Foreign income and assets: what Canada taxes and what you must report

This is the first question and everything follows from it. Tax residency is a question of fact. The strongest ties are a home available to you in Canada, a spouse or partner in Canada and dependants in Canada. Secondary ties include bank accounts, a driver's licence, health coverage and memberships.

Someone who stays in Canada for 183 days or more in a year can be deemed a resident even without those ties. Where two countries both claim you, a tax treaty usually settles it.

It is possible to work abroad for years and remain a Canadian resident, and it is possible to become a resident the day you land. Do not assume. If the answer is unclear, the CRA can be asked for a determination.

On the day you become a resident, most of what you own is treated as acquired at its market value that day. Gains that built up before you arrived are not Canada's to tax. This is valuable, and only if you can prove the values. Get statements and valuations dated as close to arrival as possible.

From that day you report income from everywhere: rent on the flat you kept, interest on the account back home, dividends, a foreign pension. You convert each amount to Canadian dollars and claim a credit for foreign tax paid.

For individuals, Form T1135 is not required for the year you first become a resident. It starts the year after.

If the total cost of your specified foreign property is more than CAD 100,000 at any time in the year, you file Form T1135 with your return. It is an information form. No tax is charged on it, but penalties apply for filing late or not at all.

• Counts: bank accounts abroad, shares of foreign companies (even when held through a Canadian broker), foreign rental property, loans owed to you by non-residents, interests in foreign trusts.
• Does not count: property you use personally, such as a holiday home you do not rent out, assets used in an active business, and anything inside an RRSP or TFSA.

It is based on cost, not current value, and for property you owned when you arrived, cost is generally the value on that day. Between CAD 100,000 and CAD 250,000 a simplified section can be used.

A resident keeps an apartment abroad and earns the equivalent of CAD 24,000 in rent, with CAD 6,000 of expenses. The other country charges CAD 1,800 of tax on it.

On the Canadian return, the net CAD 18,000 is added to income. At CAD 100,000 of other income in Ontario, Canadian tax on it is about CAD 5,666. The CAD 1,800 paid abroad is credited, so about CAD 3,866 is paid to Canada. Total tax is the higher of the two countries' rates, not the sum.

Becoming a non-resident is a taxable event. You are treated as having sold most of your property at market value on the day you leave, and tax on the gain is due, though it can often be deferred with security. Canadian real estate and registered plans are among the exceptions: they stay taxable in Canada later.

After you leave:

• Rent from a Canadian property has tax withheld from the gross amount. An election lets you file a return and pay on the net instead.
• Selling Canadian real estate as a non-resident needs a clearance certificate from the CRA, or the buyer must withhold part of the price.
• Canadian dividends and pensions paid to you have tax withheld, often at a rate reduced by treaty.

The year of departure is the one to plan before it happens.

A non-resident can own a Canadian company. The company is taxed in Canada on its income, and payments to its foreign owner, such as dividends, have tax withheld. Whether the company is a Canadian-controlled private corporation affects the rate it pays. We cover the setup in our international section. Registering a company does not create residency or immigration status.