Filling Taxes in the year of departure from Canada
For U.S. citizens, returning to the U.S. can be a very complex and costly process. Careful planning can help to minimize your exposure to double taxation and ensure that applicable treaty benefits and tax credits are claimed.
Non-Resident Tax: Severing Your Ties and the Departure Return
To be taxed only on your Canadian source income once you leave Canada you must sever your ties with Canada. A non- residency claim may be denied by the CRA even if you have only one major tie to Canada.
When you move out of Canada, you are also required:
- to file a tax return and report all your income from all worldwide sources
- to report income from employment in Canada or from a business carried on in Canada
- to report the taxable part of scholarships, bursaries, research grants, and fellowships you received from Canadian sources
- to report taxable capital gains from disposing of taxable Canadian property.
- to include, with your departure return, a list of all the property you own at the time of departure if their total fair market value greater than $25,000 CAD.
Other Opportunities and Obligations
Deemed Dispositions: You are deemed to have disposed of certain assets at their fair market value at the time of your departure and to have reacquired them for the same amount right after.
- Applies to most property, with the exception of Canadian real property, Canadian business property, RRSPs and other pensions
- An increase in fair market value over the adjusted cost has to be reported as a capital gain and taxed accordingly
- You can elect to defer the payment of tax on income relating to the deemed disposition and pay it later when you sell or otherwise dispose of the property.
- If the tax exceeds $14,500, payment can still be deferred; however, the CRA will require you to post some security with them. The security must be paid by the due date of the return.
Principal Residence: If you are not planning on renting out your former principal residence on a long- term basis once you leave Canada, you should consider selling it on or about the time of your departure, preferably before entering the U.S. The gain on your principal residence is not taxed in Canada.
Non-resident Tax Withholding: If you will continue to receive income from Canadian sources, the payers are required to withhold non-resident tax at a rate of 25%. This withholding tax satisfies your tax liability to Canada, and no income tax return will be required. The Canada-U.S. tax treaty allows a reduced rate of withholding on certain types of income.
For more information you may wish to read our article entitled Emigrating From Canada
Aylett Grant Tax LLP Can Help You to
- File the necessary return to fulfill your compliance obligations and help you to minimize your tax liability
- File a timely election to defer the departure tax
- Claim the treaty exemptions and benefits applicable to your tax situation
- Review your situation to ensure that there are no remaining ties to Canada that could result in the CRA denying your non-residency claim