Working, living or teleworking abroad
Taxation of Canadian expatriates
Leaving Canada for employment, an assignment, a business or a family project does not by itself determine tax residency. The analysis considers the ties retained in Canada, the residence established in the other country, dates, length of stay and the possible application of a tax treaty.
Impôts Ici assists Canadians abroad, mobile workers, consultants, executives and expatriate families remotely. The engagement may involve the departure year, employment income, telework, foreign tax credits, property retained in Canada or obligations that continue after emigration.
A geographic move does not automatically establish a tax departure
Taxation of Canadian expatriates
Resident, non-resident or treaty resident?
The first step is determining tax residency. A dwelling available in Canada, a spouse or dependants may be significant ties. Other ties, the pattern of visits and the person’s actual establishment in the host country complete the analysis.
When two countries consider the person resident, a tax treaty may contain tie-breaker rules. The result affects reportable income, credits, withholding and sometimes the employer’s obligations. Residency should be clarified before inconsistent returns are filed in two countries.
Taxation of Canadian expatriates
Departure year, departure tax and Canadian property
A person who ceases to be resident may be deemed to dispose of certain property at fair market value. Depending on the nature and value of the property, Forms T1161, T1243 or T1244 may be relevant. Cost records, valuations and dates should be assembled before filing the departure-year return.
After departure, rent, pensions, dividends and sales of certain Canadian property may remain taxable in Canada. See tax returns for non-residents and the sale of Canadian property by a non-resident for these separate obligations.
Employment income and telework abroad
The place where work is physically performed, tax residency, the employer, length of presence and the applicable treaty may all affect employment income. An employee working abroad for a Canadian employer can also create payroll, withholding or taxable-presence questions for the organization.
The former Overseas Employment Tax Credit associated with Form T626 is archived for current years and should not be presented as a current planning tool. Contemporary files instead rely on residency, the rules where the work is performed, treaties, withholding and foreign tax credits.
Worldwide income and foreign tax credits
A person who remains resident in Canada generally includes worldwide income on the Canadian return: salary, fees, interest, dividends, rent, pensions or business income. Foreign records should be organized by country and income type and converted consistently.
When tax has been paid abroad, a credit may reduce double taxation, subject to the applicable rules. The calculation is not simply a deduction of all foreign tax from the Canadian balance. See tax treaties and foreign tax credits for related analysis.
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Taxation of Canadian expatriates
Foreign accounts, investments and structures
An expatriate who remains Canadian resident may need to file Form T1135 or other returns involving a foreign corporation, trust or transfer. The page on foreign property and income reporting distinguishes taxable income from information-reporting obligations.
Even after departure, keep valuations, cost records, statements and proof of foreign tax. The information may be needed on a sale, return to Canada, tax authority request or to establish the Canadian tax basis of property.
Taxation of Canadian expatriates
Support for the departure and the years that follow
Before departure, gather employment contracts, travel dates, housing details, dependant information, accounts, pension plans, businesses and property. Afterwards, track host-country income separately from Canadian-source income. This discipline avoids reconstructing several years when a sale or audit occurs.
Impôts Ici can analyze residency, prepare the departure year, coordinate credits and address Canadian obligations that remain. The service is fully remote, allowing the file to incorporate documents and advisers located in more than one country.
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Taxation of Canadian expatriates
Plan for a possible return to Canada as well
A return can change residency, withholding, reporting obligations and the Canadian tax basis of property acquired abroad. Foreign pension plans, corporations, trusts or real estate that will remain in place must also be reviewed.
To plan a departure, assignment or return, contact our team before filing returns in both countries. Early analysis identifies the records and deadlines while the information is still available.