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Tuesday, February 20, 2024

Considering of leaving Canada? Greater than private tax charges to think about


Kim Moody: Local weather, location of family and friends, well being care, price of residing and extra all play a job

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Canadian private tax charges could also be too excessive, don’t evaluate favourably with these in the USA and are driving lots of our profitable individuals in a foreign country, however to be truthful, there are a lot of issues apart from excessive taxes that go into a call to depart and change into a non-resident for income-tax functions.

As I usually inform lots of my shoppers and colleagues: “Don’t let the tax tail wag the canine.” In different phrases, tax shouldn’t be often the only driver behind necessary selections comparable to leaving Canada. There are numerous different elements together with: Canada’s chilly local weather; the place household and buddies are positioned; the standard and value of medical companies within the new location; the price of residing — together with housing; the language spoken and general tradition enchantment; political stability/local weather; the flexibility to legally reside within the new location; and the general high quality of life as in comparison with Canada.

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In additional than 90 per cent of the instances I’ve labored on lately — and that’s lots of instances — shoppers want to dwell within the U.S. That’s not a shock to me. The U.S. is definitely — for many of the points talked about above — very comparable. It has a hotter and gentler local weather. Medical companies are world class. The languages spoken within the U.S. are nearly the identical as in Canada.

At any time when I communicate or write concerning the above, I inevitably get individuals who say Canada’s health-care system is superior to that of the U.S. Sure, I get it, the U.S. doesn’t have common well being care and as a substitute depends on a mixture of public, non-public, for-profit and non-profit insurers and suppliers.

The U.S. does, nevertheless, fund the nationwide Medicare program for individuals 65 and older (and different individuals who require help). However that, non-public for-profit insurance coverage is the dominant type of well being protection within the U.S. and it may be costly in comparison with the fee in Canada, which is actually nil in most provinces.

However I don’t assume it’s in dispute that wait occasions in Canada for routine procedures and referrals to specialists are very lengthy as in comparison with that of the U.S. In different phrases, each international locations’ medical techniques have their execs and cons and have to be thought of rigorously quite than ideologically.

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I usually get comparable feedback from some concerning the U.S. political system, with some opining that the U.S. is extra racist than Canada (an assertion that, in my view, is extra grounded in ideology quite than truth) or that their politics are worse. Folks can definitely have their very own opinions — and beliefs — on these issues, however it’s often a minor issue after I’m coping with people who find themselves planning to depart Canada.

From a tax perspective, it takes cautious planning to change into a non-resident of Canada. There isn’t a definition of “resident” within the Revenue Tax Act.  As a substitute, the Supreme Court docket of Canada — in its 1946 landmark choice in Thompson v. Minister of Nationwide Income — decided what the elements are that should be thought of (and nearly each subsequent court docket choice to today nonetheless considers Thompson).

The Canada Income Company in its folio on the topic has properly summarized the elements specified by Thompson and needs to be reviewed should you’re contemplating turning into a non-resident of Canada. Overly simplified, one should “lower their ties” with Canada if they’re to change into a non-resident of Canada for income-tax functions. In some instances, that’s simpler stated than carried out.

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The info, not the intention, will decide if an individual has certainly change into a non-resident of Canada. For instance, one can not merely say “I’m leaving Canada to go dwell in my cottage within the U.S. and I’m now a non-resident of Canada” in the event that they nonetheless have a house obtainable to them in Canada, sturdy financial ties to the nation and different secondary ties.

But when an individual does change into a non-resident of Canada for tax functions, that individual will usually be deemed to have disposed of all their worldwide property at truthful market worth on the date they change into a non-resident. To the extent this deemed disposition of worldwide property ends in beneficial properties, then the ensuing tax legal responsibility will have to be paid (or satisfactory safety supplied) for the taxation 12 months that they “depart.”

Within the tax group, these deemed disposition guidelines are usually known as the “departure tax” guidelines. What precisely the non-residency date is and figuring out the truthful market worth of the worldwide property may be tough.

There are a number of exceptions to the deemed disposition guidelines, with two of the most important classes being Canadian actual property held personally and registered property, comparable to registered retirement financial savings plans (RRSPs), registered retirement revenue funds (RRIFs) and tax-free financial savings accounts.

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The logic of those exceptions is that Canada nonetheless has a proper to tax you as a non-resident of the nation sooner or later do you have to ever get rid of your Canadian actual property (or be deemed to have disposed of, comparable to on demise) and on future withdrawals out of your RRSP or RRIF.

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Accordingly, managing the departure tax publicity and cost could be a very tough concern — and infrequently costly — for individuals who wish to change into non-residents of Canada. Don’t enterprise into this space with out specialised recommendation from a tax skilled who has numerous expertise on this tough space.

Taxes should not often on the prime of the checklist of things for eager to change into a non-resident of Canada, however they’re nonetheless a vital consideration for the ever-increasing variety of Canadians eager to or contemplating leaving. And, lately, this nation’s excessive private tax charges are certainly inflicting many to depart for greener pastures.

Kim Moody, FCPA, FCA, TEP, is the founding father of Moodys Tax/Moodys Non-public Shopper, a former chair of the Canadian Tax Basis, former chair of the Society of Property Practitioners (Canada) and has held many different management positions within the Canadian tax group. He may be reached at kgcm@kimgcmoody.com and his LinkedIn profile is www.linkedin.com/in/kimmoody.


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