Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1. If a Canadian citizen leaves Canada, to live in a foreign country that has no tax treaty with Canada and this Canadian citizen is receiving CPP and OAS, do the payments continue to be mailed to this former Canadian citizen in the new country of residence?
2. If payments of CPP and OAS continue to be made, how much is withheld for income tax to the Canada Revenue Agency in percentage, if monthly total CPP and OAS payments total $1,500?
3. If investments in Canada total $2,000 per year, how much is withheld for income tax to the Canada Revenue Agency in percentage?
4. Can this Canadian citizen return to Canada to take up residency without process, other than notification to Canada Revenue Agency?
5. Can this Canadian citizen continue to own investments or property in Canada if moving to and becoming resident in another country?
6. Am I correct in interpreting the Guide that if a home is purchased in a foreign country, and the home has a value of under Canadian $100,000, that no income tax, Canadian, is charged on the home, even if it is sold? Would Capital Gains apply?
Position: 1. Yes.
2. 25% subject to treaty or a section 217 election.
3. Depends on the particular situation.
4. Unable to comment.
5. Depends on the particular situation.
6. See response.
Reasons: 1. Based on our research. See response.
2. Legislation
3. Legislation
4. Question is not with the scope of CRA.
5. See response.
6. See response.
XXXXXXXXXX
2011-042011
M. Gauthier
(613) 948-1143
September 16, 2011
Dear XXXXXXXXXX ,
Re: Personal Income Tax - Emigrating from Canada
This is in reply to your letter of July 26, 2011 in which you asked the following questions relating to personal income tax consequences when an individual is emigrating from Canada.
Questions:
1. If a Canadian citizen leaves Canada, to live in a foreign country that has no tax treaty with Canada and this Canadian citizen is receiving Canada Pension Plan (CPP) and Old Age Security (OAS), do the payments continue to be mailed to this former Canadian citizen in the new country of residence?
2. If payments of CPP and OAS continue to be made, how much is withheld for income tax to the Canada Revenue Agency in percentage, if monthly total CPP and OAS payments total $1,500?
3. If investments in Canada total $2,000 per year, how much is withheld for income tax to the Canada Revenue Agency in percentage?
4. Can this Canadian citizen return to Canada to take up residency without process, other than notification to Canada Revenue Agency?
5. Can this Canadian citizen continue to own investments or property in Canada if moving to and becoming resident in another country?
6. Am I correct in interpreting the Guide that if a home is purchased in a foreign country, and the home has a value of under Canadian $100,000, that no income tax, Canadian, is charged on the home, even if it is sold? Would Capital Gains apply?
Our Comments:
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.
1. If a Canadian citizen leaves Canada, to live in a foreign country that has no tax treaty with Canada and this Canadian citizen is receiving CPP and OAS, do the payments continue to be mailed to this former Canadian citizen in the new country of residence?
Although the legislation for CPP and OAS benefits is not the responsibility of CRA, however, it is our understanding that CPP and OAS payments continue to be made to non-residents of Canada. If you have questions dealing with CPP and OAS, Service Canada can be contacted by phone at 1-800-277-9914. Also, Service Canada has published a document (footnote 1) discussing CPP and OAS payments to individuals living outside Canada which can be requested by phone or viewed on-line at http://www.servicecanada.gc.ca/eng/isp/pub/nontax.shtml
2. If payments of CPP and OAS continue to be made, how much is withheld for income tax to the Canada Revenue Agency in percentage, if monthly total CPP and OAS payments total $1,500?
A non-resident individual receiving CPP and OAS payments is generally subject to a 25% Canadian income tax called the "non-resident tax" or "Part XIII tax". Canada does have tax treaties with many countries which may reduce the amount of non-resident tax withheld. Alternatively, a non-resident individual can make an election pursuant to section 217 of the Income Tax Act (the "Act"). This would generally enable the non-resident individual to file an income tax return and be taxed at ordinary tax rates rather than the "non-resident tax" rate.
3. If investments in Canada total $2,000 per year, how much is withheld for income tax to the Canada Revenue Agency in percentage?
The withholding tax on income from investments in Canada depends on various factors such as the type of income earned and the relationship between the individual and the payer. For example, certain interest income paid to a non-resident could be subject to a "non-resident tax" of 25% if the relationship between the payer and recipient is not at arm's length and if the interest income is not "fully exempt". "Fully exempt" interest would include debts guaranteed by a federal, provincial, or municipal government such as a government bond.
