Canadian Departure Tax for Australian Expats Returning Home: What You Need to Know

When Australian expats decide to return home after living in Canada, one of the most crucial tax considerations is the Canadian Departure Tax. This tax applies when an individual ceases to be a Canadian tax resident. It can have significant financial implications if not properly understood. Here’s everything Australian expats need to know to navigate the departure tax process and avoid unexpected liabilities.

What Is the Canadian Departure Tax?

The Canadian Departure Tax is levied when a person becomes a non-resident of Canada for tax purposes. If you’re an Australian expat planning to return home, you need to be aware of how this tax works, as it applies to assets you own while you’re still considered a Canadian resident.

The Canada Revenue Agency (CRA) assesses your residency status based on residential ties. You’re typically considered a non-resident if:

• You live outside Canada for the entire tax year.
• You live in Canada temporarily, without significant residential ties.
• You spent fewer than 183 days in Canada in the previous year.

If you maintain significant residential ties, such as a home, spouse, or dependents in Canada, you may still be considered a factual resident or deemed resident, meaning you could remain subject to Canadian taxes even if you live outside the country.

Filing the Departure Tax Return

Once you confirm your non-resident status, you’ll need to file a Departure Tax Return with the CRA. This involves reporting your global income up until the date of your departure and paying tax on what the CRA refers to as a “deemed disposition” of most of your assets. Essentially, you’ll be treated as though you sold your assets at their market value on the date you left Canada.

While Canadian real estate and registered accounts (such as RRSPs and TFSAs) are generally exempt from this tax, other assets like foreign investments, shares, and foreign trusts may trigger significant tax liabilities if their value has appreciated.

Capital Gains Tax and New Rules for 2024

Under normal Canadian tax rules, only 50% of capital gains are subject to taxation. However, a new rule effective June 25, 2024 will increase the taxable portion of capital gains to 66.67%. That said, the first $250,000 of gains will still be taxed at the previous 50% rate.

It’s essential to be aware of these changes, as they can significantly impact the amount of tax you owe upon departure.

Reporting Canadian Assets and Tax Implications

When filing your Departure Tax Return, you must disclose any Canadian assets you own, particularly those valued at over $25,000. This includes properties, investments, and other significant holdings. Failure to report these assets could result in fines up to $2,500.

If you plan to keep Canadian real estate, be mindful of the 25% withholding tax on rental income for non-residents. Additionally, if you sell the property, capital gains tax may apply.

Adjusting Canadian Pension Plans

Before leaving Canada, it’s also essential to address any Canadian pension plans, such as the Canada Pension Plan (CPP) or Old Age Security (OAS). As a non-resident, your pension payments will be subject to a 25% withholding tax, unless reduced by the Canada-Australia tax treaty.

Deadline for Filing and Payment

The deadline for filing your Departure Tax Return and paying any associated taxes is April 30 of the year following your departure. If you’re self-employed, you have until June 15 to file your return. However, you’ll still need to make any tax payments by April 30.

If you cannot pay the Departure Tax immediately due to the deemed disposition of your assets, you may be able to defer payment. This requires providing the CRA with adequate security to ensure payment.

Plan Ahead and Seek Professional Advice

Leaving Canada and returning to Australia is a significant life transition, and it’s important to plan ahead to manage the tax implications effectively. The Canadian Departure Tax can be complex, especially for those with significant assets or foreign investments.

To ensure you fully understand your tax obligations and minimise potential liabilities, it’s crucial to seek professional tax advice. This will help you navigate both the Canadian and Australian tax systems, ensuring a smooth exit from Canada and a seamless transition back to Australia.

Summary: Canadian Departure Tax for Australian Expats

If you’re an Australian expat returning home from Canada in 2024, understanding the Canadian Departure Tax is essential to avoid unexpected tax bills and penalties. By filing your Departure Tax Return on time, disclosing your Canadian assets, and seeking professional advice, you can effectively manage your exit from the Canadian tax system and return to Australia with peace of mind.

For more guidance on tax planning for expats, contact us to speak with an expert who can help you navigate your tax obligations and ensure you make the most of your financial future.

More information relating to Canadian Departure Tax for Australian Expats

• Learn more about recent tax changes in Canada, click here.
• Check out our weekly Expat Chat Podcast.