Tax Residency in Canada
Canadian citizens and residents are taxed on their worldwide income, meaning if you remain a Canadian tax resident while living abroad, you must report and pay taxes on all income, no matter where it is earned.
We've had many clients return to Canada after 2 years with outstanding tax returns owing. Don't be on the wrong side of CRA compliance rules.
You may be considered a resident, non-resident, or deemed resident for tax purposes. Your residency status is determined by the strength of ties to Canada, such as having a home, family, and social ties in Canada. An accountant can direct you on what CRA is looking for when it comes to the ties. They can make a case for you on why you are a non-resident and submit form "Determination of Residency Status" for CRA to approve.
If you sever ties with Canada (selling property, cutting most connections), you may be treated as a non-resident for tax purposes and will only be taxed on Canadian-sourced income. This is what I did when I moved to the Cayman Islands for a 2 year contract. The minimum time away is 2 years. CRA will not approve your application if your intent is to leave for 6 months, or if you indicate you plan to return.
If you maintain ties, even while living abroad, you will likely remain a tax resident and be taxed accordingly. This is subject to the kind of ties you keep. For example, if you leave your children and spouse behind to work and maintain your Canadian driver's license, then it is likely your request for non-residency will be denied.
Foreign Tax Credits
If you pay taxes in another country on income earned while living abroad, Canada offers foreign tax credits to avoid double taxation. The taxes paid abroad can be credited against your Canadian tax liability. However, not all countries are applicable. There are a few countries without a tax treaty with Canada such as Saudi Arabia and Afghanistan.
Departure Tax
If you officially sever your ties with Canada and become a non-resident, you may be subject to departure tax. This is a tax on any capital gains on certain properties (stocks, real estate, etc.) as if you had sold them when you left Canada. Luckily this does not apply to registered investments such as RRSPs, TFSA, pensions, and so on.
Provincial Health Coverage
Health insurance coverage through a provincial plan may be extended for a short time after leaving Canada, but most nomads will need to secure private international health insurance.
Tax Filing Requirements
Even if you live abroad and qualify as a non-resident, you may still need to file certain tax returns, especially if you receive Canadian-sourced income (for example, rental income from Canadian property).
Weighing the Trade-offs
If you are in a high tax bracket, meaning making over $100,000 CAD, you are looking at around a 40 to 45% tax rate depending on your province of residence. This can be a significant motivation for rescinding your Canadian residency.
Remember, you can still remain a Canadian citizen with a Canadian passport while being also a non-resident, unlike the US.
The other downside is the loss of any Canadian benefits. Some receive GST/HST tax credits, disability tax credit, medical benefits, carbon tax credits, and so on. You would no longer be entitled to any of these as a non-resident. You may apply for residency in another country that can curtail the loss of these benefits in other ways.
It's important to weigh all the information with a tax professional.
General Considerations
Canada has tax treaties with various countries to help avoid dual taxation, but understanding which taxes apply and where to report income can be complex, especially if you're constantly on the move.
As a digital nomad, you'll need to secure international health insurance since domestic health plans generally don't cover extended periods abroad.
Contributing to or managing retirement plans (like RRSPs in Canada) may require additional planning when living abroad. Remember, you can no longer contribute to registered investments (RRSP, RESP, TFSA, etc) as a non-resident of Canada. Failure to do so will bring punitive penalties.
You may also want to choose a tax-friendly base for your nomadic life. Countries like Portugal (NHR program), Costa Rica, and Panama offer favorable tax regimes for expats. These countries have tax residency programs that can allow you to keep more of your income while enjoying a good standa