Leaving Canada and moving to the UK - Departure Tax for Canadians Moving countries is always a thrilling experience, but it comes with challenges. One of the main hurdles Canadians will face is understanding the UK tax implications. When you’re moving from Canada to the UK, getting a grip on tax issues you might encounter is essential. When you become a non-resident of Canada for tax purposes, the Canada Revenue Agency (CRA) treats you as if you’ve sold certain types of property at their fair market value (even if you haven’t sold them) and immediately re-acquired them. This is known as the “deemed disposition” rule. It’s the basis for what’s commonly called the “departure tax”. Canadian residents will need to plan carefully around departure tax. Canadian Departure Properties Affected: Real estate, shares, and personal property: The CRA applies the departure tax to most assets owned by Canadians. However, if the total gain from all your property is less than $25,000, you don’t have to file the departure tax. Tax-sheltered accounts: Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) are exempt. However, any withdrawals from these accounts once you’re a non-resident could be subject to withholding tax. Canadian business property: Canadians that have an interest in a partnership or are leaving behind assets of a Canadian business may be subject to the departure tax. Exceptions Canadian real estate is subject to the deemed disposition rule, but it’s also exempt until Canadians sell it. But once you sell as a non-resident, Canadian taxes will be paid on the sale. Pensions and similar rights: These are typically exempt from departure tax. However, withdrawals from these funds might be subject to Canadian withholding tax once you’re no longer a resident. Property you owned before becoming a Canadian resident: If you had assets before you moved to Canada, the value increase from when you became a resident to when you leave is subject to the departure tax. Reporting: Upon leaving, you should file Form T1161, which lists all the assets subject to the departure tax. If there’s any tax owed due to the deemed dispositions, it’s reported on Form T1243. Key Consideration: It can be a financial challenge if you’re facing a significant departure tax bill but haven’t sold any assets to generate the cash to pay it. Thankfully, the CRA allows taxpayers to defer the payment of the departure tax until the asset is sold. However, this requires providing security to the CRA, and interest might be charged on the deferred tax amount. If you’re planning on leaving provinces like Ontario, British Columbia, or Quebec for an international move, getting advice on the departure tax is essential to plan accordingly. Example: If you own a property in Ontario and its value has risen since you bought it, you could face a departure tax on the increased value, even if you haven’t sold it. Example: If you own an apartment in Vancouver, British Columbia, and decide to rent it out after moving to London, you’ll be liable for non-resident tax on the rental income. Moving to the UK: What to Expect The UK tax residency status is pivotal in determining how Canadians are taxed in the UK. To be considered a tax resident in the UK, a “Statutory Residence Test” (SRT) is employed. The SRT is based on the number of days you spend in the UK and other connecting factors such as having a home, family, or employment in the country. The test is split into three parts: automatic overseas tests, automatic UK tests, and sufficient ties tests. If Canadians are automatically considered a resident through the SRT because, for example, they spent over 183 days in the UK in a tax year, they are subject to tax on their worldwide income. On the flip side, if you meet any of the automatic overseas tests – like spending fewer than 16 days in the UK if you were a resident in one of the three previous tax years – you’re treated as non-resident for tax purposes. It’s worth noting that the UK tax year runs from April 6th to April 5th of the following year. Establishing your tax residency status early on when relocating to places like London is crucial to ensure compliance with the UK tax laws and to optimize your tax situation. Example: If you’re employed in London and earn rental income from a property in British Columbia, both incomes will be subject to UK tax. HMRC Unique Tax Reference (UTR) code and National Insurance (NI) Number HMRC’s UK Unique Tax Reference (UTR) code and the National Insurance (NI) number are two essential identifiers for individuals in the context of taxation and social welfare for Canadians moving to the United Kingdom. The UTR code is a 10-digit number unique to every individual or entity that deals with tax obligations. It’s a primary identifier for self-employed individuals, and you’ll need it to file your Self Assessment tax returns. Without a UTR, you cannot declare your income or pay taxes, potentially leading to fines or legal implications. On the other hand, the National Insurance (NI) number is pivotal for both employees and employers. It tracks your contributions to the National Insurance and state pension schemes. It ensures that contributions and taxes are correctly recorded against your name and determines your eligibility for certain benefits, including the state pension. Having an NI number is non-negotiable if you work in the UK or claim benefits. In essence, while the UTR focuses on tax matters, especially for those self-employed in places like London, the NI number is broader, touching on employment, benefits, and social welfare. Both are crucial to ensuring you comply with UK regulations and receive the benefits you’re entitled to. The UK and Canadian treaty The Canada-UK Tax Treaty is an agreement between Canada and the United Kingdom that aims to prevent double taxation and fiscal evasion concerning taxes on income and capital. This treaty ensures that residents of Canada and the UK aren’t taxed twice on the same income in both countries. It provides for reduced withholding tax rates on dividends, interest, and royalties paid between parties in the two countries. Moreover, it lays out the rules to determine the taxing rights when a resident of one country derives income from the other. Both countries also agree to exchange tax-related information to prevent tax evasion. For individuals and businesses operating between Canada and places like London, this treaty can play a pivotal role in tax planning and ensuring compliance with tax obligations in both jurisdictions. Key Dates & Forms for Canadians moving to the UK Canada: Departure date: It’s the day you leave Canada. Form T1161: List of properties by an emigrant of Canada. Form T1243: Deemed disposition of property by an emigrant of Canada. UK: Tax year: April 6th to April 5th of the next year. UK Self Assessment tax returns: The deadline is January 31st for online submissions. FAQ Taxes Implications for Canadians moving to the UK | Cross-border tax planning I'm moving from Quebec to London. Do I need to inform the Canadian Revenue Agency (CRA)? You should inform the CRA about your departure date to ensure you're correctly taxed as a non-resident. Will I be double-taxed on my income from Canada when I move to the UK? The UK has a double taxation agreement with Canada. This means you'll get relief in the UK for Canadian tax paid on the same income. I have a business in Ontario but plan to live in the UK. How will this be taxed? Your Canadian business income will be subject to non-resident tax in Canada. If you're a resident in the UK, you'll be taxed on worldwide income, including your Canadian business income. What happens to my RRSP in British Columbia when I move to the UK? RRSPs are recognized tax-deferred pension schemes in the UK. You won't face immediate tax in the UK, but withdrawals will be taxable. How are capital gains from selling a property in Vancouver treated when I live in the UK? You'll declare the gains in the UK and pay any due tax. However, you'll get relief for taxes already paid in Canada on the same gains.
