Moving to or from Canada? Here’s How It Affects Your Taxes

Relocating internationally—whether you’re moving to Canada for new opportunities or leaving the country to live abroad—is an exciting milestone. However, this significant change has notable implications for your tax obligations. Understanding how your tax situation changes when you immigrate to or emigrate from Canada is crucial for avoiding unnecessary taxes, penalties, and audits from the Canada Revenue Agency (CRA).

In this detailed guide, we’ll explore everything you need to know about how moving to or from Canada affects your taxes, from residency rules to filing requirements and strategic tips to simplify your transition.

1. Understanding Canadian Tax Residency

Your tax obligations in Canada largely depend on your residency status. Canadian tax law identifies several types of residency:

• Factual Resident: You have significant residential ties to Canada (home, spouse, dependents) and are taxed on worldwide income.
• Non-Resident: You do not have significant ties to Canada and are taxed only on Canadian-sourced income.
• Deemed Resident: You stay in Canada for 183 days or more within a calendar year but have no significant residential ties elsewhere; taxed on worldwide income.
• Deemed Non-Resident: Under certain tax treaties, you might be considered a resident of another country despite substantial ties to Canada.

2. Moving to Canada: Becoming a Resident

2.1 Establishing Residency

You become a resident for tax purposes on the date you establish significant residential ties, such as:

• Buying or renting a permanent home in Canada
• Relocating your family to Canada
• Having employment commitments in Canada
• Opening Canadian bank accounts, acquiring provincial healthcare, and obtaining a driver’s license

2.2 Filing Taxes as a New Canadian Resident

As a new resident, you must file a Canadian tax return (Form T1) for the tax year in which you became a resident. Key points include:

• Reporting your worldwide income from the date you became a resident onward
• Claiming allowable deductions and credits prorated based on your date of entry
• Indicating your date of residency establishment on your tax return

2.3 Reporting Foreign Assets (Form T1135)

If you own foreign assets with a total cost over $100,000 CAD, you must file Form T1135 (Foreign Income Verification Statement) with your annual return. This includes foreign bank accounts, stocks, real estate, and other investments.

3. Moving from Canada: Becoming a Non-Resident

3.1 Severing Residential Ties

You become a non-resident on the date you sever significant residential ties. Common actions indicating residency termination include:

• Selling or renting out your Canadian home
• Moving your spouse or dependents abroad
• Cancelling provincial healthcare coverage
• Closing Canadian bank accounts and credit cards

3.2 Filing a Final Canadian Tax Return

In your year of departure, you must file a final tax return (often called a part-year return), indicating clearly your departure date. Important points include:

• Reporting worldwide income earned up to your departure date
• Claiming deductions and credits prorated based on days spent as a resident
• Filing by the usual April 30 deadline, or June 15 if you are self-employed (though any taxes owed are still due by April 30)

3.3 Departure Tax (Deemed Disposition)

Canada imposes a departure tax when you emigrate, treating you as if you’ve sold certain assets at their fair market value—even if you haven’t physically sold them. Assets typically affected include:

• Shares and investments
• Foreign real estate
• Personal property exceeding certain values (like artwork or collectibles)

Exemptions include Canadian real estate, RRSPs, RRIFs, RESPs, and certain pensions. If you face departure tax, you may defer the payment by providing security to the CRA (Form T1244).

4. Reporting Canadian Income as a Non-Resident

After becoming a non-resident, you are taxed only on income sourced from Canada, including:

• Rental income from Canadian property
• Employment or business income earned in Canada
• Pension or investment income from Canadian sources

This income typically faces a 25% withholding tax. For rental income, filing a Section 216 return may reduce your overall tax burden.

5. Tax Treaties: Avoiding Double Taxation

Canada maintains tax treaties with over 90 countries to avoid double taxation. These treaties:

• Determine your residency for tax purposes
• Reduce or eliminate withholding taxes on pensions, interest, dividends, and royalties
• Provide mechanisms for claiming foreign tax credits

Reviewing your specific treaty is critical to understanding tax implications.

6. Claiming Foreign Tax Credits

If you earn foreign income after becoming a Canadian resident, you may be eligible to claim a foreign tax credit (Form T2209) to offset double taxation:

• Document foreign taxes paid
• Convert foreign currency to Canadian dollars at the appropriate exchange rate
• File Form T2209 with your Canadian tax return

7. Common Tax Deductions & Credits for Part-Year Residents

Your eligibility for deductions and credits changes with residency status. Common prorated credits include:

• Basic personal amount
• Age amount
• Spousal and dependant credits

Ensure your tax software or accountant accurately prorates these amounts based on your residency dates.

8. Special Considerations for International Students & Temporary Workers

If you are temporarily in Canada (e.g., student, temporary worker), you must still file a Canadian tax return if you earned income in Canada. Benefits you may qualify for:

• Tuition, education, and textbook credits
• GST/HST credits (if you meet residency and income conditions)

9. Key Forms and Documentation

Keep these CRA forms and documents in mind:

• T1 General: Individual Income Tax Return
• Schedule A: Statement of World Income (for new residents)
• T1135: Foreign Income Verification Statement
• T1161: List of Properties by an Emigrant of Canada
• T1243: Deemed Disposition of Property by an Emigrant
• T2209: Federal Foreign Tax Credits

10. When to Seek Professional Advice

Consider consulting a tax professional if:

• You have complex investments or foreign income
• You qualify under tax treaty rules
• You face departure tax or own significant assets
• Your situation involves foreign retirement accounts or pensions

Final Thoughts: Plan Early, File Correctly

Moving internationally involves intricate tax considerations. Proper planning ensures compliance, reduces stress, and maximizes your financial outcomes. Whether entering or leaving Canada, being informed and proactive in managing your taxes will provide peace of mind during this significant life transition.