Tax Considerations for Canadians Moving South of the Border

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No matter how much Canadians may love to go on about how they are different from their southern brethren and how they take pride in their peculiar traditions and divergent political views, the fact that the U.S. is a hot bed of innovation, dynamism and opportunity nevertheless has led many over the years to pack up and head south permanently.
With its many opportunities and increases in the standard of living over the last few years, the U.S. has been a siren song to a whole host of skilled Canadians, tempting them southward. Be they physicians or computer geeks, scientists or engineers, many are making the big move to both live and work in the USA in ever greater numbers. Those who have done so are seeking to enjoy these aforementioned opportunities and to also reap the benefits of the generally higher income and lower taxes that the United States has on offer. After all, hockey is one of the fastest growing sports in America, so why not, eh?
Should you be one who is tempted to permanently leave the Great White North for destinations south of the 48th parallel, keep in mind that it can be quite costly and complex to emigrate with regard to income taxation.

The Canadian taxation system is based on residence. Residents are taxed on any and all income from around the world, while those who are deemed non-residents are only taxed on certain kinds of income that is sourced from Canada. When someone decides to no longer be a Canadian resident, authorities are empowered to tax the individual on all income received up to the date that his or her resident status has ended, which is usually determined by the date of departure and by the disposition of all capital properties at fair market value prior to said departure. This “shakedown” generally applies to any and all income that will no longer be taxable once the person attains non-resident status. This tax is known as the “departure tax”. (This is why it always hurts to say goodbye, I guess…)
Note that “Taxable Canadian Property” such as real estate, non-listed shares of corporations, resource property or trusts are often unlikely to be disposed of by one’s departure date and are thus subject to non-resident withholding. Should a person decide that the American dream is more of a nightmare and wish to return, any capital property that was not actually disposed of while they were away from Canada may be reconciled if he or she comes back to Canada as a resident within five years of departure.
If all this is now as clear to you as a Beijing sky, then you are not alone. This is exactly why professionals such as me exist in the first place, namely to help clients wade through the morass of convoluted global tax law. We are here to help you with any and all international tax law issues and to assist in removing the burden and stress of conducting business on an international scale. Feel free to contact us today for more information on our many services.

Eric La CaraEric La CaraManaging Partner and Tax Practice manager for Capital Tax in Vancouver and Tokyo. Eric is a U.S. and Japan Personal & Corporate tax specialist with more than 15 years of experience in the area of cross-border structuring and taxation. Eric is charged with developing Capital Tax overall operations and strategic direction using the business and technical skills he has acquired during his professional career in Asia.