Moving to Live in Canada, Need Expat Tax Help!

A guide to expatriate taxation issues in Canada for anyone thinking about moving to live and work in Canada

If you’re thinking about emigrating to live in Canada the last thing on your mind will be sorting out your tax affairs – until just about the last minute before you fly off to start your new life!

You’ll probably suddenly wonder whether there is anything you need to do before you leave, or any essential pieces of paperwork that you need to take with you.

If you’re moving to live in Canada and you need expat tax help, you need look no further!  This mini guide will tell you all you need to know to get you on the right road.

The first thing to bear in mind is that if you’re working in the UK at the moment or have been in the last tax year before you leave, you will need to complete HM Revenue and Customs’ P85 form that you can find here: -
http://www.hmrc.gov.uk/cnr/r_and_d.htm
On the same webpage you’ll find essential information all about ‘your country of residence’ and ‘your tax status.’ Basically, when you leave the UK you don’t immediately and automatically lose your tax status in the UK.  So, for some people who move to live and work abroad, they are still liable to UK taxation.  If you’re moving to live and work in Canada, you will also of course come under the umbrella of Canada’s tax authority that will also want you to pay tax!  So it’s fortunate that there is what’s called a ‘double taxation agreement’ in place between the two countries.

What this does is offset the tax you pay in Canada against any ongoing liability that you have in the UK for the current, and even the following tax year.  How long you are considered to be tax resident in the UK depends on when you leave, whether you leave permanently, how often you return home to visit…and so on and so forth.  Your absolute best bet all round is to complete the P85 form and then once you’re settled in Canada, find an accountant who is used to helping expats.

Another thing to add a soupcon of confusion to the mix is that the tax year in the UK is from April the 6th to April the 5th, whereas in Canada it is from the 1st of January to the 31st of December.  Once you are deemed to be a resident in Canada, the Canadian law states that you are liable to Canadian tax on your worldwide income – but that if you’re non-resident in Canada you are only subject to Canadian tax on Canadian sourced income.  As you can see, an accountant will be an essential for you in the first year or so just to iron out the cross border liability issues.

Other than straight federal income tax in Canada, there are municipal and also provincial taxes.  Municipal tax is like UK council tax and it is levied at varying rates on your property, and provincial tax is a form of income tax and ties in with the federal tax rate except in Quebec which imposes a separate definition of taxable income – just to confuse things!  Note, when you file your tax return in Canada you have to do it as an individual even if you are married – there is no provision for joint returns.

And now for the good news – charitable tax deductions and credits!  If you make regular charitable donations make sure you keep a receipt of them, and according to advice from HSBC: - “a tax credit is available limited to 75% of net income.  A federal tax credit of 16% is available for up to CAD 200 of donations and 29% on donations over CAD 200.  A provincial tax credit is also available on donations.” When it comes to tax relief these are usually in the form of credits rather than deductions, there are the following credits from federal taxes: - personal credit amount, married credit amount, equivalent to spouse credit amount, age amount, dependent amount, disability amount, CPP premiums credit, tuition fees and education credit amount, and medical expenses credit.

There are a few deductions that may be applicable to you, they include child care expenses, (up to set limits), alimony and maintenance payments, carrying charges and certain interest expenses, personal moving expenses, (under certain circumstances), and registered retirement savings plan (RRSP) contributions (up to set limits).  Unlike in some nations, general home ownership expenses such as mortgage interest payments, insurance, and property taxes are not deductible.  However, if you’re a landlord or you work from home and have an office or business premises within your home then you are usually able to deduct some of the expenses connected your situation.

In conclusion, until you familiarise yourself with the intricacies of Canadian tax returns and what you can and cannot claim, a good accountant will be invaluable to you.  Find one who is used to dealing with expats so that they can help you with any dual nation tax liabilities for example.