🛫 Immigration & Emigration Tax

For Canadian tax purposes, the distinction between resident and non-resident is fundamental. A person who is resident in Canada is generally subject to Canadian tax on their worldwide income for the period during which they are considered a Canadian tax resident. Conversely, a non-resident is generally subject to Canadian tax only on certain Canadian-source income.

A person may be either a factual resident or a deemed resident of Canada. This distinction matters because it determines why the person is treated as a resident under Canadian tax law.

You generally become a factual resident of Canada when you establish significant residential ties with Canada. The most important ties are typically a dwelling in Canada, the presence in Canada of a spouse or common-law partner, and dependants. Other secondary ties may also be relevant, such as Canadian bank accounts, a Canadian driver's licence, provincial health insurance coverage, personal property, or social and economic connections in Canada. In Thomson, the Supreme Court of Canada explained that residence depends on the degree to which a person settles into or maintains their ordinary mode of living in a given place, and the CRA's published guidance reflects that fact-specific approach.

Factual residence is always a question of fact. It does not depend on a single criterion or on immigration status alone. All circumstances must be examined, including the duration of the stay, its purpose, the individual's intention, and the continuity of their ties with Canada and abroad.

A person may also be a deemed resident of Canada without being a factual resident. The most common situation is that of an individual who has not established sufficient residential ties to qualify as a factual resident, but who sojourns in Canada for 183 days or more in the year. In that case, paragraph 250(1)(a) deems the person to have been resident in Canada throughout the taxation year. Other categories of deemed residents also exist, including certain members of the Canadian Forces, certain government personnel, and certain individuals serving under prescribed international development assistance programs.

Finally, even if a person would otherwise be a factual or deemed resident of Canada, they may be deemed a non-resident of Canada if an applicable tax treaty treats them as resident in the other country and not resident in Canada. In that case, subsection 250(5) applies.

The main tax consequences of immigrating to Canada are as follows: from the date you become resident in Canada for tax purposes, you are generally subject to Canadian tax on your worldwide income, including income from both Canadian and foreign sources. For the portion of the year prior to that date, you are generally taxed as a non-resident — that is, only on certain Canadian-source income as specified under the Act.

In addition, upon becoming a Canadian resident, the Act generally provides for a step-up in the tax cost of most of the assets you hold to their fair market value at that date subject to statutory exclusions. This generally has the effect of limiting Canadian tax to gains that accrued after your arrival in Canada. However, this rule does not apply to certain excluded property such as taxable Canadian property, inventory of a business carried on in Canada, Class 14.1 property in respect of a business carried on in Canada, and certain excluded rights or interests.

When you cease to be a Canadian tax resident, you are generally deemed to have disposed of most of your assets at fair market value immediately before your departure, which may trigger departure tax on accrued gains ("exit tax"). Certain categories of property are excluded, such as: real or immovable property situated in Canada, Canadian resource property, and timber resource property; capital property used in, Class 14.1 property in respect of, or inventory of, a business carried on through a permanent establishment in Canada; excluded rights or interests; certain property of short-term residents under the 60-month/120-month rule; and certain property covered by an election for returning former residents.

You must file a tax return for the year of departure. In addition, if the total fair market value of your reportable property exceeds $25,000 at the time of departure, you must generally file Form T1161 to declare such property, subject to the exclusions provided under the Act.

Yes, a non-resident may continue to hold assets or investments in Canada for tax purposes. However, income generated by those assets (rental income, dividends, interest, etc.) will generally be subject to Part XIII withholding tax. The standard rate of 25% may be reduced by a tax treaty, and certain reporting obligations and filing elections may apply — some of which can help reduce the Canadian tax burden. For rental income, you can elect under section 216 to be taxed on net income by filing a Canadian return. For certain retirement income, you can elect under section 217 to be taxed as if you were a resident, which may lower your tax. You may also have tax obligations in your country of residence, so professional advice is recommended.

Determining the date you become a non-resident of Canada is a question of fact and depends on your particular circumstances. In general, the CRA and the courts look at when your significant residential ties with Canada have been sufficiently severed and whether you have established residential ties elsewhere. The most important ties usually include a home in Canada, a spouse or common-law partner in Canada, and dependants in Canada, although other personal, social, and economic ties may also be relevant.

As a practical guideline, the relevant date is often associated with the latest of: the date you leave Canada, the date your spouse or common-law partner and dependants leave Canada, or the date you become resident in the country where you settle. However, this is not a mechanical rule, and the result depends on the full factual context.

In some cases, an applicable tax treaty may also affect the analysis. If you are considered resident in both Canada and another country under domestic law, the treaty tiebreaker rules may determine that you are resident only in the other country, in which case you may be treated as a non-resident of Canada for treaty purposes and, subject to the Income Tax Act, for Canadian tax purposes as well.

Because residency status is highly fact-specific, the determination should be made based on a full review of the individual's circumstances.