After over two years of lockdowns and shutdowns, the opportunity to travel outside of Canada is a liberating experience that many have eagerly awaited. A significant number of people have organized overseas travel this summer. The many snowbirds who were forced to hibernate in Canada for the winter may now be looking to plan their escape once the cold months return.
As a reminder, if you spend extended periods outside of Canada, be aware that there may be associated tax consequences — both in Canada and your chosen destination. Canadian income tax obligations are determined by your residency status, which is determined on a case-by-case basis. This can be affected by such things as the amount of time spent in Canada, the residential ties to Canada (i.e., property owned), the purpose for your time abroad and your ties abroad. Being a Canadian non-resident for tax purposes may still require a Canadian income tax return to be filed and taxes to be paid. A non-resident withholding tax of 25 percent may also be applied to certain income received, such as dividends or pension payments. If you are deemed to be a resident of a foreign country, you may be subject to that country’s tax rules.
Here are other areas that may be affected:
Health Coverage — Although the rules vary by province, provincial medical coverage may become invalid as a result of extended periods spent out of province. Even if health care coverage remains valid, health care services received abroad are usually not covered by provincial health care plans, so having adequate private coverage should be considered.
Government Benefits — Your government benefits may be affected by your residency status. For example, Old Age Security (OAS) and Canada/Quebec Pension Plan (CPP/QPP) benefits may be subject to a non-resident tax of 25 percent (unless reduced/ exempted by a tax treaty between Canada and the country of residence). The value of OAS payments is impacted by how long you have lived in Canada after the age of 18, so a non-residency status may reduce payment amounts.
Tax-Free Savings Account (TFSA) — You will not be able to accumulate TFSA contribution room for any year that you are a non-resident of Canada throughout the entire year. Contributions made as a non-resident will be subject to a penalty tax of one percent per month.
Estate Planning — The laws of the jurisdiction of residence at the
time of death govern how an estate plan will be taxed. If you are
a Canadian resident but have appointed a non-resident trustee/
executor/liquidator (the title varies by province) to administer
your estate, this may affect your estate, including that it may
be considered to be a non-resident estate and may not receive
preferential tax-treatment (i.e., on Canadian dividends/capital
gains) or it may be subject to the tax laws of the country where
the trustee resides. Power of Attorney (POA) documents may also
become complicated by a non-residency status. For example,
if you are appointed as POA for property but are no longer a
Canadian resident, you may be limited in what you can do, such
as potentially not being permitted to give trading instructions on a
There may be other potential implications should your residency
status change due to spending extended periods outside of
Canada — this is not meant to be a comprehensive list. However,
it is intended to highlight some of the financial implications to
consider before making a decision.
Without a doubt, it is exciting to be able to travel more freely once
again. However, if you are spending extended periods outside of
Canada, it is recommended to consult legal and tax advisors who
are familiar with living abroad to understand how your particular
situation may be affected.