Working internationally can be a thrilling experience for professional growth and adventure and these opportunities are only becoming more accessible in todays connected world where many countries are adopting Digital Nomad visas and other immigration programs to try to increase the number of expats in the country.
But before you start packing your bags and head out for a temporary work assignment or becoming a digital nomad, it is important for you to understand how this will affect your obligations when tax season arrives.
Keep reading this blog post to uncover critical aspects of tax residency departure tax, and CRA compliance.
Table of Contents:
- Tax Residency Implications – How Leaving Canada Affects Your Tax Obligations
- Departure Tax – What It Is and How It Applies to Your Worldwide Assets
- Maintaining Ties in Canada – Tips to Retain Your Tax Residency
- Filing Requirements While Abroad – Ensuring Compliance with the CRA
Tax Residency Implications – How Leaving Canada Affects Your Tax Obligations
Understanding your tax residency is critical for optimizing your taxes. Your tax residency will decide which country will receive the right to tax your income. Unfortunately, it’s not as easy as counting the days spent abroad.
Key Criteria:
- 183-Day Rule: Spending 183 days or more in Canada in a year may generally establish you as a tax resident. Learn more about deemed residents of Canada.
- Significant Residential Ties: Having significant ties in Canada such as owning a home, having close family members living in the country, or maintaining a business can also help you establish your tax residency status.
As evident, a temporary work assignment or a digital nomad opportunity does not automatically eliminate your tax obligations to Canada. If you still have family member living in Canada or own a house in Canada while you’re away, you may still be considered a tax resident so it’s important to ensure this is carefully evaluated.
Need clarification on how to approach your taxes this season? Learn how a personal income tax accountant in Ottawa can help you with a complete and tailored tax solution to meet your individual needs!
Departure Tax – What It Is and How It Applies to Your Worldwide Assets
The idea of a departure tax may seem like a scam and surprise many that go through this process experience. When a taxpayer becomes a non-resident, the Canadian government will deem to have their assets disposed at their fair value, which can trigger the requirement of paying capital gains taxes even if the assets do not get sold.
Look at some of the assets that will get affected by departure taxes and how to minimize your departure tax liabilities:
Assets Subject to Departure Tax:
- Investments (stocks, bonds, mutual funds)
- Real estate property (outside Canada)
- Stock options
- Personal property (art, jewelry) over specified value
To minimize departure tax liability, you can explore:
- Exemptions: Certain properties, like Canadian real estate, may be excluded.
- Elections: Defer payment of tax under specific conditions.
- Planning Tips: Timing your departure strategically or gifting assets where applicable.
Please note that some items such as RRSPs and TFSAs will be sheltered from departure taxes. Learn more about Canada’s Departure Tax.
Maintaining Ties in Canada – Tips to Retain Your Tax Residency If Needed
Significant residential ties are a cornerstone in determining your tax residency.
Maintaining tax residency requires careful planning—professionals must evaluate their financial and personal ties before leaving. Get in touch with an accountant in Ottawa today!
Filing Requirements While Abroad – Ensuring Compliance with the CRA
It’s important to comply with the CRA’s requirements even if you live and work abroad. Here are some of the steps to take to ensure compliance and what you must do to efficiently go through this process.
Key Steps:
- Annual Tax Filing: File your Canadian tax return, reporting your global income.
- Tax Treaties: Leverage tax treaties between Canada and your host country to mitigate double taxation.
- Foreign Income Reporting: Declare your foreign-earned income accurately.
- Double Taxation Relief: Understand credits or exemptions available under tax treaties.
How to File:
- Gather necessary documents (T-slips, foreign income statements).
- Complete the necessary schedules for reporting foreign income (e.g., T1135).
- Seek professional advice to ensure all bases are covered.
Read up on the CRA’s taxation requirements for Canadians travelling, living or working outside of Canada.
Be Well-Informed and Prepared. Book A Personalized Tax Assessment Today!
Understanding the nitty gritty aspects of taxes while you spend time abroad does not have to be daunting with a reputable tax accountant such as Boyer & Boyer, CPA by your side. Let us help you understand your tax residency, plan for departure tax, consider maintaining significant ties in Canada, and ensure compliance with CRA’s filing requirements.
Get expert guidance for expats and people living abroad.
