1. Establish the correct departure date
Canadian tax residency is based primarily on residential ties and the facts of the move. The Canada Revenue Agency generally considers an individual to become a non-resident on the latest of the date they leave Canada, the date their spouse or dependants leave, or the date they become resident in the country where they settle. A person who keeps significant residential ties may remain a factual resident, while a tax treaty can potentially result in deemed non-resident treatment.
Before filing, document the facts that support the intended status:
- The date you left Canada;
- The date your spouse or dependants left, if different;
- The country and date of new tax residence;
- The disposition or continued ownership of a Canadian home;
- Canadian bank, investment, employment, and business connections; and
- Any continuing Canadian-source income.
2. Understand the departure-year return
For the portion of the year you were resident, Canada generally requires reporting of worldwide income, converted to Canadian dollars. After becoming a non-resident, Canadian tax generally applies only to specified Canadian-source income. The departure-year return should use the tax package for the province or territory where you lived on the date of departure.
You should enter the departure date on the residence-information section of the return. If you owe tax or want a refund, you generally must file. Even where a return is not otherwise required, the CRA says you should notify it of the departure date as soon as possible.
3. Calculate potential departure tax
On departure, certain property is treated as sold at fair market value and immediately reacquired. This deemed disposition can create a capital gain even when no asset was actually sold. Potentially affected property may include shares, jewellery, paintings, and collections. If the total fair market value of property owned at departure exceeds $25,000, Form T1161 may be required.
A practical preparation step is to obtain valuation records for securities and other affected assets as of the departure date. Keep purchase records, adjusted cost base calculations, and evidence supporting fair market value.
4. Review TFSA restrictions
A Canadian TFSA can generally remain open after emigration, and investment income and withdrawals can continue to receive Canadian tax-free treatment. However, a non-resident should not contribute while non-resident, and contribution room does not increase during the non-resident period. A non-resident contribution can trigger tax.
5. Use a compliance calendar
Track the filing deadline, any departure-tax balance, Form T1161, Canadian payer notifications, and post-departure withholding. If taxable TFSA amounts arise, Form RC243 is generally due by June 30 of the following calendar year. Professional advice is especially important where treaty residency, private-company shares, trusts, or large unrealized gains are involved.