Monthly Archives: July 2013

Canada’s “residence-based” departure tax vs. the US “citizenship-based” Expatriation Tax – Focus on Canada’s Tax

Part I – Introduction – Not all “Exit Taxes” are the same:

Those subject to the tax jurisdiction of a country (typically because they reside in that country) are subject to tax for a variety of reasons. These include: earning income, the sale of assets, buying goods and services, etc.) People are becoming more and more mobile. In many instances, they will move from their tax jurisdiction. With the exception of the United States and Eritrea, all countries assert tax jurisdiction over residents of their countries. (The United States and Eritrea assert tax jurisdiction over both residents and citizens. The consequence is that the governments of the United States and Eritrea follow their citizens to any place they move.)

In a global world it is common for people to move from one country to another. For example one could move from Canada to the Bahamas. By ceasing to become a resident of Canada, one ceases to be subject to Canadian taxes (with the exception of certain kinds of Canadian based income). As a result, Canada (like many countries) imposes a tax when one ceases to reside in Canada and is therefore no longer subject to Canadian tax laws. The theory is that Canada should have the right to impose a tax on the gains in assets that accrued when the person was a tax resident of Canada. To put it simply:

If your gains accrued while you were a tax resident of Canada,and  if you then cease to be a tax resident of Canada, you are required to pay tax on the gains that accrued while you were a tax resident of Canada. Is this fair? Is this logical? In Canada capital gains are triggered by the earliest of: sale (actual disposition), death (deemed disposition) or departure (deemed disposition).

Like it or not, that’s the theory and reality. Note that the tax is triggered by “departure” – ceasing to be a resident of Canada. The tax applies to almost all residents with exactly the same rules: regardless of citizenship, regardless of income and  regardless of wealth.

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