Income Tax Services for Expats

We provide a full range of tax services for those individuals and families changing their country of residence. We will make an application for non-resident status for Canadians leaving, which is the most important step to avoid paying Canadian taxes on the income earned abroad. This avoids having to pay tax on that income upon your return to Canada. We can advise you on getting the documentation that is critical to appropriate taxation. We can also assist with evaluation of and filing for Foreign, Non-resident or Overseas Employment Tax Credits. We plan your finances and taxes prior to your departure, doing your tax homework, and preparing your final departure tax return and any subsequent returns. We provide an assessment of your financial and personal assets, which may require "crystallization" prior to your departure from Canada in order to minimize paying taxes when you are eligible for low (or no) taxes on income earned while abroad. Clients should review investments and provide both adjusted cost base plus market value on date of departure, plus most recent RRSP and investment statements.

We can prepare Non-Resident Rental Returns, which are due by June 30th each year. We take the proof of income from Property Manager or cancelled cheques on lease, and from that income deduct for property maintenance or farm expenses, bank mortgage interest, any rental agency fees, property taxes and tax return preparation fees.

Income Tax Advice

When it comes to tax planning and particular offshore tax planning, often "people do not know what they do not know, because they do not know they do not know "(Mark Twain). With our years of experience, we know there are other important issues that relate to the questions asked of us. We provide peace of mind by clarifying issues correctly.

Application for non-residence status: this added value service will help you to avoid future pitfalls. Avoid paying Canadian taxes on income earned overseas on your return to Canada. Foreign, Non-resident or Overseas Employment Tax Credit and counsel. Documentation is critical. We can advise.

Preparation of final departure tax return and filing personal or rental tax returns while non-residents, including combined US/Canadian returns for both residents and non-residents of Canada by tax return specialists.

• Canadian asset review and final crystallization of assets on departure with respect to Canadian tax implications for non-resident status.
• All non-registered assets (stocks & funds) prices require crystallization and taxes paid on any capital gains on final tax return. Clients should review investments and provide both adjusted cost base plus market value on date of departure, plus most recent RRSP and investment statements.
• General tax planning before & after departure coordinating with banking & investments.
• Collecting all data will enable us to review potential problems, so that we can offer solutions. Non-residents should send date of arrival for each family members to new location and contract term length. We can review non-residency NR73 files (if necessary) and advise on documentation required.
• U.S. income tax rules and their impact on Canadians moving to the United States

When you become a Non-Resident of Canada

Under Canadian law, unlike U.S. law, we tax individuals based on residency. Once a person leaves Canada, he or she is no longer taxable in Canada on non-Canadian income. The U.S. income tax is based on residency and citizenship, so a US citizen is taxable regardless of residency, and non-citizens are taxed only while resident. Non-residents pay tax on some types of income generated in Canada, but are generally not subject to worldwide taxation in Canada. Canada also deems individuals to have disposed of certain assets on the date of departure from Canada, whether actually sold or not.

Departure tax just the income tax levied when one ceases to be a resident or departs from Canada. You are deemed to have sold everything from a Canadian perspective the day that you cease to be a resident. Any appreciation in asset value while you resided in Canada are subject to a tax, with normal tax rates and exemptions.

Deemed disposition rules apply to personal-use property such as a car or boat, things like coins, paintings and jewellery. if the fair market value of each item or set is greater than $1,000. The rules also apply to foreign real estate and securities, bonds and other commercial paper, unlisted shares, and your interest in a segregated life insurance policy.

Deemed disposition does not apply to assets like RRSPs because as a non-resident when you take money out of an RRSP, you still pay Canadian tax. It is not at the old regulated graduated rates and you don't have to file a return, but Canada would still have the right to tax it. Deemed disposition would also not apply to real property in Canada, and to publicly traded stocks in a portfolio, until you actually sold the asset.

