JUNCTION INCOME TAX
EMIGRATION FROM CANADA:
New regulations affect emigration from Canada. These regulations state that any individual who ceases to be a resident of Canada after October 1, 1996 will be treated as having disposed of all Taxable Canadian Property (TCP) at Fair Market Value (FMV). This would apply if the total FMV is greater than $25,000; or where the total FMV for personal-use property in greater than $10,000.
The emigrant will have to report this "deemed disposition" on each property and determine any capital gain in prescribed form. The emigrant will either have to pay the tax immediately, or give Revenue Canada a security deposit until the property is actually sold.
This applies to all property except: real property situated in Canada; and capital property and inventory used in an active business. The gain on these properties will be reported by the non-resident when the real property is sol, or when the business property is no longer being used in the active business.
Taxable Canadian Property includes:
1. A share of the capital stock of a non-resident corporation,
2. An interest in a partnership, or
3. An interest in a non-resident trust.
Revenue Canada Taxation will become aware of a person’s emigration when they file their last tax return as a resident, indicating that they have left Canada.
A problem arises because tax will have to be paid before the asset is actually sold.
Another problem arises when the person moves to the United States, because the property does not get a step up in basis. The person will pay capital gains tax in the United States upon the ultimate sale and will not be allowed a foreign tax credit because the tax was paid previously to Canada. This could amount to double taxation and a combined level of 93% tax on any gain.