Emigrating or leaving Canada? Key Tax Factors and Strategic Planning
In recent years, evolving Canadian tax policies, such as new reporting requirements and other proposals, have led many wealthy individuals, business owners, and professionals to think about moving abroad. Whether it's for a better lifestyle, growing your business, or saving on taxes, leaving Canada comes with complicated tax rules that can affect your finances in big ways. As an experienced tax advisor at Venter Accounting & Tax, Dave Venter helps clients handle these details to reduce taxes and make the move easier. Every case is different, but knowing the basic personal tax effects is important before deciding. Below, we break down key points in simple terms, followed by a quick look at what happens if a company is involved.
Personal Tax Implications
A Quick Guide to Departure Tax and Smart Planning
When you stop being a Canadian resident (based on things like cutting ties to Canada, planning to leave for good, and rules in tax agreements), you face what's called "departure tax." This treats most of your assets around the world as if you sold them at their current market value right before you leave, which can lead to taxes on any profits or gains in Canada. But with good planning ahead of time, you can lessen the impact. Here are the main things to think about:
Figuring Out Your Departure Date and Residency Status: Pick a smart date to become a non-resident, maybe to match the end of a tax year or good market timing. Make sure you fully cut ties with Canada (like selling or renting out your home, canceling club memberships, and moving your family) to avoid ongoing checks from the tax authorities. If you're moving to a country with a tax treaty or agreement like the US, that agreement can help sort out if you're considered a resident in both places, but countries without agreements might mean paying taxes twice. Residency status has no bright line test but can be worked through with a set of onboarding questions before your move, please reach to dave@venter.ca to find out more details.
Assets Treated as Sold: Most things you own (like stocks, investments, and property outside Canada) are seen as sold at their current value, which could mean paying tax on gains at up to half the profit. Exceptions include Canadian property, which doesn't trigger tax right away but will when you sell it later. For people with a lot of wealth, this could add up to a big tax bill on investments that have grown in value, plan by selling some things at a loss before leaving or using exemptions for your main home if it qualifies.
Option to Delay Paying Departure Tax: You can choose to put off paying the tax on certain assets (like shares or property) until you actually sell them, with no interest added, but you'll need to give the tax authorities some form of guarantee (like a bank letter or a lien on property). This works well for assets that aren't easy to sell quickly, but think about the paperwork and possible lower rates from tax treaties or agreements.
Effects on Retirement and Benefit Plans: Savings plans like RRSPs, RRIFs, TFSAs, and pensions might have taxes withheld on withdrawals after you leave (for example, 25% on big RRSP payouts, which could be less under a tax agreement). Make changes to these plans wisely or look at protected transfers. Some work-related plans could mean paying tax right away, check them before you go to make the most of them.
Cutting Ties and Handling Ongoing Canadian Income: Try to reduce income from Canada after you leave (like from rentals or businesses) to avoid extra withholding taxes (usually 15-25%). For those with Canadian real estate, it stays taxable in Canada and might need special approvals when sold. Wealthy clients should look at using trusts or family setups to handle any remaining connections.
Choosing Your New Home: Think about everyday life (like weather or being near family), costs to move there, and the local tax system. Countries with tax treaties or agreements provide rules to decide residency and often lower withholding taxes (like 5-15% on dividends), while places without agreements, like tax havens, could mean more paperwork risks. If heading to the US, watch for benefits like exclusions on income earned abroad and housing costs, but be aware of US taxes on estates.
Steps Before Leaving and Common Mistakes: For business owners or investors, think about locking in gains at current rates before you go or reorganizing through family trusts. Watch out for mistakes like fake deals or forgetting to file forms (like lists of your assets or reports on sales). Delaying choices or not fully cutting ties can lead to tax reviews later.
These ideas show ways to delay taxes and use losses, but they need custom advice based on your situation, whether you're a business owner with a family trust, an investor with assets in a Canadian company, a real estate owner, or someone with a large personal investment portfolio.
Corporate Emigration: The Basics
If your move includes a Canadian company (like a private one you control), shifting it abroad may trigger additional taxes. When the company stops being Canadian (for example, by officially moving to another country), it pays a 25% tax on the value of its assets minus what was invested and debts, basically like a tax on profits that haven't been paid out yet. This tax rate might drop to 5-15% if a tax treaty or agreement applies, especially if the company is fully owned by a parent in your new country. Unlike personal moves, there's no delay or tax deferred treatment for Canadian assets, and the company has to deal with sales treated as happening at departure. Planning could include paying out money before leaving or restructuring, but get advice early to prevent double taxes. Please note that corporate emigration involves significant complexity and should be planned well in advance of your move.
Relocating from Canada is more than just packing up, it's a big money choice. If you're thinking about leaving Canada, please reach out to Dave today at dave@venter.ca for a confidential conversation. Let's make your move tax-smart and easy.
Disclaimer: This article is provided for general informational purposes only and is not intended to be, nor should it be construed as, legal or tax advice. Tax laws are complex and subject to change, and the information herein may not apply to your specific situation. We recommend consulting with a qualified tax professional, such as Dave Venter at Venter Accounting & Tax, for personalized advice tailored to your circumstances. No liability is assumed for any actions taken based on this content.
