Canada taxes individuals based on tax residency, not immigration status. In the year you move to Canada or leave Canada, you are a resident for only part of the year, and special rules apply to the property you own on that date. Getting these returns right — and planning before the move — can save significant tax later.
Moving to Canada: the arrival (first-year) return
- Residency date. You generally become a resident on the day you establish significant residential ties in Canada, such as a home or a spouse or dependants living here. For most newcomers, this is the day they arrive.
- Income to report. For the part of the year after you become resident, you report your world income. For the part before, only certain Canadian-source income (such as employment in Canada) is taxed. Foreign income earned before you arrived is not taxed in Canada.
- Cost step-up on arrival. Property you own when you arrive — such as foreign shares, investment funds or real estate — is treated as sold and immediately reacquired at its fair market value on your residency date. When you sell it later, only the growth after you arrived is taxed in Canada. Keep evidence of those values, such as statements and appraisals.
- Tax credits. Most personal tax credits are prorated by the number of days you were resident in the year.
- Foreign reporting. Form T1135 is not required for the year you first become resident, but from the following year it is required if your foreign property cost more than $100,000 in total. Shares in foreign companies may also require Form T1134.
- Benefits. Apply early for the Canada child benefit (Form RC66) and the Canada Groceries and Essentials Benefit, formerly the GST/HST credit (Form RC151). You report your world income for the years before you arrived — for benefit purposes only.
Before you move: the timing of income, dividends from foreign companies and the sale of assets can make a big difference. The best time to plan is before your residency date.
Leaving Canada: the departure return
- Departure date. You generally become a non-resident on the latest of: the day you leave Canada, the day your spouse or dependants leave, and the day you become a resident of your new country.
- Departure tax (deemed disposition). Most property you own when you leave — such as shares, investment accounts and foreign real estate — is treated as sold at fair market value, and the gain is taxed on your final return (reported on Form T1243). Canadian real estate, RRSPs, RRIFs, pensions and TFSAs are generally not included.
- Deferring the tax. You can elect on Form T1244 to defer the departure tax, without interest, until you actually sell the property. Security may be required for larger amounts.
- List of properties (Form T1161). If the total fair market value of your property when you leave is more than $25,000 (excluding cash and personal-use items worth less than $10,000 each), you must file Form T1161. The late-filing penalty is $25 per day, with a minimum of $100 and a maximum of $2,500.
- Registered accounts. Your RRSP and TFSA can stay in Canada, but TFSA contributions made while you are a non-resident are taxed at 1% per month, and RRSP withdrawals are subject to non-resident withholding tax.
- Your Canadian home. Your home is not deemed sold when you leave, but the principal residence exemption generally does not cover the years you are a non-resident. If you rent it out, 25% non-resident tax applies to the gross rent unless you file Form NR6.
- After you leave. Canadian income such as rent, pensions and dividends is subject to non-resident tax, and selling Canadian property later requires a clearance certificate under section 116.
Related topics: Determine your residency status · Rental income of non-residents · Certificate of Compliance (Section 116) · Foreign Assets (T1135)
If you are moving to or leaving Canada, contact us — ideally before the move.