Tag: RRSP

Departing Canada (and the tax requirements)

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Departing Canada (and the tax requirements)

Leaving Canada and becoming a non-resident of Canada results in a departure tax. This means that on departure, you are deemed to have disposed of all your assets (with some exceptions) at fair market value and reacquired them at fair market value, resulting in capital gain on these assets.

Some properties that fall within the exemption are:

  • Canadian real or immovable property (e.g. land and building)
  • Canadian business property (including inventory) if the business is carried on through a permanent establishment in Canada
  • Pension plans
  • RRSP
  • RESP

Owning Shares of a Corporation

If you have a business in Canada and you are departing Canada, these shares would also be subject to the deemed disposition rules. A deferral of the tax payment can be applied for by posting security (such as the shares of the company) with the CRA. The deferral allows you to defer the tax payment until such property is actually sold.

Alternatively, you may be able to claim your lifetime capital gains exemption on the deemed disposition of your shares. The lifetime capital gains exemption allows for a deduction on the gain of your corporate shares, up to a maximum of $971,190 (for 2023 – indexed each year). However, the exemption is only available if the shares are that of a Qualified Small Business Corporation. We would be happy to help you analyze further if your shares qualify. Claiming the lifetime capital gains exemption generally makes sense if you plan to sell the shares to a third party at a later date, or if combination of withholding tax and the tax in the new country is lower than taxes here in Canada.

The deemed disposition inherently results in double taxation. The first level of tax is when paying the departure tax, and the second is when you extract the value by ways of dividends (even when security is pledged or a lifetime capital gains exemption is claimed). Planning can be put in place with our tax team to mitigate double taxation.

For example, if you were to own shares in a company worth $2,500,000 upon leaving Canada you’d pay the following:

  • Departure tax when leaving Canada: $620,000
  • Withholding tax on dividends: $ 625,000 
  • Total tax paid in Canada: $1,245,000 

Various strategies could be put into place to help mitigate the double taxation. For example, dividends or claiming the lifetime capital gains exemption can be utilized to reduce the tax burden.

Renting Real Estate

Though Canadian Real Estate is not subject to the deemed disposition rules, there are rules to be aware of when it comes to non-resident-owning real estate. As a non-resident owning real estate, you will be subject to withholding in Canada. A Canadian Agent is required to withhold and remit your withholding taxes to the CRA on a monthly basis. If you do not have a Canadian Agent, your tenant may be liable for this.

The withholding tax is 25% of the GROSS rental income. You can file an NR-6 to request that the withholding be 25% of NET income instead.

Your agent will also need to issue you an NR4 – showing you the amount of tax that was remitted.

Lastly, you can file a section 216 return. A Section 216 Return allows you to pay tax on your net Canadian rental income instead of the gross amount. If the non-resident tax that the agent withheld is more than the amount of tax payable on your Section 216 return, the CRA will refund the difference to you. If you filed the NR6 and the CRA approved it, you have to file a Section 216 return as well.

Underused Housing Tax (UHT)

A new Underused Housing Tax (UHT) was introduced in 2022. This is a new tax on underused homes in Canada. The tax is 1% of the taxable value of the home, or 1% of its most recent sale price, whichever is greater. There are some exceptions that apply. One of the exceptions is Canadian citizens and permanent residents. If you are departing Canada, you must determine if the UHT applies to you. You can click here to read our blog post about the legislation.

If you are planning on leaving Canada in the near or distant future, we can help make the process as seamless and stress-free as possible. Book a consultation with our team.

Disclaimer: Any tax information published on this blog is based on the facts provided to us and on current tax law (including judicial and administrative interpretation) during the time of publication. This does not constitute legal advice. Tax law can change (at times on a retroactive basis) and these changes may result in additional taxes, interest, or penalties. Practice due diligence and if in doubt, speak with a member of our team.

Tax Planning Opportunities for your 2022 Year End

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Tax Planning Opportunities for your 2022 Year End

What a year 2022 has been, and it is already coming to an end! It’s not too late to consider your personal and corporate tax planning, sneak in some tax savings, and be prepared for the upcoming tax season. 

Below are some considerations to help manage your tax costs. Metrics CPA can assist you with your tax planning needs by helping you review longer-term objectives and opportunities to enhance tax efficiency to bring about greater overall protection.

Withdrawing Money

You may have taken funds out of your corporation for living expenses or plan on extracting a large sum for other expenses (vacation, home renovations, or anything else). How you withdraw your funds has tax consequences which may not be as straightforward as some might perceive, and the details matter.

It is essential to discuss compensation strategies with your tax advisors. We would be happy to have that discussion with you to determine what’s best for you and how to avoid any pitfalls.

Incorporating your Business 

There are many reasons to incorporate. In addition to reducing your tax bill, here are some reasons to incorporate:

  • Those that are mining cryptocurrency, high-frequency traders, or are actively margin trading consistently
  • Those who earn more in their business than they need personally to live
  • Those looking to segregate their personal assets and business
  • Those looking for creditor proofing and limited personal liability
  • High-income earners or high-net-worth individuals that also have investment income

Speak with one of our advisors to see if incorporating is right for your situation.

Realizing The Losses on Investments

The tax-loss harvesting strategy is a tool that can help reduce your overall tax and may even help recuperate prior year taxes paid. If you had capital gains in 2022, 2021, 2020, or even 2019, you can consider selling assets in a loss position to offset these gains. 

Should you choose to undertake the tax-loss strategy you should be aware that rules (known as the superficial loss rules) may apply to deny losses on certain dispositions of property. Essentially, the loss will be denied if you (or your spouse/common-law partner or a company you or your spouse/common-law partner control) repurchase the same or similar asset within 30 days of the disposition. 

While tax-loss harvesting may not restore an investment to its previous position, it can lessen the severity of the loss if the strategy is applied correctly and in appropriate situations.

Immediate Expensing for Depreciable Property 

Is your company considering acquiring assets in the near future? In that case, you may qualify for immediate expensing for tax purposes up to a maximum of $1.5 million per year if the eligible assets are available for use before January 1, 2024. 

Eligible assets available for immediate expensing would be capital property that is subject to the capital cost allowance (CCA) rules, other than property included in CCA classes 1 to 6, 14.1, 17, 47, 49 and 51, which are generally long-lived assets.

Using Your Personal Deductions 

Remember your other registered accounts, such as registered retirement savings plan (RRSP) and tax free savings account (TFSA).

  • If you have room in your RRSP, contributions must be made on or before March 1, 2023 to qualify for a deduction for your 2022 tax return. 
  • Contributions to a TFSA are not deductible for income tax purposes. However, any capital gains and/or income earned in a TFSA are generally tax-free, even when it is withdrawn.

If you are interested in learning more about any of these strategies or have any questions in regard to optimize your tax planning, contact us to book a meeting with our team.

Disclaimer: Any tax information published on this blog is based on the facts provided to us and on current tax law (including judicial and administrative interpretation) during the time of publication. This does not constitute legal advice. Tax law can change (at times on a retroactive basis) and these changes may result in additional taxes, interest, or penalties. Practice due diligence and if in doubt, speak with a member of our team.