Tax Rules for Canadians Abroad

Canadian expats relocating abroad face complex tax rules. If the Canada Revenue Agency considers you a “factual resident”, or your host country has signed a double tax treaty with Canada, reporting all income worldwide may be mandatory, and claim provincial credits/deductions as applicable.

Members of the Canadian military and government staff who remain residents when stationed overseas are typically treated as such regardless of time spent or residential ties. Please read further for information regarding residency status, taxes, filing essentials such as FBAR/FATCA filing and more.

By understanding the tax rules for Canadians who live abroad, you can ensure compliance and avoid penalties.

Dual or Multiple Nationalities

As someone with dual citizenship by birth or naturalization, taxation will present you with some unique challenges. For instance, the US uses citizen-based taxation which requires you to file returns every time your earnings come from anywhere – even abroad! Canada on the other hand levies taxes based on residency and source making compliance much simpler.

Canadians living abroad who maintain significant ties with another country can find themselves in an awkward situation, including high-net-worth individuals with second homes in another country, landed immigrants who keep close ties to their home nation, and employees on extended international assignments. Canada’s tax treaties contain tie-breaker rules to avoid double taxation in many cases; therefore, hiring a cross-border tax expert can help you navigate these complex rules more easily and help determine your residence status, file returns on time, take advantage of any deductions or credits eligible to you from eligible countries.

Expatriate Insurance

As an expatriate Canadian or dual citizen living overseas permanently or temporarily, or as someone with multiple citizenships, it’s crucial that you understand your tax obligations – this includes filing requirements, rates and credits/deductions.

If you reside as a Canadian but earn income abroad, double taxation could occur; however, most residents can claim a foreign tax credit against Canadian income taxes paid during the same year of income earned to offset any non-resident withholding taxes. The exact amount of this foreign tax credit depends upon your residency status and any relevant tax treaties.

As a rule of thumb, an individual is considered a resident of Canada if they spend at least 183 days of the tax year living there and possess significant residential ties there. Government staff and members of the armed forces stationed abroad also retain residency status regardless of time spent there or residential ties.

Expatriate Health Insurance

No matter where life takes you, whether that is running a surf shack in Costa Rica, bartending in Dublin or retiring as a snowbird in Florida – expatriation can be an enriching and fulfilling experience. But no matter which passports you hold it’s essential that Canadian tax obligations remain top-of-mind at all times.

Under certain circumstances, attaining non-resident status may be preferable to becoming a permanent emigrant. Unfortunately, this often means severing all residential ties to Canada – this may present difficulties for missionaries, Canadian Forces personnel or overseas school staff as well as people who own properties here or have bank accounts here.

Filing returns is still required by the Canada Revenue Agency, and can qualify you for deductions and credits that would not otherwise be available to you as a non-resident. If you decide to sever all residential ties with Canada, it’s advisable that instead of keeping MSP or OHIP, consider getting an expatriate health policy instead.

Expatriate Retirement

As an expat of Canada, you may need to file both federal and provincial income tax returns. Provincial taxes apply to income such as pensions, investments and capital gains from selling a residence.

Your residency status with Canada is of utmost importance as it will determine your filing requirements and withholding tax obligations on income generated in Canada. To gain more insight, visit the Canada Revenue Agency website and look up your residency status there.

As an example, you would be considered a deemed resident if you meet all the CRA’s criteria for being a factual resident but also have significant residential ties in another country due to tax treaty terms. This requires reporting all income generated worldwide and paying both federal and provincial taxes (with all possible credits and deductions claimed) where applicable. Furthermore, prior to leaving Canada you should get a third-party professional valuation of assets held abroad so as to reduce departure taxes owed upon your return home.