If you are a Canadian who is working either permanently or temporarily abroad, there are many tax implications that you need to be aware of. Tax implications are important things to consider for Canadian citizens who are working outside of Canada. Many Canadians are caught off guard by departure tax obligations, withholding tax on Canadian income, and ongoing filing requirements that follow them across borders. Understanding exactly where you stand before and after you leave can save you from costly penalties and unexpected tax bills. Calgary Tax Consulting helps Canadians navigate international tax obligations at every stage of their move, ensuring full CRA compliance whether you are leaving for good or just for a while.
A Canadian who is permanently working abroad must determine their residency status. Getting this determination right early is the foundation of every tax decision you will make as a non-resident. The CRA looks at three primary factors when determining residency status:
Let’s take the example of Alex, who left Canada to work and live in the United States. His permanent home is in the United States. His wife and child are in the United States and Alex himself lives in the United States. In this case, Alex is clearly a non-resident of Canada.
The secondary factors that the CRA considers when determining residency status include:
A single secondary tie by itself will not cause you to become or remain a resident. When examining the secondary ties and their impact on your Canadian residency status, you must evaluate the ties as a whole.
Getting your tax affairs in order before your departure date is one of the most important steps you can take. Missing any of these obligations can result in penalties, interest charges, and ongoing CRA complications even after you have settled abroad.
On your departure tax return, it is important that you indicate the date that you emigrated from Canada. This return covers the period from January 1st of your departure year up to your last day as a Canadian resident and must be filed accurately to avoid future CRA reassessments.
You could file form NR73 (determination of resident status upon leaving Canada). It’s not mandatory to file this form with the CRA, but you may want to complete this because then the CRA will give you a determination in writing as to whether you are a resident of Canada or a non-resident of Canada.
Canadians working abroad must tell the CRA that they no longer want to receive any payments or tax credits, such as for GST, the Canada child benefit, and more. If they continue to work abroad and receive these payments, they will end up having to pay all of that money back, plus interest and penalties, once the CRA finds out.
Canadians working abroad must give the CRA a complete list of all Canadian and foreign assets they own as of their departure date. On this form, you must provide a description of your assets and their fair market when you leave. However, you are not required to file this form if the total value of all your assets is less than $25,000 when you leave Canada. If you don’t file this form the CRA will impose a significant penalty on you.
When you leave Canada and become a non-resident, you are deemed to have sold all of your assets at their fair market value and you must pay tax on the accrued gains. Certain assets are exempt from departure tax, like your principal residence, RSPs, and TFSAs. A personal tax review before your departure date helps ensure you are not overpaying or missing any available exemptions.
You should tell your financial advisor that you have become a non-resident, the date you became a non-resident, and that you would like to receive non-resident tax slips from any financial institutions that you deal with. You should also tell your financial advisor that you no longer wish to contribute to your RRSP and the Tax-Free Savings Account, as you are no longer permitted to do so once you become a non-resident of Canada. There is a 1% per month penalty for contributions made to a TFSA after you become a non-resident.
As a Canadian permanently working abroad, you only have to file a tax return in three specific circumstances:
Outside of these three situations, your Canadian filing obligations as a confirmed non-resident are limited. However, non-resident income tax rules still apply to any Canadian-source income you continue to receive after leaving.
After you leave Canada, you will be subject to withholding tax. Withholding tax is applied at a rate of 25% on the Canadian sourced income that you receive. This includes interest, dividends, CPP, old age security and pension, RSP income and rents from real estate property in Canada.
Let’s take an example: George has $10,000 in Canadian savings bonds that pay him 10% interest, or $1,000 per year. In this case, George’s Canadian Bank would be required to hold back 25% in taxes, or $250 from the 10% interest payment that he receives. This is known as a withholding tax.
You should look at the tax treaty that Canada has with the country you’re living in to see if you can get any kind of tax relief from withholding tax. For example, if you live in the United States, the withholding tax imposed on dividends is just 0%. Furthermore, the withholding tax on interest received from Canadian financial institutions is zero. You can receive Canada pension plan payments and the withholding tax rate is zero. Reviewing available international tax treaty benefits with a qualified advisor can help you reduce your withholding tax burden significantly.
If you are temporarily living abroad, you are considered a factual resident of Canada so long as your residential and personal ties remain with Canada. You could also be a factual resident of Canada under the following circumstances:
As a Canadian working abroad, you still have to:
Let’s look at an example. George’s employer transfers him to Hong Kong for 18 months. He is leaving his spouse and child behind in Canada and he is still maintaining his permanent home in Canada. He is temporarily renting accommodations in Hong Kong, provided to him by his employer. In this case, George is clearly a factual resident of Canada, and he is, therefore, subject to income tax on his worldwide income: the income earned in both Hong Kong and Canada.
As a Canadian who is temporarily working abroad, you might be worried about double taxation: having to pay taxes in the country where you are currently working, as well as having to pay taxes in Canada. Fortunately, the Canadian Income Tax Act can provide tax relief through a foreign tax credit. You can claim a foreign tax credit for the taxes that you paid in a foreign country.
The foreign tax credit is the lesser of two amounts:
So if you are working in a country that has a very low tax rate, you will most likely get all the foreign taxes credited back to you on your Canadian personal tax return. Calgary Tax Consulting can help you calculate and claim this credit accurately as part of a complete international tax filing.
Canadians temporarily working abroad should consider the overseas employment tax credit. To qualify for this credit you must be working for a Canadian employer, and you must be working overseas for a period of more than six months. In order to qualify, you must be working in one of the following industries.
It is important to note that this credit is being phased out, so please take advantage of it while you can. A year end tax planning review with a qualified advisor can confirm whether you still qualify and help you claim it before it is no longer available.
Remember that when you leave Canada to work abroad, your tax obligations come with you.
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