Q: I have been holding some publicly listed stocks (for the sake of simplicity let’s say they are all listed on the TSX) which I purchased a long time ago while I was both a resident and citizen of Canada. These securities are held in a non-registered investment account with a Canadian brokerage. In 2017, I am tentatively planning to spend most of the year (8 or more months) abroad and will be deemed a non-resident of Canada. I will be country hopping and will technically not be a resident of any country (much less one that has a tax treaty with Canada). I am single and do not own any property in Canada (eg. no significant ties in Canada). I am wondering if I can take advantage of being a non-resident and sell all my equities in 2017 to avoid capital gains taxes? The CRA website suggests only capital gains on eligible property is taxed if you are a non-resident. It seems rather clear cut, but I did purchase these securities while I was a resident and citizen for taxation purposes.
—Justin, in Ottawa
A: Unlike the United States, where your requirement to file and report to the IRS is based on citizenship, in Canada, it is residency that determines your obligations to pay taxes. Canadian residents are required to report worldwide income in Canadian funds on their tax returns. One can be a deemed resident of Canada in some cases, a non-resident, or a part-year resident (emigrant or immigrant), as well.
When you become a non-resident, you are deemed to have disposed of all of your capital assets (except taxable Canadian property) immediately before you cease to be a resident. This requires a valuation of all your capital assets as of departure date. Your departure date must be reported at the time you file your final Canadian tax return, (usually by April 30 of the following year; although proprietors may file by June 15).
This means that you will have to pay tax on the accrued capital gain you have on your taxable assets before you leave the country. You can offset those gains with any deemed losses, of course, or carry forward prior losses to offset those gains. There are certain exceptions: Canadian real or immovable property and Canadian business property carried on in a permanent establishment here in Canada, for example; however you can elect to declare a deemed disposition for these assets. Other notable exceptions include pensions such as the RRSP, RRIF, RDSP, TFSA and DPSP plans and interests in life insurance policies in Canada, other than segregated fund policies.
While a non-resident, you will still be required to file a tax return to report sales of taxable Canadian property, and any actively earned income in Canada. Withholding taxes generally apply on passive income that is distributed to non-residents.
Countries with which Canada has tax treaties, generally provide for the avoidance of double taxation if you have taxing obligations in your new country of residence on the same income sources.
CRA looks at residency on a case-by-case basis, but in this scenario, it is unlikely that you will actually become a non-resident of Canada. Even if you leave the country and sever all ties to Canada (and that means closing your bank accounts, cancelling your health insurance, etc.), you will likely be considered a factual resident of Canada until you actually establish yourself as a resident of another country. Take a look at form NR73 for guidance in becoming a non-resident.
Evelyn Jacks is president of Knowledge Bureau, which offers e-learning at knowledgebureau.com. Evelyn tweets @evelynjacks and blogs at evelynjacks.com