ends: Finalizing the Severance of Your Financial Ties to Canada
Other actions that must be done once you have become an emigrant:
- If you still have bank accounts in Canada or income being paid to you from Canada, you are required to notify any Canadian payers and your financial institutions that you are no longer a resident of Canada.
- You must file a final tax return for the year that you leave Canada.
- You may need to pay a departure tax. When you leave Canada, you are considered to have sold certain types of property (even if you have not sold them) at their fair market value and to have immediately reacquired them for the same amount. This is called a deemed disposition and you may have to report a capital gain (also known as departure tax). This tax could apply to real property, personal property such as art or jewelry, business property and investments or stocks.
For Insight Into How Relocating to the US Will Affect Your Tax Obligations, Contact Edelkoort Smethurst Schein CPAs LLP
After reading all of this and you have questions about emigrating to the US or any other country, please contact Edelkoort Smethurst Schein CPAs LLP in Burlington to get guidance and direction on how to best plan your tax strategy. We will advise you on your cross-border tax obligations and assist you or your business with all U.S. based tax filings. To speak with one of our knowledgeable Chartered Professional Accountants, please contact us online or by telephone at 905-517-2297.