So, you got that job promotion but it involves a work transfer to another country. Your spouse and children are excited for the adventure and you’re looking forward to a change of scenery. You have already found a house in the other country and have enrolled your children in a local school. You sold your current home, transferred your financial accounts, and are packing up and taking your belongings with you. You think you’ve covered all your bases…but have you thought about the personal income tax issues?
Individuals who move to another country are faced with many issues in relation to their relocation. But one implication that is often overlooked is the personal income tax issues they face both in their home country as well as their host country. Tax systems in many countries are based on residency. By moving to a new country in which to live and work, the individual is likely under their new country’s tax system, which may require reporting income on a worldwide basis.
Moving to Canada can be a very rewarding experience, as this country has much to offer. A strong understanding with good professional advice on the Canadian tax system will allow an individual to plan properly and ensure their move to Canada is as smooth as possible.
So, what does an individual need to know before moving to Canada and establishing residency? Here’s our list of the top 10 things to consider, before your move to Canada.
1. Tax Residency
Canada’s tax system for an individual is based on residency. Residential ties to Canada determine whether an individual has established residency in Canada for tax purposes. These residential ties can include a home, spouse and children, employment, financial accounts, political ties, and/or social memberships in Canada, etc.
2. Personal Income Tax
A Canadian resident is subject to personal income tax in Canada on his or her worldwide income, whether employment or investment. Regardless of the country in which an individual earns income or the location of the payor, they must report it on a Canadian personal income tax return and pay Canadian income tax. This also applies to deductions incurred worldwide under certain conditions (i.e. medical expenses, donations, etc.).
3. Canadian Social Insurance Number
The individual will have to apply for a Canadian Social Insurance Number that will allow them to legally work in Canada, gain access to government programs, and file Canadian income tax returns.
4. Social Security Program
Canada has a Social Security Program that consists of the Canada Pension Plan (CPP) and Employment Insurance (EI). Participation in these programs is mandatory under certain conditions. Contributions are facilitated usually though payroll as an employee, or through a tax return as a self-employed contractor. This allows the individual to access benefits in these programs when they retire or lose their employment.
5. Personal Income Tax Returns
The Canadian tax system is based on a calendar year and the return is usually due April 30th of the following year, including payment of tax. There are no extensions allowed in Canada to defer the filing of the tax returns or payment of tax. A self-employed individual’s income tax return is due on June 15th of the following year but any taxes owing should be paid by April 30th to avoid interest charges.
6. Foreign Disclosure
In addition to the tax returns, foreign disclosure forms are required to be filed by a Canadian resident individual if they own investment assets located outside Canada, including ownerships in foreign corporations and involvement with foreign partnerships and trusts.
7. Deemed Acquisition of Assets
The tax cost base of any foreign assets owned on the date an individual becomes a Canadian resident will be adjusted to reflect the fair market value on this date for Canadian tax purposes. This will allow the individual to pay Canadian tax on the capital gain related to the period they are residents of Canada on a future sale.
8. Tax Sheltered Investment Accounts
Canada has certain investment accounts that allow income to accumulate on a tax deferred or tax-free basis. These can include Registered Retirement Savings plans (RRSP), Tax Free Savings Accounts (TFSA), and Registered Education Savings Plans (RESP).
9. Income Tax Treaty
A Canadian resident may, in certain circumstances, continue to be a tax resident of their home country. Canada has tax treaties with many countries that can provide relief from double taxation and double tax residency. A filing requirement may still apply in the former country of residency to enforce the treaty exemption.
10. Canadian Tax Authority
The government body that enforces the tax rules and the compliance requirements of the Canadian income tax system is the Canada Revenue Agency (CRA).
Don’t Take Chances. Consult First With Business Advisory and Tax Professionals.
A successful relocation to Canada from a foreign country requires proper planning and understanding of the local business and tax landscape. Fuller Landau’s International Business Group is perfectly positioned to help you navigate the Canadian tax system, with no surprises. Contact us today for more information.