Q: I own several publicly traded stocks (for simplicity’s sake, let’s assume they are all listed on the TSX) that I purchased long ago when I was both a Canadian resident and citizen. These securities are held in an unregistered investment account with a Canadian brokerage house. In 2017, I tentatively plan to spend most of the year (8 or more months) abroad and will be considered a non-resident of Canada. I will be traveling domestically and will not technically 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 (e.g. I have no significant ties in Canada). I’m wondering if I can take advantage of being a non-resident and sell all my shares in 2017 to avoid capital gains tax? The CRA’s website suggests that for non-residents, only capital gains on qualifying property are taxed. This seems quite obvious, but I purchased these securities while I was a resident and citizen for tax purposes.
—Justin in Ottawa
AND: Unlike the United States, where the obligation to apply and report to the tax office is based on citizenship, in Canada, the obligation to pay taxes is determined by residence. Canadian residents are required to report worldwide income held in Canadian funds on their tax returns. In some cases, you may be considered a Canadian resident, non-resident or half-year resident (expatriate or immigrant).
When you become a non-resident, you are deemed to have disposed of all your capital property (except taxable Canadian property) immediately before you ceased to be a resident. This requires a valuation of all capital assets at the date of departure. The departure date must be reported at the time of filing your final tax return in Canada (usually by April 30 of the following year, although owners can apply by June 15).
This means that you will have to pay tax on capital gains made from your taxable assets before you leave the country. You can, of course, offset these gains against any perceived losses or carry forward previous losses to offset these gains. There are some exceptions: for example, Canadian real estate or real estate and Canadian business property held in a permanent establishment here in Canada; however, you may choose to declare a deemed disposition of these assets. Other notable exceptions include pensions such as RRSPs, RRIFs, RDSPs, TFSAs and DPSPs, and shares of Canadian life insurance policies other than segregated fund policies.
As a non-resident, you will still be required to file a tax return to report taxable sales of Canadian property and any income actively earned in Canada. Withholding tax generally applies to passive income paid to non-residents.
The countries with which Canada has tax treaties usually provide for the avoidance of double taxation if you have tax obligations on the same sources of income in your new country of residence.
The CRA considers 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 cut off all ties with Canada (and that means closing your bank accounts, canceling your health insurance, etc.), you will likely be considered an actual resident of Canada until you actually settle as a resident of another country. Look at the form NO.73 for guidance on becoming a non-resident.
Ask a tax expert: Leave your question Evelyn »
Evelyn Jacks is president of Knowledge Bureau, which offers e-learning at Knowledgebureau.com. Evelyn tweets @evelynjacks and blogs at evelynjacks.com
