Taxes – Before & After Moving

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Moving to a new country is stressful enough and you've likely got a lot on your plate already. As such, you definitely don't need more hassle from having to deal with the CRA (tax department in Canada) because you didn't plan ahead. ​So, do plan ahead, understand what tax issues you might need to deal with later and do it hassle-free when you actually need to do it later.

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​1.  I own a property in my home country. Is there anything I need to do before/after I land in Canada?

​There are different tax implications in this case.

a) Establish a new cost base for your properties before landing

Immediately before you become a resident of Canada, you will be deemed to have disposed of your home and have reacquired it at the fair market value. As such, you will pay tax in Canada upon the actual disposition of your house only on the gain which you earned after you became a resident of Canada. The rule applies to all the properties in the country you reside before moving; as well as the properties you already own in Canada.​ An evaluation of the value of the properties will be necessary to determine the fair market value (i.e. new cost base) at the time you became resident in Canada.​

Example

As mentioned above, you will pay tax in Canada upon the actual disposition of your properties on the gain which you earned. However, the actual cost you originally paid is now irrelevant. The calculation of capital gain is what your sell price minus the new cost base that's been established at the time you became resident in Canada. Therefore, getting an evaluation of the values of all your properties before departure is very important if you want to have no fuss no muss filing with the CRA.​

c) Rental properties
Since Canadian residents are taxed on their worldwide income, you must report all your rental income received from foreign property.​​

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2.  What is "Specified Foreign Property"?​

​When you file a Canadian income tax return as a resident, you need to answer the question "Did you own or hold specified foreign property where the total cost amount of all such property, at any time during the year, was more than CAN$100,000?"​ Some taxpayers might think that the term “foreign property” just refers to real estate, when it refers to a lot more. Here are some examples of foreign investment property:​

• A life insurance policy you own from a foreign issuer
• Interest you own in any offshore mutual funds
• Any real estate you own held outside Canada
• Money in a foreign bank account
• Shares you own of a foreign company
• Interest you hold in a non-resident trust
• Bonds or debentures owned from foreign countries
• Any other income you earn from foreign property.​​

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3.  I have been contributing to the pension scheme in Hong Kong, namely MPF. Is that taxable in Canada when I withdraw my MPF pension?​

a) Still a non-resident when MPF is withdrawn

If you are still a non-resident of Canada at the time of withdrawal of your MPF, it is NOT taxable in Canada. And for individuals who are immigrating to Canada, as well as for returning Canadians, the best option is to withdraw all your accrued benefits in your MPF account, if you can. 

More details may be found "Early Withdrawal of MPF".  ​

b) Resident status when MPF is withdrawn

If you are already a resident at the time your MPF is withdrawn or for some good reasons you could not withdraw your MPF before moving to Canada.

Note that Canadian residents are taxable, under subparagraph 56(1)(a)(i) of the Act, on pension benefits in the year of receipt. This applies to benefits from a foreign pension plan that are attributable to services rendered while the individual was not a resident of Canada. Therefore, the periodic amounts and the lump sum payment from the Hong Kong pension plan will be taxable in Canada. In this case, your MPF is taxable in the year it's withdrawn. 

Reference: Canadian Tax Interpretation.​

Nevertheless, foreign pension plans that meets the criteria from 60(j)(i) can be transferred into an RRSP. The mechanism is that the lump sum is included as taxable income in the year it’s withdrawn from the foreign pension but, by depositing it to an RRSP, the person receives a deduction against the income inclusion. If your foreign pension is eligible and everything is done correctly, tax is deferred until the year(s) your RRSP is withdrawn.​

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4.  What about payments from annuities?

​As mentioned above, benefits from a foreign pension plan is taxable in the year of receipt. Therefore, yes, any payment from foreign annuities is taxable.​

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5.  Tax Planning - Benefits of a Trust

​If done properly, establishing a trust can be one of the most effective ways of protecting your assets and it does not have to be expensive.​

• Confidentiality

Trusts are created by written agreements, known as deeds or trust settlements or even simply trusts. They usually don't have to be registered anywhere. They're valid as soon as they are signed.

• Tax Planning

Assets transferred into trust are no longer considered as belonging to the Settlor, so the income and capital gains generated by those assets are taxed according to the rules governing the legal owner – the Trustee. If it is correctly structured and administered trust could produce substantial tax savings.

• Asset Protection

​Trusts can be one of the most effective ways of protecting assets. In simple terms, assets transferred to a trust no longer form part of the Settlor’s property, so the trust assets cannot be seized if a Settlor gets into financial difficulties.

• Control

A trust can give you control over how assets are divided among the beneficiaries (e.g. your family members).​