Revoking Canadian Tax Residency: Why and How to Avoid Double Taxation

Living abroad can offer exciting opportunities and a fresh start, but it also comes with important financial considerations. One of the most significant decisions you might face is whether to revoke your Canadian tax residency. If you successfully revoke your Canadian tax residency, your worldwide income will no longer be subject to Canadian taxes. This article will guide you through the process of revoking your Canadian tax residency and the implications of doing so.

Understanding Canadian Tax Residency

Canadian tax residency is determined by several factors, including your ties to Canada, the duration of your stay abroad, and your intentions. As a Canadian tax resident, you are required to report your worldwide income to the Canada Revenue Agency (CRA) and pay taxes on it. However, if you revoke your tax residency, you will only be taxed on income earned in Canada.

Why Revoke Canadian Tax Residency?

1. Avoid Double Taxation: If you live in a country that does not have a tax treaty with Canada, such as Costa Rica, you may face double taxation on your income. Revoking your Canadian tax residency can help you avoid this issue.

2. Simplify Tax Filing: Reporting worldwide income to the CRA can be complex and time-consuming, especially if you earn income from multiple sources. Revoking your tax residency can simplify your tax filing obligations.

3. Reduce Tax Liability: Depending on your income sources and the tax rates in your new country of residence, revoking your Canadian tax residency may result in a lower overall tax liability.

How to Revoke Canadian Tax Residency

1. Sever Ties with Canada: To revoke your tax residency, you need to demonstrate that you have severed significant ties with Canada. This can include:

- Selling or renting out your Canadian property.

- Closing Canadian bank accounts or transferring them to non-resident accounts.

- Canceling Canadian credit cards and other financial services.

- Notifying Canadian government agencies, such as the CRA and provincial healthcare providers, of your departure.

2. Establish Residency Abroad: You must establish residency in another country to revoke your Canadian tax residency. This involves:

- Obtaining a residence permit or visa for your new country of residence.

- Renting or purchasing accommodation abroad.

- Opening bank accounts and establishing financial ties in your new country.

- Registering with local tax authorities and obtaining a tax identification number.

3. File Form NR73: To formally notify the CRA of your departure, you need to file Form NR73, "Determination of Residency Status (Leaving Canada)." This form requires you to provide details about your ties to Canada, your new country of residence, and your reasons for leaving. You should file Form NR73 as soon as possible after your departure to avoid any delays in processing. Here is the link to Form NR73, "Determination of Residency Status (Leaving Canada)": NR73 Determination of Residency Status (leaving Canada) - Canada.ca

4. Pay Departure Tax.: When you revoke your Canadian tax residency, you may be subject to a departure tax, also known as the "deemed disposition tax." This tax applies to the capital gains on certain property, such as real estate and investments, that you own at the time of your departure. You will be deemed to have sold these properties at their fair market value and will need to pay tax on any resulting capital gains.

5. Notify Provincial Authorities: In addition to notifying the CRA, you should also inform your provincial tax authorities and other relevant government agencies of your departure. This may include your provincial healthcare provider, driver's license bureau, and social services agencies.

Here are the correct phone numbers and websites for Canadian provincial healthcare providers, driver's license bureaus, and social services agencies:

Provincial Health Services Authority (British Columbia):

Phone: 604-675-74005.

Website: Provincial Health Services Authority

Service Ontario (Driver's License and Health Card):

Phone: 1-800-267-8097 (for general inquiries)

Website: Service Ontario

Alberta Health Services:

Phone: 1-844-404-3132 (Health Link)

Website: Alberta Health Services

Ontario Health:

Phone: 1-888-414-4726 (for general inquiries)

Website: Ontario Health

Ministry of Social Services (Saskatchewan):

Phone: 1-866-221-5200

Website: Ministry of Social Services

Ministère de la Santé et des Services sociaux (Quebec):

Phone: 1-877-644-4545

Website: Ministère de la Santé et des Services sociaux

Implications of Revoking Canadian Tax Residency

1. Tax Filing Obligations: Once you revoke your Canadian tax residency, you will no longer be required to file Canadian tax returns or report your worldwide income to the CRA. However, you will still need to file tax returns in your new country of residence and comply with their tax laws.

2. Access to Government Benefits: Revoking your tax residency may affect your eligibility for certain Canadian government benefits, such as Old Age Security (OAS) and the Canada Pension Plan (CPP). It's essential to understand how your departure will impact these benefits and plan accordingly.

3. Healthcare Coverage: Your provincial healthcare coverage will typically end three months after you leave Canada. You will need to arrange for private health insurance or enroll in a healthcare plan in your new country of residence.

4. Future Returns to Canada: If you decide to return to Canada in the future, you will need to re-establish your tax residency. This may involve demonstrating that you have re-established significant ties to Canada and intend to stay permanently.

Conclusion

Revoking your Canadian tax residency is a significant decision that can have far-reaching implications for your financial and personal life. By understanding the process and seeking professional advice, you can make an informed decision that best suits your circumstances. Don't let the complexities of international taxation deter you from pursuing your goals abroad. With careful planning and guidance, you can successfully revoke your Canadian tax residency and enjoy the benefits of your new life overseas.

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Disclaimer: The information provided in this article is for general informational purposes only and should not be considered professional tax advice. Always consult with a qualified tax professional or financial advisor for personalized advice tailored to your specific situation.