MoneyTalk August 22, 2023
Ever thought about moving to a new country to build your life, raise your family or even retire? If so, there are a number of things to consider to help make the transition smoother. Mindi Banach, Tax and Estate Planner, TD Wealth, joins Kim Parlee to talk about what people should know about this major life decision.
K: Have you ever thought about moving to a new country to build your life and raise your family in a new place? Well, if so, there are a number of steps to consider to help make that transition a bit smoother. It's a major change, after all, and Mindi Banach, Tax and Estate Planner at TD Wealth, is here to tell us what you need to know.
K: Maybe it could be maybe raising your kids a new place. Maybe it's retiring to a new place. But everyone, I think, has the fantasy of maybe doing something like that. So let's start from the beginning. What are the things you need to think about getting in order?
M: The first thing that you need to do is do your research. You want to understand what the custom and the cultures are in that new country, but you also want to understand the tax and the immigration laws. I mean, you're going to need to know what visa requirements that you need in order to live, work, or study in that country. In addition to researching, you want to understand, financially, can you afford to move? So understanding your financial plan, your financial budget. What is your living situation going to be? What is your transportation situation going to be? You want to make certain that your documents are in order-- so your passport, your vaccination card, your driver's license, your estate planning documents. Which documents do you need to update and which documents are you going to need to replace when you move to a new country?
K: I was thinking it was fun, and now I'm like, it's a lot of work.
M: It can be.
K: Yes, I think it is. OK, from a tax perspective—you named a couple little things in there, but what else do we need to think about? And I'm sure there's a lot.
M: Yeah, this is the big question. This is a loaded question. And the first thing that you really need to consider when it comes to a tax perspective is understanding your residency because here in Canada, the tax system is based on Canadian residency. So for instance, if you are a resident of Canada, you will be taxed on your worldwide income, and you likely will be required to file a tax return here in Canada. If, however, you are a non-resident of Canada-- and I want to emphasize and highlight we are not talking about Canadian citizenship. We're talking about Canadian residency. Again, if you're a non-resident of Canada, you're only going to be taxed on your Canadian source income. And whether or not you're going to be required to file a Canadian tax return, if at all, is going to be dependent on the specific type of Canadian source income you receive. One other thing that I do want to highlight here is that there is a possibility that you may be a dual resident of both Canada and another country. And if that's the case, you want to be concerned about double taxation.
K: Right, because everybody wants the full tax then.
M: Exactly. Now, Canada does have tax treaties with certain jurisdictions and certain countries that may decrease or eliminate that double taxation risk. But Canada does not have a tax treaty with every country. So if you are moving to a country that Canada does not have a tax treaty with, obviously, you may want to consider some pre-immigration planning, because you may be subjected to double taxation, which you don't want.
K: We don't want. The single taxation is hard enough as it is. OK, so if you are a Canadian resident, you're considered a Canadian resident from a tax perspective, it's probably somewhat similar to what it is today. If you are declared a non-resident, it's different. How does one become a non-resident? What does that entail?
M: So the determination of residency status is going to be on a case-by-case basis by the CRA. And the first thing you need to really assess is your residential ties to Canada. And the CRA actually has a list of what they consider to be the significant residential ties to Canada. So, for example, owning a home in Canada, having a spouse and/or dependents living in Canada-- those are considered significant residential ties. The CRA also has a list of secondary residential ties. So, for example, Canadian passports, Canadian driver's license, owning Canadian bank accounts. And in order to declare yourself to be a non-resident, it's not a matter of just making some sort of verbal declaration. You actually have to take some actions to become a non-resident. And what you need to do is that you actually need to sever your residential ties, both significant and the secondary residential ties, and then at the same time establish stronger residential ties to that new country. So for example, you want to be selling and/or leasing out your Canadian home and purchasing or renting a home in that new jurisdiction. You want to be closing out the Canadian Bank accounts and opening up new bank accounts in that other jurisdiction. Now, I do want to mention that there is a possibility that the CRA may take the position that they're going to reject your claim that you are a non-resident. They really do look at whether or not you've severed ties and established new ties in other jurisdiction. There is a form that you could file with the CRA to ask the CRA for their determination as to whether or not you are a non-resident or a resident. It's specifically on form NR73, but it is not a mandatory form that you have to file. It is voluntary.
K: You better be sure. This is not a halfway measure. What about departure taxes? Is that something that Canadians have to worry about?
M: Possibly, yes. It really does depend on the specific type of asset that you're going to continue to hold when you become a non-resident of Canada. Now, certain assets are exempt. So, for example, registered Canadian accounts like RRSPs and TFSAs, you're not going to be subject to a departure tax. You may not be required to pay the departure tax immediately. You may be able to elect to defer. But if it's above a certain amount, you may have to post a security.
K: If you become a non-resident, obviously, there's a benefit to you from a Canadian taxation standpoint, potentially. You have to kind of see that too. But there's also costs-- health care, benefits you may have been receiving. So just people need to be aware of that at the same time too.
M: Yes, absolutely. The reality is for certain provincial and government benefits that you may be eligible for, one of the requirements is that you need to be a resident of Canada. And so if you cease to be a resident of Canada, you may lose your eligibility for certain, for example, OHIP or any other provincial health care plan—GST, HST credits, Canada Child Benefit credits. Again, you may lose your eligibility for that. I do want to mention, if you become a non-resident, you may still be able to get Old Age Security, but taxes will need to be withheld-- usually at the standard tax rate unless there is a tax treaty in place.
K: And what if—I'm going to try and squeeze this one in. You mentioned earlier about RSPs, and TFSA, and other, let's say, non-registered investing accounts. How does that function if you're a non-resident?
M: So each one has their own implications. If we're talking about RSPs, there's not going to be a departure tax, and you're not going to have to pay taxes on it until you withdraw the money, again, the withholding tax rates. You won't be able to contribute any funds while you're a non-resident. With respect to a TFSA account, similar to RSPs, you will not be able to contribute to your TFSA account while you are a non-resident. You won't be taxed in Canada, but you do want to look into the tax laws and rules in that other jurisdiction that you are moving to, because they may treat RSPs and TFSAs differently. And with respect to non registered investment accounts, again, it's going to be dependent on the specific Canadian source income that you receive as to whether or not you have to pay taxes and, arguably, whether or not you're going to have to file a Canadian tax return.
K: What about your citizenship? If you become a non-resident, is your Canadian citizenship at risk?
M: So there's nothing Canadian rules that indicate that you're going to lose your Canadian citizenship if you become a non-resident of Canada, certainly. But I do want to highlight if you are going to decide to renounce your Canadian citizenship, you do need to be a citizen of another country. You can't be stateless.
K: Last question—and I always ask this to you. Who should you talked to before you decide to make this somewhat gargantuan move?
M: Yes. There's going to be professionals you want to speak to, as well as non-professionals. So the professionals are the typical ones you think of-- your lawyer, your accountant, your financial advisor. But you also want to talk to the non-professional-- your friends, your family, people who have already made the move, people who live in that other country, because they're going to provide some valuable insight that a professional may not provide for you.
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