For small amounts of departure tax (under $50,000 in taxable capital gains) you don't actually have to pay, but if you sold the asset when you left you have to pay your tax. If you don't sell it and you have your departure tax apply, you are supposed to post security with the Canada Customs and Revenue Agency. This is typically done with letters of credit, bank guarantees, mortgages, negotiable stocks or bonds. When security is posted, the tax is payable when the property is actually sold. Taxpayers aren't charged interest between the date of departure and the date of disposition.

If you are moving to the U.S., talk to a tax professional. Under US law you are not deemed to have bought the asset for the deemed crystallized value on the day that you moved, rather its original value on the day that you actually acquired the security. You may have to pay two sets of capital gains tax.

There are some transitional provisions in place in Canada allow you to claim a foreign tax credit against the Canadian tax so you are not double taxed. Since the U.S. doesn't recognize the basis bump when you sell, if you have to pay U.S. tax, Canada will give you a credit for the amount of U.S. tax that you owe on the gain up to the point in time that you left Canada. For example, if your deemed disposition is $100,000. when you left Canada, but it grows another $50,000. You can't claim U.S. tax on a $150,000. against your Canadian tax on a $100,000. You can claim the U.S. tax on the first $100,000.

Sometimes it just makes sense to sell the investment to avoid all this complicated stuff, depending on what the asset is, and what state you are moving to. It may (depending on the state) be preferable to actually sell the asset and re-buy it, instead of just dealing with the deemed disposition. This is where it the planning becomes interesting. The individual states in the U.S. have various tax rules: some with no personal tax, some with, and some don't tax capital gains.

In Canada, you generally never pay tax on the gain on your principal residence in Canada. This holds true in general so long as you sell your home it the year that you leave or by the end of the calendar year following the year of departure. In the U.S., there is a special provision on the Canada/U.S. income tax treaty that does give you a basis adjustment up on that home. So even if you close on your home sale after you arrived in the U.S., you generally won't pay U.S. tax if you sell the home for an amount of no greater than the value when you left Canada. This is likewise subject to the rules of the state to which you're moving.

Minimizing Taxes as an Expat

If you aren't careful, the Canadian government will continue to tax you on your world income even though you have permanently retired to another country. Establishing your non-residency status is essential to leaving behind Canada's heavy tax burden and taking advantage of the lower rates available in other parts of the world. But watch out since the Canada Customs and Revenue Agency (CCRA) determines residency status on a case-by-case basis, sometimes it can get a little tricky. Key issues to keep in mind:

Sever residential ties to Canada
Sell or rent your Canadian house, let your membership at the local club expire and definitely don't leave your spouse behind. While it may be possible to retain a number of minor ties to Canada without jeopardizing a non-residency claim, (for example, holding on to your driver's license), a single major tie can, on its own, prevent an individual from becoming a non-resident.

Establish ties in your new city
According to the Canadians Resident Abroad organization, it appears that the CCRA may be giving added weight to ties established elsewhere when deter-mining residency-so don't be shy about joining a new religious or social club. And get a piece of property, pronto.

Departure tax
Canadian regulations state that you are deemed to dispose of all your assets before leaving the country and that, with a few "; notable exceptions, you will be taxed on any capital gains realized. Luckily enough, as a non-resident, you can receive capital gains from most Canadian investments tax free, although things like pension payments, RRSP withdrawals and dividends will be subject to withholding taxes.

Visits home
Well established non-residents can visit Canada for up to 182 days in a calendar year. For the first couple years of living abroad, however, keep trips home to a minimum.

Health care
Giving up provincial health insurance coverage is part of becoming a non-resident. Don't forget to purchase adequate health insurance before you leave Canada:

Don't give up your Canadian passport
Keep your Canadian Bank Accounts

Informing the CCRA
You can file the agency's NR73 form, which is used to determine residency status, if you want, but it isn't mandatory, and it is much simpler to just till in the section marked "date of departure" on your final tax return.

For country travel reports from the Department of Foreign Affairs and Inter-national Trade; go to www.voyage.gc.ca.