Canada: Tea, Maple Syrup And Taxes

This article was first published in the STEP Journal.

Canada is one of the preferred locations for emigrating UK residents. Wealthy individuals will be persuaded by Canada's unique mix of European and American culture, proximity to the American market, and consistent placement at the top of international happiness and standard-of-living indices.

That said, the UK, with its tax system that remains favourable to non-domiciliaries, still holds great sway for wealthy Canadians. But tax is rarely the tail that wags the dog: wealthy families come to the UK because of its schools, its business opportunities and the City of London. Whether travelling east or west over the Atlantic, there will be tax implications in both the UK and Canada.


Residency Rules

The first issue facing a Canadian individual who is considering a move to the UK is how to ensure that they cease to be a resident of Canada. An individual is resident in Canada if they are 'ordinarily resident' in Canada, defined by the Supreme Court of Canada as meaning that Canada is 'the place where in the settled routine of his life he regularly, normally or customarily lives'.1 This is a factual test that the courts will determine on a case-by-case basis, but the Canada Revenue Agency will focus primarily on three 'significant residential ties': dwelling place or places that are available for occupation; spouse or common-law partner; and dependants. In most cases, these three ties will determine whether or not the individual is a resident of Canada.

There is also a statutory deeming test. If an individual sojourns2 in Canada for 183 days or more, the individual is deemed to be a resident of Canada. Should an individual find themselves to be a resident of Canada on either a factual or statutory basis, there is still an opportunity for that individual to escape the Canadian tax net if they are also found to be a resident of the UK, based on UK law. Should this occur, the individual's residency will be determined by the tiebreaker rules in article 4 of the Canada-United Kingdom Tax Convention. The tiebreaker rules function on the basis of a simple, descending order. If an individual is found to be a resident of both Canada and the UK, then their residence is determined as follows:

  • Permanent home: the individual shall be deemed to be a resident in the country in which they have a permanent home available for use.
  • Centre of vital interests: if no permanent home is available, then the individual shall be deemed to be a resident of the country with which their personal and economic relations are closer. This is known as the 'centre of vital interests' test and is similar to the 'ordinarily resident' test.
  • Habitual abode: if the centre of vital interests cannot be determined, then the individual shall be deemed to be a resident of the country in which they have a habitual abode. This test focuses on the frequency, duration and regularity of the stays in each country.
  • Citizenship: if the individual has a habitual abode in both or neither country, then they shall be deemed to be a resident of the country in which they are a citizen.
  • Mutual agreement: if the individual is a citizen of both or neither country, then the competent authorities of the two countries will settle the question by mutual agreement.

The Exit Tax

Once Canadian residency is terminated, the individual is subject to an exit tax. They are deemed to have disposed of all property for fair market value consideration, subject to the exceptions reviewed below, and then to have immediately reacquired the property. This deemed disposition causes the individual to realise any capital gains that have accrued while they were a resident of Canada.

There are five exceptions to the exit tax: situated Canadian property; Canadian business inventory; excluded rights or interests; the recent immigration exception; and the returning former resident exception. Excluded rights or interests include most pension plans,3 as well as beneficial interests in personal trusts, unless the property was transferred to the trust on a tax-deferred basis in anticipation of the taxpayer ceasing to reside in Canada.

Although the Canada-UK tax treaty will generally recognise the increase in cost base resulting from the exit tax, it may be wise to trigger the gain by virtue of a real disposition to ensure that the individual does not suffer from exit tax in Canada without receiving the advantage of a step-up in cost base in the UK.

Future Considerations

While most pension plans are exempt from withholding tax in the UK, other income paid from Canada to the UK will generally be subject to a withholding tax at a rate of 10 per cent. New UK residents should also be aware that the sale of 'taxable Canadian property', which includes Canadian real property and shares of corporations that derive 50 per cent or more of their value from Canadian real property, will trigger Canadian tax, even if the individual is no longer a Canadian resident. Planning is available to address this tax exposure.

