Only it was a problem, because the real estate attorney I initially tried to work with insisted that because I wasn’t physically in Toronto on the day of closing, I wasn’t legally a Canadian resident and therefore I needed to jump through a whole bunch of extra hoops — including withholding 30% of the sale price until I got CRA clearance and hiring a second real estate attorney in whatever town I was in that day.
At this point I’d been outside of Ontario for about two weeks. They didn’t care.
It was news to me that I’d moved somewhere else. Where did I live, exactly? Is my backpack now a sovereign state? I was pretty sure I’d just filed my Canadian taxes the day before, which seemed like the sort of thing only residents have to do.
The nonsense they were asking me to do is not what the law actually requires. This is why you should never just accept the advice of your attorney at face value. Always verify what “experts” say with the source — in this case, the CRA.
I found a different attorney and didn’t do any of those things. We followed the actual law, not the made up to bill you for a bunch of unnecessary services law.
It’s clear that a lot of people don’t understand how Canadian residency works.
Luckily for me, my hobbies include exhaustively researching the Canadian tax code to understand how it differs from the US tax code, so I understand how residency works. I knew the first attorney was mistaken, before I paid them thousands of dollars in fees that weren’t necessary.
What happens to your residency when you leave Canada?
In a word: nothing.
Going on a trip, however long it lasts, doesn’t mean you’re not a resident of Canada. I can be gone for as long as I want and I’ll still be a resident of Ontario.
I haven’t gotten rid of my apartment in Toronto or set up a new place somewhere else. I’m still covered under OHIP. I haven’t gotten a new drivers license, registered to vote, gotten a library card, joined a club, or done anything that might suggest I’d moved anywhere else.
In fact, I hadn’t been in any one place for more than three weeks!
Everything I’ve said and done supports the fact that I am a resident of Toronto who is currently traveling and is planning on returning to Toronto.
Because I’m still a resident as far as Canadian law is concerned, I’d be in trouble if I don’t file my taxes with the CRA. Even if I don’t set foot in Canada for the next three years.
Provincial health insurance has its own requirements. I sold the apartment in April, which meant I wasn’t even close to being outside of Ontario long enough to lose coverage under OHIP. Remember that different organizations have different residency requirements. Even if I got private insurance, I’d still be an Ontario resident according to the CRA.
How do you stop being a resident of Canada?
Once you are a resident of Canada for 60 months (aka 5 years), you remain a factual resident until you can prove to the CRA that you have left Canada for good and have no plans to ever move back.
That’s right, you can’t just move out and be done with it. You have to file a form with the CRA and convince them that you’re gone for good. They can reject your claim and continue to consider you a resident.
You can’t just accidentally stop being a resident of Canada. And you can’t just move and stop filing your Canadian taxes.
That real estate attorney’s insistence that I wasn’t a resident because I was traveling was nonsense and would have gotten me in major trouble with the CRA if I’d done what they told me to do.
If your attorney says you aren’t a Canadian resident because you’re traveling, get a new attorney.
What sort of things do you need to do to stop being a Canadian resident?
- Sell your home or rent it out on a long-term lease
- Move all of your things out of the country (don’t leave them in storage in Canada)
- Establish a new home outside of Canada (aka buy or rent a home)
- Be required to pay taxes in another country
- Get a job with a non-Canadian company or get transferred to a foreign office
- Get a new drivers license in another country
- Give up your Canadian work permit, study permit, or permanent resident status
- Get new health insurance coverage
- Have a reason for any Canadian bank accounts you’re keeping open
- Quit your Canadian professional organizations or unions
- Join new community groups abroad
If you leave your spouse and kids behind or don’t have to pay taxes to another country, they’re going to require you to continue paying taxes on your worldwide income. They’ll require that you provide a list of all of your assets so they can make sure you don’t commit tax evasion in the future.
The CRA may even ask you to provide them with a copy of your foreign tax return to verify that you’ve really moved.
The CRA isn’t kidding around with this. If you don’t file they’ll contact you, using the information they have on file. If you ignore them, they’ll freeze your Canadian bank accounts and can put a lien on your Canadian assets.
What happens when you stop being a factual Canadian resident?
If you’ve been a resident for more than 60 months in the last ten years (aka 5 years in 10 years, but counted one month at a time on a rolling basis) you are subject to the exit tax if you stop being a resident of Canada.
That sounds scary (and punitive!) but it’s really not. It’s designed to make sure you don’t run off without paying capital gains taxes.
For tax purposes, the day you leave Canada forever (or die) you are considered to have sold everything you own and then re-purchased it at market rate. This changes the cost basis of everything you own and you theoretically owe capital gains taxes on the theoretical proceeds.
It’s unusual for people leaving Canada to actually have to pay anything for the exit tax. You don’t have to pay capital gains taxes on your primary residence, RRSP, or TFSA and that’s where most people have all of their net worth. You’re basically just reporting all of your assets and their current value to the CRA and promising to pay any taxes you’re required to pay when you eventually sell them.
Canada doesn’t tax you on capital gains on your primary residence, but once you move it’s not your primary residence anymore. If you keep your former home you’ll need to have it assessed to determine the new cost basis for the eventual capital gains tax determination.
You’re not paying any extra money with the exit tax. If you do pay an exit tax, you’re just pre-paying a portion of the capital gains taxes you’ll eventually owe when you sell. It’s very rare for the CRA to not grant requests to defer tax payment until the actual sale. If you sell everything before you leave, you’re just paying normal capital gains taxes.
Want more information on Canadian tax law?
Okay, you probably don’t. But if you’re a US citizen or greencard holder living in Canada, you probably need it! I’m working on a guide to cross-border taxes, so stay tuned.