Expatriate tax ebook - Canada Raymond Chabot

What taxes?
Capital gains tax
Inheritance, estate and gift taxes
Investment income
Local taxes
Real estate taxes
Social security taxes
Stock options
Wealth taxes
Other specific taxes

Capital gains tax
Half of the net capital gains (“taxable capital gains”), on the disposition of capital property, are included in the calculation of taxable income.  Allowable capital losses (half of the net loss) can only be applied against capital gains and cannot be deducted against any other source of income in the current year.  The denied losses can be carried back three years and forward indefinitely to be applied against net capital gains arising in those years, if any.

For 2011, the maximum combine Federal/Quebec effective capital gain rate is 24.1%.

Capital gains arising from the disposition of an individual’s principal residence are not subject to capital tax.  A principal residence can be located outside Canada.  Families, however, can only designate one property by calendar year, as their principal residence.

Capital gains arising for the disposition of Canadian private controlled corporations (CPCC) can benefit from a maximum exclusion of $C750,000.

Inheritance, estate & gift taxes
There are no inheritance, estate and gift taxes in Canada.  However  a deemed disposition of all assets owned by the deceased, at fair market value, occurs at the time of death. Tax free rollovers are available.

Investment income
Dividends and interests are taxable when received. Compound interest securities are subject to accrual requirements, generally on an annual basis.  Dividends from taxable Canadian corporations are taxed at a reduce rate through a gross up and tax credit mechanism.

Income from a trust, royalties and similar income is taxed as received or allocated, depending on the circumstances.

Local taxes
The province of Quebec charges additional employee’s employer contributions.  The most common ones are for health care and worker’s compensation programs. The employee’s contributions are collected through payroll withholdings.

An additional health premium is also charged on some individuals when they file their Quebec Income Tax Return. 

Since 2010, a mandatory additional contribution to the Health Fund is required. The 2011 contribution amount is $100 per individual. All individuals are required to pay this contribution.

Real estate tax
There are no real estate taxes in Canada or in the province of Quebec

Social security taxes

Employment Insurance
Individuals employed in Canada and in Quebec are required to contribute to the Canada Employment Insurance Fund (EI). The maximum annual premium is $C579.60 based on a contribution rate of 1.38% on maximum insurable earnings of $C42,000. The employer is required to pay a premium equal to 1.4 times the employee contributions. The employer’s maximum annual premium is $C811.40. The employee premium is partially creditable against federal income tax. EI contributions are not eligible for exemption under a social security agreement.

Quebec Pension Plan (QPP)
Individuals employed in the province of Quebec are not subject to the Canada Pension Plan contribution,s but rather subject to the Quebec Pension Plan. The maximum annual contribution is $C2, 118.60 based on a contribution of 4, 95% on maximum contributory earnings of $C42,800 (maximum pensionable earnings of $C46,300 less the basic exemption amount of $C3,500). The employer is required to match the contribution. The employee contribution is partially credited against federal income taxes. An expatriate may qualify for exemption of QPP if he is subject to a social security tax in the home country with which Quebec has a social security agreement.

Quebec Parental Insurance Plan (QPIP)
Individual employed in Quebec are required to contribute to the Quebec Parental Insurance Plan (QPIP). The maximum annual premium is $C300.08 based on a contribution rate of 0,484% on maximum insurable earnings of $C62,000. The employer is required to pay a premium equal to 0,677% on the same amount of insurable earnings. The employer’s maximum annual premium is $C419.74. The employee premium is partially creditable against federal income tax.

Stock Options
Canada taxes stock options in two possible ways depending on whether the employer is a Canadian controlled private corporation (CCPC) or not.  In general, stock option benefits from a non-CCPC are taxable when the option is exercised.  There are no exceptions for foreign plans or options granted prior to becoming a resident.

Options granted while resident but exercised after emigration will continue to be taxable in Canada and Quebec.  The benefit is equal to the difference between the fair market value of the stock, on the date of exercise, and the option exercise price.  A deduction for half of the benefit is permitted, in the federal return, in calculating the taxable income if the option meets certain criteria.  The deduction is limited to 25% of the benefit for Quebec’s tax purposes.

The taxable event for CCPC options may be deferred until the shares are sold.  Non CCPC options, exercised after February 27, 2000, may also qualify for deferral of the taxable event until the shares are sold.  The amount eligible for deferral is limited to an annual vesting amount of $C100,000.

Wealth tax
There are no wealth taxes in Canada or in the province of Quebec.

Other specific taxes
When individuals leave Canada, they are deemed to have disposed of all their capital property, with limited exceptions, at fair market value. Half of the resultant gain, if any, will be brought into taxable income. Canadian real property, assets used in a business, certain pensions and stock options are excluded from the departure rules, as they remain subject to Canadian tax upon disposition. The departure tax can be deferred by posting adequate security acceptable by the Canada Revenue Agency and Revenue Quebec. Security is not required on the first $C100,000 of capital gains. The deferred tax is due when the assets are sold.

The province of Quebec applies the same rules as the federal ones.

Information about Canada-RC:

• introduction
• facts and figures
• basis of taxation
• what taxes?
• tax planning opportunities