Some time ago you may have decided to leave Canada and settle in another country. Your intention was to leave Canada permanently and not return. Since Canada taxes Canadian residents on their worldwide income you did not want to be in a tax situation where you were required to pay income taxes to two different countries. You notified the Canada Revenue Agency that you were permanently giving up your Canadian residency. You severed all your ties to Canada to the satisfaction of the CRA and filed all the required documents. You diligently settled your departure taxes before you left and you have since paid Canadian income taxes on any Canadian source income that you may have had according to the rules applicable to nonresidents. But now you wish to immigrate back to Canada, so now what’s the immigrating back to Canada process.
You wish to return to Canada
But circumstances change over time. Perhaps the dream job that you emigrated to take didn’t work out or maybe the political situation in your new country is so unstable that you fear for your family’s safety. The reason doesn’t particularly matter; the fact is that you wish to return to Canada. Unlike the United States that requires you to renounce your citizenship to escape US taxes on your worldwide income, Canada requires only that you sever your Canadian residency and become a tax resident of another country. Unlike the United States where once you have renounced your citizenship for tax reasons you can never permanently re-enter the US (although you may apply for a visitor’s visa), Canada welcomes back her citizens with open arms.
Seek legal advice
If you have given up your Canadian residency and now wish to return to Canada you should consult an experienced immigration lawyer. We recommend that you contact the bar association in the province or territory where you intend to locate for a list of recommended immigration lawyers.
However, if you were not a Canadian citizen but a were a legal resident when you left Canada you may not be able to re-establish your Canadian residency. Remember that you intended to permanently give up your Canadian residency when you left. Also there is a difference in the Canada Revenue Agency definition of a tax resident and Citizenship and Immigration Canada’s definition of a legal resident. Non-citizens who have severed their Canadian residency but now wish to return to Canada should consult an experienced immigration attorney.
Unwinding a Deemed Disposition
In any case, as a Canadian citizen you have decided to return to Canada. Well, you’re in luck – you get to unwind the departure tax that you were assessed at the time you emigrated. You could even end up with a tax refund – or maybe not. When you immigrate to Canada, you are generally deemed to have disposed of and to have immediately reacquired at fair market value the worldwide properties that you own on the date you re-entered Canada. If you had previously elected to defer payment of the tax owing on the income from the deemed disposition of property at the time you emigrated, you may now have to pay the deferred tax.
If you emigrated after October 1, 1996, and you have re-established Canadian residency you can elect to adjust the deemed dispositions of property that you still own that was deemed sold when you emigrated. This is referred to as an election to “unwind” a previous deemed disposition. If you make this election, the amount of the gain from the deemed disposition that you reported on your return for the year you emigrated can be reduced by the least of:
- The amount of the gain reported on your return for the year you departed;
- The fair market value (FMV) of the property on the date you immigrated;
- Any other amount to a maximum of the least of the above-noted amounts.
The election to unwind may result in the reduction or elimination of the tax owing on the deemed disposition of property at the time of emigration. If you make this election and had previously elected to defer payment of the tax owing on the income from the deemed disposition, some or all of the security you may have furnished may be returned to you.
You must submit the request to unwind in writing on or before your filing-due date for the year you immigrate and become resident. You must include a copy of this written request with your income tax return for the year you returned to Canada along with a list of all the properties you own and the fair market value of each property to which this election applies. This will establish the base that the Canada Revenue Agency will use for any future calculation of gains or losses from the disposition of property owned at the time you re-entered Canada. Valuable property such as jewelry and artworks should be properly appraised to avoid future problems. Your income will be prorated in the year of re-entry but you may be entitled to full benefits from other programs.
AG TAX LLP Can Help
If you have any other tax-related queries, and/or need assistance with tax planning/filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.