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Departure Tax In Canada

If your mind is made up to leave Canada, it will be important to understand Departure Tax In Canada. When you migrate from Canada, it is considered that you 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 known as a “deemed disposition,” and you are expected to report a capital gain on your Canadian tax return.

As people begin to retire, many are choosing to live their golden years outside of Canada. There are so many reasons why Canadians are moving abroad to retire. The most important two are to reduced cost of living and the desire to live in a better climate and a serene environment.

There are many places where your retirement dollars will go a lot further than they will in Canada and that is very appealing, especially to those that have limited retirement assets.

Many places around the world offer a cost of living of under $2,000 per month for a couple, and in many cases, a warmer and better climate to enjoy. Retirees are flocking to these destinations in order to live a better quality of life than they would be able to afford if they remain in Canada. Those retiring abroad are not the only ones with low incomes only, as many other retirees are simply seeking a higher standard of living for fewer dollars.

Exceptions to Departure Tax

  1. Canadian real property that was exclusively a principal residence will not give rise to tax as any gains will be offset by the principal residence exemption.
    As a result, if you decide to keep your principal residence and rent it out upon leaving Canada, “change of use” rules will cause capital gains and tax to accrue thereafter.
  2. Canadian business property which include inventory, if the business is carried on through a permanent establishment in Canada.
  3. Another exception is your registered accounts, which will not be subject to departure tax. This would include employee pension plans, RRSPs, TFSAs, etc.
  4. Short term residents, this is a situation whereby no departure tax is payable on property you owned or inherited when you last became a resident of Canada. This applies if you were a resident of Canada for 60 months or less during the 10-year period before you migrated.

Assets Eligible for Departure Tax

Departure tax applies to the following assets upon departure from Canada:

  • Real estate outside Canada
  • Unincorporated businesses outside of Canada
  • Private/public company shares in or outside Canada
  • Mutual funds units in Canada or outside Canada
  • Partnership interests
  • Interests in non-resident inter vivos trusts
  • Other portfolio investments
  • Personal use property and listed personal property (such as works of art, jewelry, stamps, coins, and rare manuscripts)

Departure tax might potentially pose a challenge for an individual, where there is a deemed sale but no actual sale proceeds in connection with the assets subject to departure tax. You are able to elect to defer the payment of tax by providing security that is acceptable to the CRA, to defer payment of departure tax until you have actually disposed the property.

Departure tax is one of the most important things to take into consideration when moving abroad. It is very important that you understand your personal tax implications when you leave Canada. Also, it is strongly advisable to consult an expert to assist you to put a plan in place, to ensure that your tax is managed in a proper manner possible, and understand the tax implications of any move you decide to make.

You can also see the Canadian Tax Return