Essential Financial Tips When Leaving Canada for Good: Leaving Canada permanently is a major life decision that requires careful financial planning. From understanding your tax obligations to managing your investments and securing health insurance, there are key steps to take to ensure a smooth transition. This guide will walk you through the essential financial considerations, helping you avoid unexpected complications and ensuring financial stability as you start a new chapter abroad.
Key Financial Aspects to Address Before Leaving Canada
1. Understanding Departure Tax (Exit Tax)
When you leave Canada and become a non-resident, the Canada Revenue Agency (CRA) applies a “departure tax,” also known as deemed disposition tax. This means certain assets are treated as if they were sold at their fair market value, potentially triggering capital gains taxes.
Key Points to Consider:
- Assets subject to departure tax include stocks, mutual funds, and other investments, but not Canadian real estate or registered retirement accounts like RRSPs and TFSAs.
- If the total fair market value of your assets exceeds $25,000, you must file Form T1161 to report them. Failure to do so can result in penalties.
- Properly evaluating and reporting your assets can help minimize tax liabilities.
2. Managing Canadian Investments
Registered Retirement Savings Plan (RRSP):
- You can maintain your RRSP after leaving Canada, but withdrawals as a non-resident are subject to withholding tax.
- The tax rate varies depending on tax treaties between Canada and your new country, making it essential to check CRA guidelines.
Tax-Free Savings Account (TFSA):
- You cannot contribute to your TFSA once you become a non-resident.
- While your TFSA remains tax-free in Canada, other countries may not recognize this status and may tax its earnings.
- Withdrawing funds before leaving might simplify tax matters.
3. Handling Real Estate Decisions
If you own property in Canada, you must decide whether to sell it, keep it, or rent it out. Each option carries tax implications:
- Selling Before Departure: Helps avoid complexities related to non-resident capital gains taxes.
- Selling After Departure: A 25% withholding tax applies to the sale proceeds unless you obtain a compliance certificate under section 116 of the Income Tax Act.
- Renting Out Property: You must file Form NR6 to pay taxes on net rental income instead of the default 25% withholding tax on gross income.
4. Banking and Currency Exchange Strategies
Maintaining financial access is crucial when relocating abroad. Some Canadian banks allow non-residents to keep their accounts, but additional fees or restrictions may apply. Opening a local bank account in your new country can streamline transactions and reduce costs.
Currency Exchange Tips:
- Use specialized foreign exchange services for better rates and lower fees than traditional banks.
- Consider locking in exchange rates on large sums to mitigate currency fluctuations.
5. Securing International Health Insurance
Canadian healthcare coverage does not extend beyond the country. Before leaving, ensure you have international health insurance to cover medical emergencies and routine care in your new country. Compare policies to find one that meets your needs in terms of coverage, cost, and benefits.
Tax Obligations as a Non-Resident
1. Filing a Final Tax Return
- In the year you leave, you must file a final Canadian tax return, reporting worldwide income earned while you were a resident.
- Declare your departure date to establish your non-resident status for tax purposes.
- If you qualify as a “short-term resident” (having lived in Canada for 60 months or less within the past 10 years), you may be exempt from some departure taxes.
2. Reporting Future Canadian Income
As a non-resident, you only need to report Canadian-source income, such as rental income, pensions, or investments. Inform banks and other institutions of your new status to ensure proper withholding tax rates are applied.
Receiving Canadian Pensions While Living Abroad
If you plan to collect Canadian retirement benefits while living in another country, here’s what you need to know:
- Canada Pension Plan (CPP): Payable worldwide, but may be subject to tax withholding depending on your residency.
- Old Age Security (OAS): Available only if you have lived in Canada for at least 20 years after the age of 18.
- Tax Treaties: Some countries have agreements with Canada that reduce tax withholding rates on pension income.
Final Steps Before Leaving Canada
1. Settle Financial Accounts
- Close unnecessary accounts and pay off outstanding debts.
- Review and adjust investments based on residency status and tax implications.
2. Notify CRA and Financial Institutions
- Inform the CRA and financial institutions of your departure to prevent incorrect tax filings.
- Update your address and residency status with banks and service providers.
3. Keep Essential Records
- Retain documents such as proof of departure, residency details in your new country, and tax filings to avoid future disputes.
FAQ
- Do I have to pay tax on my Canadian property after leaving? Yes, selling or renting out Canadian property as a non-resident may result in capital gains or rental income tax obligations. Filing the correct tax forms can reduce these tax liabilities.
- Can I keep my Canadian bank account while living abroad? Yes, but some banks charge fees or impose restrictions on non-residents. Opening a local account in your new country may be more convenient.
- What happens to my TFSA if I leave Canada? You cannot make new contributions, and its tax-free status may not be recognized in your new country.
- Can I still receive CPP and OAS payments while living outside Canada? Yes, but tax withholdings or eligibility adjustments may apply based on tax treaties.
Final Thoughts
Leaving Canada requires careful financial planning to avoid unexpected tax burdens, investment complications, and banking challenges. By addressing these financial aspects early and seeking professional advice where needed, you can make your move smoother and more secure. With proper preparation, your transition to a new country can be an exciting and financially stable journey.