UK Tax Considerations

The general rule is that the UK provides no step-up to individuals moving to the UK; disposals are subject to capital gains tax (CGT) on the whole period of ownership, irrespective of how much of that period the individual was resident abroad.

However, under article 13(10) of the Canada-United Kingdom Tax Convention, where an individual ceases to be a resident of Canada and is subject to the Canadian exit tax, and then becomes a resident of the UK, the UK may tax gains on the property only to the extent that such gains accrued after the individual became UK resident. This treaty provision affords useful protection against double taxation of the same gain.

Individuals are often best advised to make actual disposals (such as gifts or sales) of assets before arriving in the UK. As stated above, they will be caught by the Canadian exit tax in any event. Alternatively, the Canadian-domiciled4 high-net-worth individual may realise the disposal by transferring assets into trust. Not only is this sensible from a UK-Canada CGT point of view, but, if structured as an excluded property trust (EPT) for UK tax purposes, will provide useful UK tax benefits. Even following the April 2017 changes to the UK non-domiciliary regime, an EPT will continue to enjoy UK inheritance tax protection in perpetuity (provided the settlor was not born in the UK with a UK domicile of origin).


UK Considerations

There are no standard checklists or immediately obvious pitfalls when leaving the UK. For instance, there is no exit tax.

When leaving the UK, the tax risks are subtler. The key is for the advisor and the individual to survey the individual's financial background to search for potential pitfalls. For example, we recently cautioned a client against the risks of emigrating, as the client had previously claimed 'hold-over' relief to defer CGT liability on business assets. If a client claims hold-over relief to defer CGT on business assets, the gain kicks in if they emigrate within six tax years from the end of the year of the gift. Individuals also need to be aware that, if they leave the UK, but return within five tax years, any gains made outside the UK during the period of non-residence will become chargeable on return to the UK.

Canadian Considerations

Canada's tax policies are favourable to individuals moving to Canada. Primary among the advantages of newcomers to Canada is the 'arrival bump' – effectively the opposite of an exit tax. Canada deems individuals to have disposed of and reacquired all assets immediately before moving to Canada. As this occurs before the individual is a Canadian resident, this deemed disposition results in no tax liability to the individual, but increases the cost basis of the individual's assets to fair market value. Any gain that accrued on these assets before the individual became a Canadian resident will not be taxed in Canada.

However, there are pitfalls for income-generating assets that are left in the UK, as cross-border interest payments, dividends and most other payments will be subject to UK withholding tax. The Canada-United Kingdom Tax Convention will generally reduce this withholding tax rate to 10 per cent, but will not eliminate it.


Immigration, even between countries with such deep cultural, legal and economic ties as the UK and Canada, is fraught with potential tax liability, but proper planning can help emigrants enter their new homes with a minimal tax burden.

  1. Thomson v Minister of National Revenue [1946] CTC 51
  2. A temporary stay in the sense of establishing a temporary residence. Sojourning includes visits to Canada for business and vacations, but not merely passing through Canada
  3. Such as Registered Retirement Savings Plans, Registered Retirement Income Funds, Retirement Compensation Arrangements, the Canada Pension Plan and Old Age Security benefits
  4. Under UK tax law, the concept of "domicile" is separate from residency. As such, an individual can be resident in the UK but domiciled elsewhere (often the individual's place of birth). This presents certain tax advantages, as individuals resident in the UK but domiciled elsewhere may not be taxed on their worldwide income.

 This article was co-authored with James Brockhurst of Forsters

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
14 Sep 2017, Seminar, Birmingham, UK

Has Cloud replaced traditional outsourcing models? We will compare cloud to outsourcing, consider whether they have effectively become the same thing for many solutions and assess some of the advantages and disadvantages of each model.

18 Sep 2017, Seminar, London, UK

Our annual event as part of the London Design Festival is now in its fifth year. We would be delighted if you are able to join us again.

21 Sep 2017, Seminar, London, UK

Has Cloud replaced traditional outsourcing models? We will compare cloud to outsourcing, consider whether they have effectively become the same thing for many solutions and assess some of the advantages and disadvantages of each model.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.