Skip to main content

The Globe and Mail

Canadians living abroad may be surprised to learn they owe Ottawa taxes

Young Businesswoman And Businessman Holding Briefcases Walking Together

Stockbyte

Globalization is luring Canadians every year to work, travel or retire in low- or tax-free countries with the mistaken belief that they can shed their tax obligations at home.

But experts in the field say the only way to legally free yourself of Canadian income tax is to completely sever ties with the country and become a permanent resident elsewhere.

Things like maintaining provincial health coverage, Canadian bank accounts, cars, membership in social clubs or supporting a spouse and dependent children living in Canada affect your status as a non-resident in the government's eyes.

Story continues below advertisement

"You cannot reduce your tax burden if you are a Canadian resident working and living abroad," says Allan Madan, a chartered accountant and tax expert in Toronto.

Cleo Hamel, a senior tax analyst with H&R Block, says many Canadians only realize their mistake years after departing the country. Many assume payment of Canadian taxes isn't required if they live outside the country for a year.

"Most people think about the actual move or they think about the life that they're going to lead outside of the country, without actually thinking or researching if there are any tax implications," she said from Calgary.

Expats who maintain close ties with Canada must file tax forms annually and pay Canadian taxes on their worldwide income. Credit is given for any taxes paid to the 93 countries that have tax treaties with Canada to prevent double-taxation.

Technology that allows electronic records to flow easily between governments is making it harder to get away with not paying taxes on worldwide income. Canadian law requires that the government be notified of transfers from foreign to Canadian bank accounts.

The restrictions have prompted some Canadians to completely sever their Canadian ties.

Madan says he's been fielding a growing number of calls in the past couple of years, especially from middle-aged, high-income executives seeking to relocate to tax-free or low-tax zones in the Caribbean or the Middle East.

Story continues below advertisement

"For the most part, that's where their work is taking them, but they're decision is heavily influenced by the tax situation," he said in an interview from Toronto.

Someone making $1-million a year abroad can save more than $450,000 in Canadian taxes by changing their residency from Ontario to a tax-free country like Saudi Arabia.

The tax savings would be much less if they relocate to the United States or Europe where tax rates are similar to Canada.

Michael Cadesky, an international tax specialist with Cadesky and Associates, says people are much more mobile these days because of globalization, EU laws that let their passport holders work without permits, and NAFTA that allows some professionals to work in the United States, Canada and Mexico.

The Toronto tax expert said workers tend to relocate to countries where jobs are available in their industry, while retirees move to warmer climates or the U.S. Some leave to return to their country of birth.

While tax savings influence the decision about becoming a non-resident of Canada, Cadesky said it is rarely the only factor and driving force.

Story continues below advertisement

"The tax rates in Canada are sufficiently manageable, even though they're high, particularly for people that have investment income," he said.

Canada Revenue Agency says about 20,000 people a year request a determination of residency, with 60 to 75 per cent coming from people leaving Canada.

Cadesky said the easiest way to qualify in the 93 countries that have tax treaties with Canada is to establish a permanent residency in the new country. He said CRA tends to be "quite reasonable."

Cadesky warns there are many traps that can ensnare foreign workers who try to navigate through the process without the help of a tax professional.

"It's a horrible exercise if you try to do it yourself," Cadesky said.

He advises that workers being transferred by their company seek an allowance to spend on tax advice.

Report an error
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

If your comment doesn't appear immediately it has been sent to a member of our moderation team for review

Read our community guidelines here

Discussion loading…

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.