I am a Canadian citizen (born and raised) and I work in the technology industry. I recently accepted a job with a large tech company in the U.S. I am not sure how long I will be working in the U.S., but it may be 2 years or 10 years. My question is, what can I do to ensure that I will not be taxed in Canada, and what do I need to file in the U.S.?
This is a common scenario that we see and help clients navigate. The U.S. has a very lucrative technology sector that attracts talent from all over the world, and it is not uncommon for Canadians to move there for these opportunities.
Assuming that you are moving to the U.S. with the intention to become a non-resident of Canada, and a resident of the U.S., you will want to ensure that you sever your residential ties, so that you are no longer considered a resident of Canada for tax purposes. If you are considered a resident of Canada for tax purposes, even though you live and work in the U.S., you will be required to file and pay tax in Canada and the U.S.
The term “resident” is not defined in the Canadian Income Tax Act. The CRA determines an individual’s residency status by considering all the relevant facts in each individual’s case (residential ties with Canada and length of time, object, intention and continuity with respect to stays in Canada and abroad).
Therefore, to ensure that you are no longer considered a Canadian resident for tax purposes, the following factors are generally used in considering an individual’s residency:
1) Residential ties with Canada
To avoid having residential ties with Canada you will want to avoid having the following:
- Dwelling place (or places)
If you leave Canada, and maintain a home or place of dwelling in Canada that is available for year-round occupancy, you will not be considered to have severed your residential ties with Canada. A place of dwelling is generally deemed to be available for year-round occupancy if it is leased to individuals on a short term basis (less than 3 months or it is being leased with the right to terminate the lease).
If you are married and your spouse and dependents remain in Canada, you will generally be considered a resident of Canada for tax purposes.
- Personal property and social ties
If an individual has left Canada with the intention of becoming a non-resident, the CRA generally assumes that the individual will not retain any residential ties with Canada in the form of personal property (e.g. vehicles, bank accounts, credit cards, driver’s license, etc.) or social ties (e.g. memberships at clubs).
2) Residential ties elsewhere
When leaving Canada, you will want to ensure that you establish permanent residence in the U.S. This can usually be accomplished by obtaining a place of permanent residence (e.g. home or apartment), and by obtaining permanent employment.
3) Regularity and length of visits to Canada
Your non-resident tax status in Canada will generally not be affected by occasional returns to Canada. However, if the returns to Canada are considered more than occasional (i.e. they are made on a regular basis), the CRA may examine your other residential ties with Canada and determine that you are a resident of Canada for tax purposes.
The above list is only an introductory guide as to what the CRA considers when determining an individuals residence, and is not meant to be used for actually determining your residence for tax purposes. For assistance in severing you residential ties with Canada, please consult with one of our tax professionals.
If you have taken the appropriate steps, and you will be considered a non-resident in Canada for tax purposes, the date that you are deemed to be a non-resident of Canada for tax purposes is the latest of the following dates:
- date you leave Canada
- date your spouse and/or children leave Canada
- date you become a resident of the U.S.
Canadian Tax Filing Obligations When Emigrating
For the year in which you emigrate, you will file a tax return for the part of the year that you were a resident of Canada, on which you will report and be taxed on your worldwide income.
In addition, you will be deemed to have disposed of certain types of property at their fair market value, and to have reacquired them for the same amount (e.g. non-registered investment accounts). Any respective gain or loss will need to be reported on your Canadian tax return and included on Form T1243.
You may also have to file Form T1161 – List of Properties by an Emigrant of Canada if the total fair market value of all the properties you owned when you left Canada was more than $25,000. Please see the forms instructions for additional information here.
For the part of the year that you were a non-resident of Canada, you will only be subject to tax on your Canadian source income. If you hold a Canadian investment or bank account you should advise them that you are no longer a resident of Canada, and ensure that they withhold the appropriate tax on any Canadian source income.
U.S. Tax Filing Obligations
The year in which you immigrate to the U.S., you will be treated as a dual status taxpayer, and will be required to file two U.S. tax returns:
- The first return is for the period in which you were a non-resident, on which you will be taxed on U.S. source income that is effectively connected to trade or business, and
- The second return will be for the period in which you were a resident of the U.S., on which you will be taxed on your worldwide income.
For any subsequent years that you are a U.S. resident for tax purposes, you will be required to file a U.S. federal income tax return and a state income tax return, if applicable.
Depending on your particular situation, there may be additional reporting and filing requirements to both the U.S. and Canada. Therefore, before you move to the U.S., we would recommend discussing your situation with one of our tax professionals.
At Hutcheson & Co. LLP, we have extensive experience consulting with clients on the tax implications of moving to and from the U.S. and Canada. We can review your particular situation to ensure that your tax obligations are addressed in the most tax efficient and cost effective manner.