We know that Canada is the best country in the world to live in, but last year, over 67-thousand people chose to emigrate. Maybe they went back to where they came from originally, or maybe they decided to retire in some sunny paradise. If you are planning to move away from Canada, there are tax considerations. Chris Gandhu, High Net Worth Planner at TD Wealth, speaks with Kim Parlee about settling up with the Canada Revenue Agency before you leave.
We know that Canada is the best country in the world to live in. But last year, over 67,000 people decided not to live here anymore. They left Canada to live somewhere else. Some went to the US to work. Some retired and moved somewhere else warm. And some decided to go back to family in another country.
But if you are planning to move away from Canada, there are some big implications. And we're going to talk about what they are. Joining us to talk about those is Chris Gandhu. He is a High Net Worth Planner with TD Wealth. Nice to see you.
Yeah. Good to see you again.
Let's start off with the who we're talking about. These aren't snowbirds.
Right. These are not visitors traveling to the US. These are people who have intended to terminate Canadian residency, and have no intention of coming back right now.
OK. And just of interest, I mean, there are more people doing this, as well, aren't there?
Yeah. My practice is certainly busier than it was before.
What are, then, the tax considerations? I decide that, yes, I'm moving somewhere else. What do I need to know right now?
Right. So Canada imposes the departure tax on the way out. And what that really means is they want, CRA wants you to true-up the tax. They don't want to chase you wherever you go.
So on the day you leave, if you have any property that has appreciated in value, you're deemed to sell that, realize the gains, and pay tax on it. Of course, the issue to watch out for is that if you actually do not intend on selling that property, well, now you're going to have a tax bill that's due, but you haven't monetized on your assets, so you have a liquidity issue.
Right? Another thing to watch out for, Kim, is people that are going to the US, especially. The way the US tax rules work is that on capital property, your original cost base, the historical cost base, is what's tracked in the US. So if you've paid this tax in Canada without taking affirmative steps, that tax will not be recognized as paid. So you do want a basis bump, but if you do nothing, that won't happen. So there's some preplanning you need to do.
Yeah. It sounds like there's a lot of preplanning that needs to be done. Is there anything that won't be taxed when you leave?
Right. So no, very good question. So typically, RRSPs, TFSAs, real estate in Canada-- so for example, your principal residence if you intend to still hold onto it-- those items are actually exempt from the departure tax.
So you've decided you're leaving. You start to think about what happens. Do you have to-- because you mentioned the point, it's a deemed disposition. Do you have to pay these, this departure tax, right away, or pay up everything you need to CRA right away?
Yes and no. So for example, if I departed today, right, my normal Canadian tax return is due April 2018. So if there is any tax due, that's when it's due, is April of next year.
But if you have a liquidity issue, as I mentioned, well, you may then want to consider posting security with CRA.
And what can you put as security?
Also a very good question-- not a lot of stuff. Generally, they'd accept real estate, right? But they'd want to be first in line. So if you have an existing property, but you've given a mortgage to a bank, now you're going to have an issue, because the bank probably doesn't want to be second in line to CRA, and CRA won't accept being second to the bank.
You could post private company shares as security, but you're going to have a valuation issue, because what exactly is that company worth? Plus, CRA wants to retain a bit of control, and you may not want them to do that.
Right. You did mention before that some things may not be taxed when you leave. How would they be taxed going forward though, in terms of just ongoing, the income or growth in those assets that are still here?
Yeah. The simplest way to think about that is, essentially, you pay tax when income is realized. So if you have investments that are spinning off income on a regular basis-- annually, for instance-- generally there's going to be withholding tax withheld, and then you get the remainder of the proceeds. If it's property that's sort of capital in nature and not spinning off income, well, you'll pay tax when you actually sell that and realize the income or gains.
Are there any other things that you need to keep in mind? I mean, you had a long list there, in terms of things. But what other things have we not talked about?
There could be a whole bunch of things. Number one is health insurance coverage. So we are a country, as you said, the best place in the world to live, because one of the things is our universal health care. That's not true for most of the world. So if you are departing Canada, make sure you have health coverage in place.
Your estate planning documents-- your Canadian will, power of attorney, health care directive-- won't necessarily work in a foreign jurisdiction. So talk to your Estate Planner about that.
Chris, thanks very much.
Happy to be here.