Maybe you're looking for warmer weather, a chance to study abroad, or maybe you just want a fresh change of scenery. Whatever the reason, if you're moving out of Canada, there is plenty to consider before you officially become a non-resident.
When it comes to finances, a laundry list of things need to be checked off, including where you're planning to move, if you will continue to earn a Canadian income, the status of your assets and investments, and how you will be taxed going forward.
Here are a few things to consider if you want to live somewhere other than Canada.
Are you sure you're cutting all ties with Canada?
Jamie Golombek is the managing director of tax estate planning with CIBC Private Wealth in Toronto. With a number of high net worth clients across Canada, the question of whether it's worth packing up and moving out of the country comes up occasionally, although they seldom follow through.
Golombek says before you start to think about the financial ramifications, the most important thing to ask yourself is if you really want to become a non-resident.
"Make sure this is really the right decision, not just a numbers decision," Golombek said. "Make sure you've discussed this with your family, extended family, older relatives, kids, all that," adding it's as important for this to be a lifestyle choice.
Golombek, who's worked with CIBC for 16 years, says they've had clients who've looked at spots like the Cayman Islands, where the tax rate is zero, but they get bored quickly and move back to Canada within a year or two.
"These islands can be pretty attractive, but practically, there's not much to do on them."
Selling your residential properties
If you're dead set on leaving, there are a number of things you must do before meeting the conditions of being an emigrant.
According to the Canada Revenue Agency (CRA), you're considered an emigrant for income tax purposes if you decide to live in another country and sever your residential ties with Canada, meaning you must give up your Canadian home and establish a new permanent one in another country.
If you hold onto your primary residence in Canada, you're considered a factual resident and not an emigrant, meaning you're taxed as if you never left Canada, and you would have to report all income from both inside and outside of Canada, as well as pay all federal and provincial or territorial tax from inside of Canada.
Golombek reiterates that if you're serious about becoming a non-resident, selling your property is crucial, especially because the government could use it against you.
"If you have a primary residence but you choose not to sell it, (the CRA) has a strong argument you haven't really severed ties. Even if it remains vacant, (it could suggest) you have the opportunity to move back with only a few days' notice," he said.
There's more to it than just selling your house. If you have other ties, like club memberships, belong to an organization, or have private health insurance, you should give those up."
He says some people go as far as giving up their Canadian driver's licence, although that may not be necessary.
Do you still have to pay Canadian taxes?
If you plan on emigrating while still earning income from Canada, you are required to notify both your payee, your financial institution and the CRA that you will no longer be a resident.
As a non-resident, you pay Canadian income tax only on your Canadian source income — however, only certain types of Canadian source income should be reported on your return.
Some of that income is subject to the Part XIII tax, which is usually 25 per cent (unless there's a tax treaty between Canada and your new country or residence). This includes Canada Pension Plan and Quebec Pension Plan benefits, your registered retirement savings plan (RRSP) payments and retiring allowances.
What is a deemed disposition?
Alright, you've sold off everything and have a spot to move to. You're ready to leave the country. There's just one last box to check, and it may end up being the most costly: the departure tax, also known as a deemed disposition.
Before you leave, the CRA assumes you have "disposed of certain types of property at their fair market value and then reacquired them for the same amount. These items are considered capital gains, and you must pay tax on them.
"Let's say you have shares in Apple that you bought years ago for $10,000, and now they're worth $20,000. On the day you leave Canada, you are deemed to have sold those shares for $20,000, and you're going to have to pay capital gains tax on that $10,000 gain in your final tax return — even if you haven't sold the shares," Golombek said, referring to a deemed disposition as a "pretend disposition."
Golombek explains this is the country's last chance to tax you on your way out.
"You lived here, you prospered in Canada, presumably made some wealth. You benefited, so Canada wants their fair share," he said.
Any last advice?
Len Saunders is a U.S. immigration lawyer based out of Blaine, Wash., a town with less than 6,000 residents that borders Surrey, B.C., a city with more than half a million people.
Saunders, who was born in Canada but has U.S. citizenship, says the number one thing he tells his clients who move to the U.S. is to become American citizens, and that it will pay off down the road, regardless of whether they decide to stay in the U.S. or not.
"When I first got my green card over 20 years ago, I never thought it would be important to become an American," he said. "I figured, why bother? If you move back to Canada, you can lose your green card. So I always encourage fellow Canadians to become Americans."
He also suggests that while there are benefits to the U.S. health-care system, it's expensive.
"I went to law school in the mid '90s and (health care) was US$100 a month. Now, I pay US$3,000 a month for my family," he said. "I always tell Canadians, 'the older you get, the more expensive it's going to be,' and sometimes that's a deterrent to older individuals immigrating to this country."
Beyond the obvious of being sure you really want to leave the country, Golombek says it's important you speak with a tax professional and "really walk through your entire net worth."
"Look at all your assets and liabilities and list them on a piece of paper," he said. "Ask questions, see what's worth keeping, or what you should sell."
He stresses being prepared so that once you leave the country, you're not surprised with a letter demanding a significant amount of cash.
"Ultimately, you don't want to be in for a big tax surprise."
