Become a Non-Resident of Canada for Tax Purposes

Canadians residing in Mexico full time may want to consider the possibility of becoming a non-resident Canadian for tax purposes only. This personal decision will be based on individual values and priorities.

Canadians know if they live outside of Canada for more than 183 days, they will lose the benefits of healthcare and insurance protection. But the tax benefits, on the other hand, are simple to consider. The majority of Canadian provinces have a marginal tax rate of 53.5% on worldwide income. Mexico’s flat tax rate is 30%.

The obligation to pay taxes is based on residency in Canada, not on citizenship; meaning Canadians can retain their citizenship and any benefits while shedding their residency. This is not the case in the United States.

There is no checklist of items to determine residency. Residency status is determined by their circumstances and that person’s intentions as to where they plan to have their residency.

There is the misconception that Canadians must sever all ties with Canada, for instance, bank accounts, credit cards, and property ownership in order to claim non-residency status. The fact is, Canadians can keep some ties with Canada. The deciding factor will be the balance of the ties an individual has with Canada versus ties in another country.

Some considerations which will determine residency:

Owning real estate in Canada
Spouse, children, or other dependents in Canada
Canadian credit cards
Mailing address in Canada
Bank accounts
Canadian driver’s license
Holding directorships in a Canadian corporation
Frequent visits to Canada
Filing an income tax return as a Canadian resident
Income earned in Canada

These facts are considered only if the Canadian taxing authorities (the CRA) question or doubt an individual’s residence status.

Initially, the CRA will only consider three factors to make this determination:
Does the country the Canadian chooses to reside in have a tax treaty with Canada?  (Mexico does)
Does the individual still have a permanent home available in Canada?
Has the individual set up a permanent home in the new country?

Canadians residing in Mexico can successfully argue if they are registered to pay taxes in Mexico that they are non-resident Canadians. They also must establish the other two situations mentioned above which are the determination of a permanent residence.

A Canadian can own property in Canada, rent it and successfully argue that it is not their permanent home. The CRA will consider factors such as whether the house is their only mailing address.
Does the individual keep personal belongings at this home?
Do they have a tax registration in the new country, for example, an RFC and FIEL in Mexico, and which residence is indicated on that registration?

To become a non-resident of Canada, notify CRA of the specific date, many Canadians notify CRA by filing their last income tax declaration in Canada and select the option indicating the final tax report in Canada.

Myths Related to Being a Non-resident

“If I become a non-resident I must renounce my Canadian passport.”

FALSE: You can always retain your Canadian citizenship if you cease becoming a resident. You may return to Canada and elect to become a resident once again at any time.

“If I have children and a spouse living in Canada,  I cannot renounce my residency.”

FALSE: Having a family, or dependents living in Canada will weigh in on the decision whether or not the individual is a non-resident for tax purposes, but will not be a determining factor.

“If I live outside Canada for more than 183 days, I am already considered a non-resident.”

TRUE:   If you have been living outside of Canada for more than 183 days, cumulatively, during the last 12 months you will be “deemed” to be a non-resident Canadian.

“I will lose my pension if I move to another country.”

FALSE: Although you can no longer contribute to your pension funds, you will not lose your pension.

Click on the following link to read the full article, https://mexlaw.ca/becoming-non-resident-canada-tax-purposes/



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