Non-Resident FAQs
This handout provides general comments on various tax implications and concerns related to departing from Canada as a non-resident for tax purposes. The material is based on current laws and regulations as of the writing date of this handout, September 18, 2019.
All comments are for education purposes only and the following information is not intended to provide legal or tax advice. The handout may outline strategies or suggestions, not all of which will apply to your particular facts and circumstances. To ensure that your facts and circumstances have been properly considered and that action is taken based on the latest information available, you should obtain professional advice from a qualified legal and/or tax advisor before acting on any of the information in this article. The publisher of this handout has no responsibility to any person. Under no circumstances, including, but not limited to negligence, shall we be liable for any direct, indirect, special, consequential or other damages that result from the use of, or the inability to use, the information contained in this handout. To the fullest extent permitted by applicable law, we disclaim all warranties, express or implied, including, but not limited to, implied warranties of merchantability and fitness for a particular purpose, with respect to any materials provided or obtained from or via us.
Q1: Will I automatically become a non-resident of Canada for income tax purposes if I renounce the permanent resident status? Can I become a non-resident of Canada for income tax purposes after I become a Canadian citizen?
To become a non-resident of Canada for income tax purposes, you need to sever your ties with Canada, besides staying less than 183 days in Canada. Hence, renouncing your permanent resident status does not automatically make you a non-resident of Canada for income tax purposes if you are already in Canada.
If you have become a Canadian citizen, you can still become a non-resident of Canada for income tax purposes as long as you sever your ties with Canada.
To conclude, your status in Canada is different from your legal resident status in Canada for income tax purposes. If you are planning to become a non-resident of Canada for income tax purposes, please seek legal and accounting advice.
Q2: How long does it take for me to become a non-resident of Canada? When should I start preparing for departure?
You become a non-resident of Canada for tax purpose if you leave Canada to live in another country AND you sever your residential ties with Canada. Severing residential ties with Canada include many steps, including but not limited to 1) establishing a permanent home in another country, 2) to dispose of or transfer personal property and give up Canadian memberships to break social ties with Canada, and to acquire or establish them in another country, and so on… It takes time to get the document rights before your accountant can help you determine your tax departure date. You will become a non-resident of Canada for income tax purposes on the latest of:
The date you leave Canada,
The date your spouse or common-law partner and/or dependents leave Canada,
The date you become a resident of the country you settle in.
If you have been considering leaving Canada, you should have at least 6 months to half a year to prepare if you have a fair amount of personal properties. You should seek legal and tax advice as soon as possible to better plan for departure tax and other related issues. Difference circumstances and/or intentions will require various different planning strategies and will lead to different results.
Q3: If my spouse and I co-own a residential property in Canada, how can one of us become a non-resident of Canada? Can we keep the property as a non-resident? What is the difference in tax implications if we sell the property when we become non-residents or if we sell it in the future?
To be considered as a non-resident of Canada for income tax purposes, you will need to sever ties with Canada. If one of you is staying in Canada and living in the co-owned residential properties, it can be considered that the husband still has primary ties with Canada: spouse and a permanent home available to him. Other factors will need to be examined to determine the resident status in Canada for income tax purposes, such as other primary ties, secondary ties and income tax treaty with the other country.
After becoming a non-resident of Canada for income tax purposes, you can keep the property. Since this is a Canadian real property, it is exempt from deemed deposition at departure. You also have the option to elect to have the deemed disposition apply to the residential property at its fair market value if it fits with your financial circumstances better. Principal residence exemption may be applied to lower your tax burden. Market condition, market price and other factors should be considered to make a better and informed decision on whether or not to make the election of deemed disposition.
If you sell the residential property after you become a non-resident of Canada for income tax purposes, you need to notify the CRA of the disposition or proposed disposition within 10 days of the date the property was disposed of (section 116 compliance). Failure to notify CRA within the deadline will result in penalties. When you sell the property (after you become a non-resident of Canada for income tax purposes), you will need to file tax return to determine your final tax obligation to Canada.
The above considerations really depend on the type of property you have, your future plan, your children and so on. Please consult qualified tax specialist before you do anything.
Q4: I own several real properties as investments. What is the tax implication of these properties if I become a non-resident of Canada for income tax purposes?
If you do not sell these properties and hold them to earn rental income, you are required to submit withholding tax at 25% of gross rent. You can also elect under section 216 to pay taxes on the net rental income (gross rental income net of expenses). The filing deadline is April 30. Failure to file may lead to interest and penalties. If you sell some of these properties, please refer to the Q2 for tax treatment.
Q5: I own stocks and other forms of financial investments. What should I do about these investments after I become a non-resident of Canada for income tax purposes? Should I sell these investments? Will I be taxed right away?
These investments will be deemed to be sold at fair market value upon departure and immediately acquired at the same price. RRSP and TSFA are exempt from deemed disposition. The capital gain and/or loss need to be reported on your tax return for the year when you become a non-resident of Canada for income tax purposes. You can also choose to sell these financial investments before your departure. If you keep these investments and earn dividend, the financial institutions will withhold 25% of the gross income and remit it to the CRA. The withholding tax rate can be reduced based on the income tax treaty between Canada and the foreign country.
Q6: I am a shareholder of a Canadian corporation. What should I do if I intend to become a non-resident of Canada for income tax purposes? What should I do, if I am a director of a Canadian corporation?
See answer in Q4. Additionally, if you are the sole owner of a Canadian controlled private corporation (“CCPC”) and you are a non-resident of Canada for income tax purposes, the corporation is considered as a non-CCPC.
If the corporation is paying dividends to the non-resident owner/shareholder, it is subject to withholding tax.
If you are just a director but not a shareholder, it depends on the business needs to determine if you should resign.
Q7: Can I still come and live in Canada after I become a non-resident of Canada? How many days can I live in Canada at most?
After becoming a non-resident of Canada for income tax purposes, you are more than welcome to come back and stay in Canada. However, to maintain the status of non-resident of Canada for income purposes, on the safe side, you should stay in Canada for less than 183 days in a year.
Q8: What should I do if I have declared oversea properties that have not yet transferred in to Canada?
If you are a resident of Canada for income tax purposes, you are required to file Canadian income tax. While doing so, you are required to report foreign income and/or foreign properties in your tax return. Failure to file T1135 is subject to penalty of $25 per day, up to 100 days. These properties that have not yet transferred to Canada need to be reported correctly. The filing deadline is the same as your income tax filing deadline.
These foreign properties are also subject to deemed disposition. See Q3. If there is any accrued gain, departure tax will arise.