Tax-Efficient Immigration To, and Emigration From, Canada
What constitutes tax-efficient immigration to or emigration from, Canada, depends on your individual circumstances and your goals. However, there are several tips that can help you minimize the tax burden while immigrating to, or emigrating from, Canada. Here are some of them:
1. Plan your move carefully: Moving tax jurisdictions involves a lot of paperwork, and it’s important to plan your move carefully to ensure that you have all the necessary documents and that your tax situation is in order in both your new and former country of residence.
2. Understand your tax residency status: Your tax residency status will determine if you owe tax in Canada or in another country in each specific tax year. If you become a resident of Canada, you will be taxed on your worldwide income. If you become a non-resident, you will only be taxed on income earned in Canada.
3. Take advantage of tax treaties: Canada has tax treaties with many countries that determine which country gets the primary right to tax your income and thereby reduce or eliminate double taxation. Be sure to understand how these treaties apply to you.
4. Consider your assets, your future assets and what happens if you were to pass away: If you have assets or investments, or could inherit such assets, in Canada or your former home country, or in any other country, you may want to consider the tax implications of transferring them to Canada. There are valid and legal alternatives to doing so, particularly for new Canadians inheriting wealth from parents and relatives outside of Canada. Some other countries have a ‘death tax’ or an estate tax, that works very differently than the Canadian system. There is the potential for serious adverse consequences if you or a loved one passes away without a proper set of wills and powers of attorney in place in the appropriate jurisdictions.
5. Consider Canada’s passive income recognition regime or Foreign Accrual Passive Income (FAPI) and Exempt Surplus regimes. Canada taxes the passive income of Canadian residents regardless of where that passive income arises; FAPI. Canada also has a regime that does not cause adverse tax consequences for investments in active businesses outside of Canada. However, the definitions in those regimes are complex.
Overall, immigrating to Canada is a complex process from a tax perspective. We would be glad to provide advice to allow you understand your tax situation and minimize your tax consequences of moving to Canada.