Departing Canada

Individuals may decide to leave Canada for work, family or a variety of other reasons.  No matter the reason, there are many factors (both tax and otherwise) that need to be considered before departing Canada.  A few of these considerations include:

Canadian Tax Considerations:

• Canadian tax residency may not always be clear.  In many cases individuals assume they can leave Canada and simply stop paying Canadian taxes.  Depending on the facts and circumstances surrounding the departure, CRA may see things differently.
• Canada’s deemed disposition on departure rules.  An individual must report on his/her final Canadian tax return a disposition at fair market value of all of his/her assets.  Exceptions to this general rule include such assets as RRSP’s and real estate located in Canada.
• A determination needs to be made early on in the departure process whether it is beneficial to provide security in lieu of paying the tax resulting from the deemed disposition rules discussed above.
• Shareholdings in private Canadian corporations must be reviewed prior to departure.
• Canadian rental properties require elections be made and forms filed to ensure that CRA does not charge the owner 25% of the gross rents while a Canadian nonresident.

U.S. Tax Considerations:

• In some cases an election can be made to file a joint return with a spouse in the year of immigration.
• The Canada – U.S. Tax Treaty (Treaty) can be used to minimize the impact of Canada’s deemed disposition rules on the U.S. side.
• The U.S. estate and gift tax regime should be considered before establishing U.S. residency.  Pre-move estate planning can often significantly reduce future estate taxes.
• The U.S. tax costs of owning Canadian trusts and corporations must be considered.  The Passive Foreign Investment Company (PFIC) and Controlled Foreign Corporation (CFC) rules need to be addressed.
• Income earned in Registered Retirement Savings Plans (RRSP) is taxable in the U.S. unless an election is made with the tax return.
• There are many State tax considerations that need to be reviewed.  Disposing of assets before establishing residency in a State can often save on future taxes.  Another issue is that many States do not honor the Treaty which can lead to additional State taxes.