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April 16, 2024

Tax Perspectives

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Please note that these publications may not be up-to-date as taxation matters are subject to frequent changes.

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Winter 2008
Volume 8, Number 2

The information in Tax Perspectives is prepared for general interest only. Every effort has been made to ensure that the contents are accurate. However, professional advice should always be obtained before acting and TSG member firms cannot assume any liability for persons who act on the basis of information contained herein without professional advice.

Leaving Canada, Is Now the Time?

By Arnold Sherman, CA, CTA, TEP, FCA (England and Wales)
H. Arnold Sherman Professional Corporation (Calgary)

The so-called “departure tax” is a serious deterrent to becoming a non-resident of Canada. Emigrants are deemed to have sold their property at fair market value immediately before departure. There are some exceptions, the principal ones being Canadian real estate and RRSPs. The result is likely to be a net deemed capital gain, on which tax must be paid, or security provided to the CRA to cover the tax liability. Payment of tax may be deferred (without interest) until the particular asset is actually sold.

An individual planning to leave Canada may have no flexibility with respect to the timing of departure, for example, because he or she is taking up employment in a foreign country. Others who may be contemplating departure will usually have flexibility in scheduling their departure date.

For these latter individuals, the recent loss in value of many assets, such as stocks and foreign real estate, presents an interesting opportunity to leave Canada at a minimal departure tax cost. Consequently, you might ask, “Is it a good idea to leave Canada before values recover?”

Anyone contemplating departure from Canada in the future has a current opportunity to take action that will minimize their future departure tax liability. This can be achieved, for example, by a plan that involves the creation of a trust. While use of a trust can be an effective solution, it requires skilled professional assistance. Each planned departure will raise different tax issues and other questions.

While the valuation of quoted securities does not present a problem, other assets, such as shares of private corporations, will require a valuation acceptable to the CRA.

Careful planning will be required to ensure that any losses on assets transferred to a trust are realized for tax purposes. There are many pitfalls to navigate.

Once an effective plan has been implemented, future departure from Canada can take place with a much reduced departure tax cost.

So – to answer the question posed at the beginning of this article – now is not necessarily the time to leave Canada just because of the drop in stock prices. On the other hand, if future expatriation is contemplated, now is certainly the time to do some essential advance tax planning.