Leaving Canada, Crucial Financial Tips for a Smooth Transition Leaving Canada to settle in another country is an exciting new chapter, but it also requires careful financial planning to ensure a smooth transition This guide covers the key financial aspects, including tax obligations, investment.
management, and healthcare arrangements, to help you navigate the complexities and minimize potential financial challenges as you prepare for your move.
Key Financial Considerations When Leaving Canada
When you decide to leave Canada, it’s essential to address several important financial matters, from handling taxes to managing investments and securing health coverage Taking the right steps well in advance can help you avoid costly surprises and ensure a financially stable transition to your new home.
Departure Tax: What You Need to Know
One of the most significant financial considerations when leaving Canada is the departure tax, or what’s officially known as the “deemed disposition” tax When you emigrate, the Canada Revenue Agency (CRA) treats certain assets.
such as investments, shares, and collectibles, as if they’ve been sold at their fair market value, potentially generating capital gains that are taxable However, Canadian real estate and retirement accounts like RRSPs and TFSAs are typically exempt from this tax.
To properly manage your departure tax obligations, you must complete Form T1161 if the total fair market value of your assets exceeds $25,000 Failure to file this form may result in penalties It’s important to accurately assess and declare the value of your assets to avoid unexpected tax liabilities.
Managing Your Canadian Investments After You Leave
If you have investments in Canada, you’ll need to understand the implications of your new non-resident status.
RRSP (Registered Retirement Savings Plan)
You can keep your RRSP after leaving Canada, but be aware that withdrawals as a non-resident are subject to withholding tax The tax rate may vary based on tax treaties between Canada and your new country, so it’s crucial to seek advice from a tax professional to understand the potential tax impact.
TFSA (Tax-Free Savings Account)
As a non-resident, you can no longer contribute to your TFSA, and the tax-free status of the account may not apply to earnings once you leave It might be beneficial to withdraw funds before your departure to avoid complications with managing your TFSA from abroad.
Real Estate and Property Tax Considerations
If you own property in Canada, you’ll need to decide whether to sell, rent, or keep it Each option comes with different tax implications.
Selling Property
Selling your property before leaving Canada can simplify matters, as it avoids the complexities of non-resident capital gains taxes However, if you sell after leaving, you may be subject to a 25% withholding tax on the sale, requiring a compliance certificate under Section 116 of the Income Tax Act.
Renting Property
Renting out your Canadian property requires filing Form NR6 to have taxes applied to net rental income, rather than a blanket 25% tax on the gross income Speak to a tax professional to determine the best course of action for your property.
Managing Banking and Currency Exchange
When living abroad, maintaining easy access to your Canadian bank accounts is essential While some Canadian banks allow non-residents to keep accounts.
there may be fees or limitations It’s also a good idea to open a local bank account in your new country to simplify international transactions and avoid foreign transaction fees.
Currency Exchange Tips
- Use specialized currency exchange services instead of traditional banks to get better rates and minimize fees
- Consider locking in exchange rates if you plan to transfer large sums of money, protecting yourself from currency fluctuations.
Securing International Health Insurance
Canadian healthcare benefits don’t cover you once you leave the country, so it’s critical to secure international health insurance Look for a plan that covers emergency medical services and routine care abroad Compare different policies to ensure your healthcare needs are met in your new country.
Tax Filing as a Non-Resident
After emigrating, you’ll only need to report Canadian-source income, such as rental income or pensions Be sure to inform your financial institutions of your non-resident status so they can apply the correct tax rates.
Filing a Final Tax Return
For the year you leave Canada, you must file a final tax return that covers your worldwide income during the period you were a resident You will need to indicate your departure date on this return to clearly distinguish your tax obligations between Canada and your new country.
Short-Term Residents
If you qualify as a short-term resident (living in Canada for 60 months or less in the past 10 years), certain assets may be exempt from the departure tax It’s important to check your eligibility to ensure you take advantage of any exemptions.
Retirement Considerations: CPP and OAS Abroad
You can still receive Canadian retirement benefits like the Canada Pension Plan (CPP) and Old Age Security (OAS) while living abroad However, the eligibility criteria and tax rates may change.
CPP
CPP is payable worldwide, but withholding tax may apply depending on your country of residence Review any tax treaties between Canada and your new country to understand how your CPP payments will be taxed
OAS
To qualify for OAS while living abroad, you must have lived in Canada for at least 20 years after turning 18 If you meet this requirement, you can continue to receive OAS payments, but your eligibility might vary based on your residency status.
Steps to Take Before Leaving Canada
To ensure your financial transition is as smooth as possible, take these steps before you leave
- Review and Finalize Your Finances
Close unused accounts, pay off debts, and assess your investments to determine which assets to keep or liquidate before departure - Notify the CRA and Financial Institutions
Inform the CRA and any financial institutions of your departure date and new address to update your residency status and avoid any future complications with tax filings or benefits - Keep Accurate Records
Retain important documents, such as proof of residency in your new country and confirmation from the CRA regarding your change in residency status, to support future tax filings.
By planning ahead and addressing these financial considerations, you can ensure that your move abroad is a smooth and financially secure transition Consult with professionals.
where necessary to make informed decisions that will benefit you both now and in the future.
