Today’s world of connectivity allows easier access to jobs and various opportunities on a global scale, whether volunteering half way across the world to teach English, mastering a culinary class with the top chefs in France to finding the perfect job that you always wanted on the beaches of Bali. While beginning a new journey often feels like a dream come true, these exciting life changes are accompanied by a series of tasks needed to make a successful move. To ensure a smooth transition with very few bumps along the way, we suggest taking the following steps:
Moving To Your New Destination
Lots of research, lots of planning! Upon arrival to your new destination, you will be met with countless surprises that you might not have considered, but on a positive note there is a lot of preparation you can do before your arrival.
If your current employer is transitioning you to another country for work purposes, ask if they can set you up with a Relocation Counsellor. These counsellors often assist with helping find a suitable home for you and your family, setting up children in school, finding family doctors, arranging shipping for your items, transportation options and many other items to get you situated in your new community.
Transitioning abroad on your own? We highly suggest making a checklist of the necessary items, including: emergency phone numbers, ie. Police department, fire department, emergency health services; create a detailed packing list of what needs to go and what can stay or be given away/donated; if a different language is spoken in your new country – at a minimum learn common words or phrases prior to departure. Also, make sure you set up new bank accounts and transfer funds as required. Moreover, a great resource once you move abroad are other expats in your country, as they have already made the move and they could provide you with some great tips for your new locale so join a club and make friends!
Most importantly – have your documents ready with copies; passports, visas, citizenship documents, police checks, birth certificates, etc.
Leaving Canada - The Canadian Tax System
Moving or working abroad does not necessarily mean that you are considered a non-resident for tax purposes, depending on your ties to Canada, number of days in Canada and other factors, the Canada Revenue Agency (CRA) may consider you a: Factual Resident, Deemed Resident, Non-Resident or Deemed Non-Resident.
If you are a non-resident, then properly exiting the Canadian Tax System is crucial. Otherwise, there is potential for double taxation on your worldwide income, application of incorrect tax rates, and penalties and/or interest accruing. In order to terminate your Canadian Residence in the tax system you will need to file a departure tax return indicating your date of departure. This date of departure varies if you have a spouse or dependents or if you are becoming a deemed resident of a new country. Furthermore, on your departure tax you may need to include a deemed disposition – if leaving the country, the CRA treats any property you own as if it was sold at the current fair market value when you become a non-resident. Depending if there is a capital gain or capital loss, tax may be applicable or a loss could be claimed on your return.
Also, a number of countries have tax treaties with Canada, these tax treaties help Canadians avoid double taxation and help prevent tax evasion. They often reduce the amount of tax withheld from dividends, interests and other royalties paid. The general rate of withholding tax for non-residents is 25%, but if there is a tax treaty in place this tax withholding rate could be reduced.
Remaining Ties to Canada
While you may have physically left Canadian soil, there are usually ties to Canada that remain, such as real property, bank accounts, RRSP’s, etc. These ties may provide reasoning for the Canada Revenue Agency (CRA) to penalize you if not properly addressed.
As a non-resident who owns rental property where you are earning income, you are obligated to report this income to the CRA, and withhold non-resident tax at a rate of 25% of the gross rental income. To significantly reduce your non-resident tax withholding rate, the CRA will allow you to have a Canadian Agent who files form NR6- Undertaking to File an Income Tax Return By a Non-Resident. By filing this NR6 form, the CRA will allow you to remit non-resident withholding tax on 25% of your net income. If your expenses are very high you could potentially have a negative net income, and remit $0 as withholding tax. By filing an NR6 undertaking, you are obligated to then file a Section 216 income Tax Election the following year by June 30th.
If you have RRSP’s, dividends, retirement compensation, continued social security benefits, royalties, are earning interest, or other types of income, make sure to advise these companies of your non-resident status as they may need to remit withholding taxes to the CRA on your behalf. As a non-resident earning this type of income, they should issue you an NR4 slip – this slip reports any withholdings and income to the CRA.
While the above are only a few noteworthy tips, always do your research and work with industry experts for a smooth transition.
Happy Travels & Life Journeys from the Trowbridge Team!
[Please keep in mind that everyone’s specific situation is unique, always seek expert advice from the appropriate parties. Regarding tax, ensure you receive experienced, professional advice from a firm specializing in tax consulting. Trowbridge has been providing such tax expertise for 15 years, on a global basis, and is available for consultations.]
Ruby Chouhan, Client Services and Business Development, Rental Division
Trowbridge Professional Corporation
For more information, please contact:
Arun (Ernie) Nagratha, Tax Partner
Trowbridge Professional Corporation