Canadian immigration

Thursday, 01 September 2011
A brief guide to immigration to Canada and how to become a non-tax-resident of Canada.

In April, I gave a presentation at a STEP Arabia branch meeting on tax issues pertaining to both immigration to Canada and how to become a non-tax-resident of Canada. Below is a summary of my remarks.

Immigration categories

The investor scheme requires CAD800,000 to be lent to the Canadian government for five years, interest-free. The government permits qualified investors to use financing from approved financial institutions, so the required outlay can be around CAD200,000. A popular additional category, with a fast processing time, is the Canadian experience class. This is for temporary workers (such as those transferred on fixed-term contracts) and those who have studied in Canada to apply for permanent residency without leaving the country. Canada, like most developed nations, also attracts applicants in the skilled worker class.

Citizenship is relatively easy to obtain, after being a permanent resident for three years. This qualification period can be reduced by up to a year to account for time spent in Canada before acquiring permanent-residence status, such as when on a temporary work contract.

Tax residency

The basis of Canadian taxation is residency, not citizenship. Tax residents of Canada are taxed on their worldwide income (subject to double tax agreements and foreign tax credit). Determining who is a tax resident of Canada is largely a question of fact, involving factors such as location of permanent home and economic, social and family ties. An individual normally resident elsewhere who remains in Canada for 183 days or more in a calendar year may be deemed to be tax-resident in Canada. Strangely, it is sometimes possible to maintain permanent residency under the Immigration Act and reside in Canada for two years out of five, but not be a tax resident of Canada.

It is possible to maintain permanent residency but not be a tax resident of Canada

Tax planning for immigration

Immigrants using a specifically legislated immigration trust have a five-year tax holiday, during which capital growth and income are tax-free. For those using this opportunity, it is better to arrive in Canada at the beginning of the year. For those without immigration trusts, it is better to arrive around 30 June and so benefit from lower marginal tax rates (in Canada and perhaps also in the country of departure). It is unwise to send your spouse and children to Canada in advance, typically to buy a house and settle in while you stay behind to complete an employment contract. Their presence in Canada can deem you to be tax-resident, even if you are still in, say, Dubai.

Becoming non-tax-resident

There are approximately 1.5 million Canadians living overseas, many in the Persian Gulf, particularly in the oil and financial services sectors. To most former Canadian residents, it is a surprise to discover that no simple procedure will make them non-tax-resident. Upon leaving Canada, you should file a final tax return and complete the section on page 1 entitled ‘date of departure’. But this merely notifies the Canada Revenue Authority (CRA) that you have left; it does not lead to a declaration of non-residency.

CRA will consider many factors, including: permanence and purpose of stay abroad, residential ties retained in Canada, residential ties elsewhere, and regularity and length of visits to Canada (CRA Interpretation Bulletin IT-221R3). CRA used to presume that anyone who remained overseas for fewer than two years was still tax-resident in Canada, but this is now just one factor to consider in the overall assessment. Cutting ties is important, by either selling or renting out your house and terminating memberships of clubs, churches and associations, as well as surrendering your driving licence and renouncing provincial healthcare entitlement.

Once you become non-resident, your status as a non-resident is not affected by occasional visits. If, however, visits are too frequent or each visit is too long, you run the risk of being deemed to be a tax resident, even though you clearly live elsewhere. This can occur if you spend 183 days or more in Canada in any calendar year. Once deemed tax-resident, the deeming status applies for the whole of the year in question.

If possible, you should depart Canada in January. This way you will pay much less tax than if you departed the month previously, and you may be able to defer payments of tax for up to 16 months.

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Andrew Rogerson

Andrew Rogerson TEP is a Toronto Barrister.

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