Regardless of whether you’re looking to move to Canada, or you already live here, there are some important things you need to know about expatriate tax. In this article we’ll take a look at the basics, including capital gains tax, dividends from taxable Canadian corporations, and fines for non-compliance.
Capital gains tax
Expatriates living abroad will face capital gains tax on any profits made from the sale of their overseas property. However, there are exceptions to the rules. If you have lived abroad for six years or less, you can qualify for an exemption.
If you own a property abroad, you should plan ahead before you move back to the UK. You will need to determine the rules for your destination country and seek tax advice.
There is a grandfathering arrangement that was introduced in 2017-18, which gives property owners who bought before 9 May 2017 the opportunity to sell their property without having to pay CGT before 30 June 2020. However, it’s important to remember that these exceptions don’t apply to everyone. If you’re not aware of the rules, seek tax advice and don’t sell your home before you return to the UK. This can cause a big tax bill and may result in a lower sale price.
In November, Assistant Treasurer Michale Sukkar proposed changes to Australian tax law that would allow Australian citizens to sell their home without incurring capital gains tax. However, tax experts believe this new law unfairly penalizes long-term Aussie taxpayers.
The new law is intended to raise $581 million in extra taxes. However, tax experts warn that the changes could impact a large number of expatriates and won’t benefit anyone who lives in Australia before moving overseas.
The new legislation doesn’t take into account the six-year temporary absence rule, which has allowed property owners to continue to treat their home in Australia as their primary residence for up to six years. However, it will affect a large number of expatriates.
The new rules also include an exception for ‘life events’. This applies to people who have had a death, terminal medical condition, or family law situation.
There are also new rules that will affect property owners who sell their property after leaving Australia. The new legislation will also introduce own allowances and deductions. In addition, you will be charged a higher rate of tax on the sale of your property if you have lived overseas for more than six years.
Dividends from taxable Canadian corporations
Depending on the taxation regime in place, dividends from taxable Canadian corporations are eligible for a federal dividend tax credit. The amount of the credit is dependent on your tax rate and the credit is generally calculated as a percentage of the gross up on your eligible dividends.
There are two main types of dividends: eligible and non-eligible. Eligible dividends are those that can be claimed under the Canada Revenue Agency’s (CRA) Dividend Tax Credit program. If you are eligible to claim the credit, you must include the amount in your income on your T1 Tax Form for the year in which you received the dividend. Non-eligible dividends, on the other hand, are those that cannot be claimed under the program.
A company shareholder can direct dividends to a bank account or solicitor, but the dividends are not received directly from the underlying company. Instead, they are distributed to shareholders and deemed to have been made from the company’s profits. However, it is important to note that there are other factors that influence the taxability of dividends.
The most significant taxation impact from taxable Canadian dividends is their effect on your overall tax bill. To illustrate this point, let’s take a look at two cases. In the first scenario, a Canadian public corporation pays eligible dividends to a shareholder. The amount received is $16,000, while the recipient pays $8,382 in income tax. The amount is a significant tax bite in the eyes of the taxman, and it is not worth ignoring.
The other scenario, which is more common, is a Canadian public corporation pays a non-eligible dividend. However, this dividend is not worth mentioning because the total taxable amount of non-eligible dividends paid to shareholders is relatively small. Nevertheless, a small dividend can be worth a lot of money to the recipient.
The Canadian tax system is designed to ensure that a person’s total income, including salaries and dividends, is taxed at the same rate. Therefore, it is important to make sure that you and your spouse’s incomes are similar before and after retirement.
Allowable depreciation in computing a loss from the rental of real estate or leasing of other property
Depending on the circumstances, allowable depreciation in computing a loss from the rental of real estate or leasing of other property can be a black art. Some assets are excluded from depreciation, while others are included in the kitty. In some cases, a long lived asset is considered to be disposed of when it no longer serves its intended purpose. This means that depreciation estimates need to be rethought and rethought again in the event of abandonment. There are numerous tax benefits associated with the aforementioned, but a taxpaying entity should not squander the opportunity by neglecting the depreciation rules.
Aside from the usual suspects, allowable depreciation in computing an economic loss from the rental of real estate or leasing other property comes in the form of a straight-line depreciation and accelerated depreciation. In the case of accelerated depreciation, the cost of depreciation is not amortized over a set period of time, but rather a fixed rate. This is an excellent way to save on interest costs, but it is a double edged sword because it can result in an excess payment in the event of an unanticipated lease extension. On the other hand, accelerated depreciation can provide an incentive to keep the rental rate low for as long as possible, thereby enhancing the owner’s bottom line.
The best way to determine allowable depreciation in computing monetary losses from the rental of real estate or leasing of another’s property is to do a proper cost analysis of the property. The results are then compared to the corresponding rental costs to determine whether the tenant has a net operating loss. If a net operating loss is determined, allowable depreciation in computing losses from the rental of real estate or leasing other properties can be offset against the tax-free rent. If this is not the case, allowable depreciation in computing loss from the rental of real estate or leasing is best determined as the cost of the property and the cost of any unpaid rent. This calculation can be done in the form of a simple income statement line item or an elaborate financial statement.
Fines for non-compliance
Expatriates in Canada face increasingly stringent tax regulations. However, with proper planning, expats can minimize the negative impact of the tax burden on their finances. A comprehensive review of each situation is necessary to develop custom strategies. The Canada Revenue Agency (CRA) has introduced a number of initiatives to detect and investigate tax evasion. In particular, the Criminal Investigations Program (CIP) and the Informant Leads Program (ILP) gather information on suspected tax evaders. These programs also refer cases to the Public Prosecution Service of Canada (PPSC) for prosecution.
The Canada Border Services Agency (CBSA) is also active in identifying non-compliant employers and taxpayers. Expatriates must be careful when completing their final departure tax return in Canada. This form must be completed and submitted by an appropriate tax deadline. As well, foreigners must report all assets held in Canada. There are many tax classifications that apply to foreigners, and a final departure tax return will have numerous tax implications.
Non-compliance with foreign reporting requirements can result in large penalties. The maximum penalty is 100 percent of the tax owing. The Canada Revenue Agency works closely with foreign tax authorities and regularity agencies to identify tax evaders and their employers. If you are a foreigner working in Canada, you should familiarize yourself with the tax legislation in your country and consult an independent tax counsel.
