Moving Back to Canada? Your Guide to Tax Residency and Income Tax

After living and working abroad, moving back home to Canada can be exciting. You may have a new job, new digs, and the chance to reconnect with family and friends, but there's one more thing you can't forget: taxes.

Before you settle in, you'll want to confirm your tax residency status and find out how it could affect your income taxes this year. Canada's tax system is based on residency, not citizenship. That means as soon as you re-establish significant ties here, like signing an apartment lease or enrolling your kids in school, you're considered a Canadian tax resident again—and you're required to report your worldwide income to the Canada Revenue Agency (CRA).

There are benefits to becoming a Canadian tax resident, too, including the ability to claim any federal tax credits and deductions you're eligible for. Let's take a closer look at tax residency and income tax.

Tax residency: Understanding your status

Tax residency status is the foundation of your Canadian tax obligations. Here's how to assess your status after living abroad as a non-resident:

• Residential ties: You could become a resident again when you establish residential ties, such as leasing or buying a home; having a spouse, a common-law partner, or dependents in Canada; possessing property in Canada (such as furniture or a car); or having a Canadian driver's licence.
• Deemed residency: Even without strong residential ties, the CRA may consider you a deemed resident if you spend 183 days or more in Canada in a calendar year.

What are the tax implications of moving back to Canada?

Becoming a Canadian resident again affects several aspects of your finances, including:

1. Worldwide income: Worldwide income includes net income from employment, self-employment, rental properties, pensions, investments, or taxable capital gains from sources inside or outside of Canada. If you still have income coming from abroad, youll need to report it on your Canadian income tax return.

1. Relief from double taxation: If you paid income tax in another country, you may be eligible for foreign tax credits to prevent being taxed twice.
   
   
2. Your TFSA: While living abroad, you can't accumulate new contribution room in your Tax-Free Savings Account (TFSA). Any contributions you make as a non-resident face a penalty (a tax of 1% for each month they're in your account, plus another 1% per month if you overcontribute). If you make a withdrawal from a TFSA account you established before moving to another country, that contribution room won't be added back until the next calendar year during which you're a Canadian resident again. You may also have to pay tax on your TFSA income (such as interest and dividends) in your country of residence, depending on local tax rules. When you return to Canada, you can resume contributions based on your available room, and enjoy tax-free growth and withdrawals.

1. Your RRSP: Your Registered Retirement Savings Plan (RRSP) stays intact while you're abroad, but you can only make new contributions once you regain Canadian tax residency. If you withdraw funds as a non-resident, the amount is subject to a 25% withholding tax in Canada, and may be taxable in your country of residence as well. (The same rule applies to RRIFs and LIRAs.) Some countries have tax treaties with Canada that may reduce this rate. Once you return, withdrawals are taxed normally.

If you still own property or receive income from outside Canada, TurboTax can help guide you through foreign property reporting and non-resident tax filing requirements.

Foreign assets and tax filing in Canada

If you plan to maintain financial ties outside Canada including (but not limited to) a rental property, shares of the capital stock of a non-resident corporation, or cash in an overseas account, they are considered foreign assets that must be reported to the CRA.

The key form to know about is Form T1135 – Foreign Income Verification Statement. It's required if the total value of all your foreign property exceeds $100,000 CAD at any point in the year. If you pay taxes on your foreign income abroad, also fill out Form T2209 – Federal Foreign Tax Credits and enter the amount from line 12 on line 40500 of your tax return.

Do I need to report my NR4 on my tax return in Canada?

If you earned money from Canada while living in another country—including income such as interest, dividends, pensions, rental payments, or royalties—you likely received an NR4 slip from the payer or a withholding agent.

The NR4 shows how much you earned and how much non-resident tax was deducted before you were paid. When you move back to Canada, you need to include all Canadian-sourced non-resident income and all foreign-sourced non-resident income on your Canadian tax return for the year you returned.

Do I have to pay tax on my belongings when returning to Canada?

Most returning Canadians aren't required to pay tax on their personal items. The Canada Border Services Agency (CBSA) allows you to bring these items in duty-free and tax-free as long as you meet certain conditions such as:

• You've been living outside Canada for at least 12 months.
• You owned and used the goods before returning.
• You declare them properly upon entry.

That said, there are a number of exclusions and requirements to qualify for this tax exemption, so check the CBSA guidelines before shipping or declaring your belongings.

Income tax tips for returning Canadians

Here are some things you can do to make your first tax season back in Canada easier:

• Track everything: Record the exact date you moved back, your income sources, and any foreign assets or tax payments made abroad.
• Keep document copies: Save employment contracts, foreign tax returns, and income slips to help calculate foreign income tax credits later.
• Update financial accounts: Notify Canadian banks and investment firms you have accounts with of your return to prevent confusion around non-resident taxes.
• Plan for next year: If you intend to continue earning income abroad, ask about foreign tax credits or filing a non-resident income tax return for any transition income.
• Get expert help: Tax rules for returning Canadians can be complex. A cross-border tax expert or TurboTax tax specialist can help you navigate confidently.

Need help with tax filing?

Taxes don't have to be confusing. TurboTax has your back every step of the way. You can file your own taxes online, work with our tax experts, or hire us to handle everything from start to finish.

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