Tax Question:
Are there any consequences when a corporation leaves Canada and takes up residence in a new country?
Facts:
Generally, a corporation is a resident of Canada if its central management and control is exercised from Canada. When this stops occurring, the corporation is considered to be a non-resident of Canada, regardless if initially incorporated in Canada or not. This can result in taxes owing.
Discussion:
When a corporation is no longer a resident of Canada, it is considered to have a deemed tax year end and a deemed disposition of its property. A deemed tax year end means that the day the corporation stopped being a non-resident, its corporate tax year ended. For example, a company that had a December 31 year end and became a non- resident on September 15, would now have to file a tax return for January 1 to September 14.
The corporation would be considered (for tax purposes) to have disposed of all its property on the day it left Canada. The gain or loss on the disposition of property would be recognized in the tax return. This applies to all corporations that are no longer Canadian residents and not just to those that cease being Canadian corporations.
In addition to any taxes owed on the disposition of property and regular taxes calculated on the same basis as prior years, there is also a departure tax of 25%. The departure tax cannot be reduced by any tax treaty as the corporation was only considered a resident of Canada in the deemed year end. Generally speaking the tax is charged on a corporation’s surplus (i.e. the cumulative earnings since the inception of the corporation less the dividends paid out to shareholders to date).
As you can see, departing Canada can have a lot of different taxes and they can add up.
Angela Hardbattle, Dipl. T (Hons), CPA, CA, Manager
Manager, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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