4. Can this Canadian citizen return to Canada to take up residency without process, other than notification to Canada Revenue Agency?
The process for re-entry into Canada is not within our mandate and we can only comment on questions relating to taxation. We can however inform you that a taxable event occurs when a taxpayer immigrates, emigrates or when an individual returns to Canada after residing in another country. For example, where a taxpayer immigrates to or emigrates from Canada, there is deemed to be a disposition of each property owned by the taxpayer, with certain exceptions. These deemed dispositions could have tax consequences such as capital gains or losses. If an individual returns to Canada, an election can be made to reverse certain deemed dispositions that occurred when the taxpayer emigrated.
5. Can this Canadian citizen continue to own investments or property in Canada if moving to and becoming resident in another country?
It is not within our mandate to determine whether an emigrating individual is allowed, under Canadian legislation, to continue to own investments or property in Canada. As indicated above, we can only comment on questions relating to taxation. We do know however that many non-residents own property and other investments in Canada.
6. Am I correct in interpreting the Guide that if a home is purchased in a foreign country, and the home has a value of under Canadian $100,000, that no income tax, Canadian, is charged on the home, even if it is sold? Would Capital Gains apply?
The General Income Tax and Benefit Guide - 2010, published by the CRA and downloadable at http://www.cra-arc.gc.ca/E/pub/tg/5000-g/README.html, mentions at page 10:
"Foreign property- On page 2 of your return, there is a question for you to answer about owning or holding foreign property at any time in 2010. This refers to: ¦ foreign property you owned; and ¦ your share of foreign property in which you had an interest. Tick "Yes" if the total cost of all these properties was more than CAN$100,000 in 2010. Attach a completed copy of Form T1135, Foreign Income Verification Statement, to your paper return. If you are filing your return electronically, send Form T1135 to the address mentioned in the instructions on the form. Note-Foreign property does not include: ...¦ our personal-use property. Form T1135 contains more information about filing and a complete list of the different kinds of foreign property."
The above comment is in respect of the foreign property reporting rules contained in the Income Tax Act. They require a taxpayer who is resident in Canada and owns "specified foreign property", the total cost of which exceeds $100,000 at any time in the year, to file a prescribed form (T1135) by that person's normal tax return filing deadline. The term "specified foreign property" would include real estate located outside Canada but would not include personal-use property which is any property used mainly for personal use and enjoyment such as a vehicle, vacation property, jewellery, artwork, or any other such property. Please also note that the failure to file an information return on time in respect of the foreign property reporting rules could result in penalties.
You would not be correct in concluding that the gains from the disposition of a home located outside Canada and owned by a resident of Canada is not taxable in Canada. A resident of Canada is typically subject to taxation on income from all sources worldwide, including capital gains from the dispositions of property located outside of Canada, subject to certain exceptions, such as the principal residence exemption for instance. As stated in paragraph 40 of IT-120R6, depending on the facts of each case, a home that is located outside Canada can qualify as a taxpayer's principal residence under the Act and thus qualify for the principal residence exemption provision in the Income Tax Act. The taxation of foreign properties owned by a resident of Canada would generally depend on the type of property and the type of income earned from that property. Canadian residents may claim a deduction for foreign taxes paid on foreign-sourced income and capital gains in accordance with the provisions of the Income Tax Act.
Other comments:
The Canada Revenue Agency (CRA) offers publications dealing with international and non-resident taxes for individuals including T4056 Emigrants and Income Tax, T4058, Non-Residents and Income Tax and 5013-G General Income Tax and Benefit Guide for Non-Residents and Deemed Residents of Canada. These publications are available on our website at www.cra-arc.gc.ca or by phone at 1-800-959-2221 (from anywhere in Canada and the United States) or 1-613-952-3741 (from outside Canada and the United States).
The CRA website is also a great resource for information. As a starting point, we recommend visiting our webpage entitled "Individuals - International and Non-resident Taxes" at http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/menu-eng.html.
If you have any further questions, please feel free to contact Michel Gauthier at 613-948-1143.
We hope this information is of assistance to you.
Yours truly,
Alain Godin
Section Manager for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained
in the original document are shown below instead:
1 Service Canada Catalogue number ISPB-226-12-04E - Are you receiving a pension from the Government of Canada? Do you live outside Canada?
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