Tax Implications of Moving Back to Canada
One of the major ways to prepare to live in Canada again is by researching the tax implications of moving back to Canada. It will help you prepare adequately and make your moving process more manageable.
If you gained US citizenship or left Canada after getting a green card, you are subject to tax on incomes from all the countries. To avoid double taxation, you must claim the foreign earned income exclusion or foreign tax credits.
Before looking at the “moving back to Canada tax implications,” we will first focus on the ways to prepare for your return. This includes what to do months before you start the moving process. We will then state the tax implications towards the end of the article.
Let us get started.
What To Know About Moving Back To Canada
If you left Canada to live in another country, you could return anytime you want to establish your residency. However, things are different if you are married and had children while away and are coming to Canada with them.
You must apply for sponsorship, so your husband and children can legally enter the country. The first step to moving back to Canada is getting a passport, which you should do a year before your move.
Applying for a Canadian passport is easy, and you will need to submit some documents. You will also complete other forms of ID once you get to Canada. These involve healthcare and other services.
What You Should Do To Become A Citizen Again
Even if you have lived abroad for some years, the Canadian government won’t ask you to register as a resident once you return. Besides, no police or government officials will look for you to ask about your residency.
However, you might be forced to declare if you are a resident or not. Some of these circumstances are;
When Bringing Your Household Items Back To Canada
Since you already have a home abroad, you must move your household goods to Canada. Non-citizens pay taxes and duties at the Canadian border when crossing their items, which Canadian citizens are exempted from.
To take advantage of the tax exemption, you must declare verbally that you are a Canadian returning from abroad. You should also have a filled BSF 186 form to show all your belongings. You can fill this out on the Canadian Federal Government’s website.
If you go to a public healthcare facility, want to enroll your kids in a public school, or wish to renew your driver’s license, you must have proof that you are a Canadian resident.
You can use your apartment lease and receipts of payment of utility bills. These should have your name and address or a driver’s license with your Canadian address.
When filing your first tax return, you must declare the date you moved back to Canada. It helps calculate the taxes because you will pay depending on the income earned when you get to Canada.
Other Long-Term Preparations To Make Before Moving To Canada
If you have not lived in Canada long, you must first research the laws around moving back. State laws change over time, and if there are new regulations, they could lock you out of your mother country or make your moving stressful.
Some ways to prepare two years before the move are;
Ensure Your Family Can Legally Live In Canada
Moving back to Canada alone can be easier than with a family you acquired while away. This happens when you marry a non-Canadian and get kids in a foreign country.
Therefore, sponsor your spouse to become a Canadian citizen to ease your move. They will be able to work and access healthcare easily. The application takes time to process, so you are encouraged to prepare early.
If you have children while living abroad and are a Canadian citizen, your kids are also Canadian citizens. But, first, you must inform the government of the children, which you should do early enough.
You will need a place to stay once you get to Canada, and you must get it early. Start a year before your moving date. Consider accessibility to amenities like schools and churches and affordability when getting a new home.
Register To Receive Tax Information Online
Many things changed when you left Canada, and you probably are not registered with the Canadian government to access your tax return filings, CPP, and RRSP online. However, seeing this information will help if you are ready to move.
Canadian Citizen Moving Back To Canada Tax Implications
While looking at the tax implications when moving back to Canada, some of the things to consider are;
- What Will You Do With Your Current Assets?
Selling your home before or after moving to Canada will have tax implications in either country or both. For example, if you rent out your US home and move to Canada, you might lose the ability to claim the home sale exemption, which is $250000 per person.
Selling the home could be an option. However, you will pay taxes to the Canadian government if you do so in the future. If you want a new home in Canada, ensure you buy it in time to benefit from the principal residence exemption.
Investment In A Foreign Country
If you have investments with a US broker, not in a qualified retirement account, you should transfer them to a Canadian broker. Once you relocate, the investment costs will change, and your Canadian taxes will differ from the actual price.
If your US bank account holds over CAD 100000, you must disclose this on Form T1135 on your Canadian return. However, it increases the tax compliance fee. Also, ensure you fill out the form before the deadlines to avoid penalties.
If you have a Roth IRA, you must file an election in your first year of returning to Canada. This helps you to retain your tax-free status when in Canada. If you have an Individual Retirement Account (IRA), roll it over to a Canadian Registered Retirement Savings Plan. Failure could result in a double tax.
Employees with a 401k account from their previous or current US employers cannot roll them over directly to a Canadian Registered Retirement Savings Plan. In this case, you should convert the 401k to IRA before moving back to Canada.
Other Things To Prepare For
- If you got a Green card, moved to the US, or are a US citizen, you will pay tax to both countries on your worldwide income. To avoid double taxation, you must claim either the foreign earned income exclusion or foreign tax credits.
- Your taxes in Canada might be more than those you paid in the US. However, this might be different if you lived in places like California with a high tax jurisdiction.
- If you are a Canadian citizen and want to keep your green card, you will continue filing as a US tax resident. It will protect the green card, but this will be double taxation.
Now that you know the tax implications of moving back to Canada, you can prepare for your move. Ensure you have all the forms needed at the border and have sponsored your children and spouse to help them get Canadian citizenship.