Navigating Residency and Departure Tax in Canada

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This guide clarifies potential tax implications for Canadians moving abroad, focusing on residency status and departure tax.

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Residency:

• Beware Factual Residency: Leaving Canada doesn't guarantee you're non-resident for tax purposes. Strong ties like family, property, or accounts in Canada can make you a "Factual Resident," subjecting you to Canadian tax as if you never left.

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• Portugal-Canada Tax Treaty: Under this treaty, if you meet the criteria for a Portuguese Resident, Canada automatically considers you a non-resident, simplifying your tax situation. You'll only owe tax on Canadian-based assets/income.

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Departure Tax:

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• Deemed Disposition: Upon leaving Canada, certain assets (even ones you haven't sold) are treated as sold and repurchased at fair market value, potentially triggering a capital gain for tax purposes.

• Assets Subject to Deemed Disposition: This includes shares, jewellery, art, and collections.

‍Exceptions:

• Canadian real estate and resource properties

• Canadian business property with a permanent establishment

• Certain retirement plans, education/disability savings plans, and trust interests

• Personal use items under $10,000 CAD

• Reporting Requirements:

• If your total asset value exceeds $25,000 CAD, you must file additional forms detailing all assets (domestic and foreign), excluding exempt items.

• You can defer paying departure tax without incurring interest, but additional forms and potential security are required for amounts exceeding $16,500 CAD.

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Key Takeaways:

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• Leaving Canada doesn't automatically erase your tax obligations. Understand the concept of Factual Residency and its implications.

• The Portugal-Canada tax treaty offers a simplified tax situation for Canadians residing in Portugal.

• Departure tax can apply to certain assets upon leaving Canada. Exemptions and reporting requirements exist.

• Deferring departure tax is possible with specific formalities.

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Disclaimer: The guidance above should not be fully relied upon and does not constitute formal instructed professional advice. In relation to tax advice in Portugal, please engage and instruct a regulated professional for all tax advice and structured financial planning. Please contact Portugal Pathways if you would like an introduction to one of our professional advisors.

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