Navigating the Canadian Deemed Disposition Rules as an Australian Expat in Canada

Relocating to Canada can be one of the most rewarding experiences for Australians seeking new career, lifestyle, or family opportunities. However, along with the excitement of settling into a new country comes the need to understand how Canadian tax rules apply to you. One of the most important and often overlooked areas is the Canadian deemed disposition rules.

For an Australian Expat in Canada, the rules can have a major tax impact on your worldwide assets, such as share portfolios or property holdings in Australia. The rules apply both initially when you become a tax resident of Canada and when you eventually decide to leave. Understanding how they work and how to plan for them can save you a great deal of tax and administrative headaches later on.

Understanding Deemed Disposition

Under Canadian tax law, when you become a resident of Canada for tax purposes, the Canada Revenue Agency (CRA) considers you to have acquired all your worldwide assets at their fair market value on the date you became a resident. Then, when you leave Canada and become a non-resident, the CRA considers you to have disposed of those assets at their fair market value, even though you have not actually sold them. This notional event is known as a deemed disposition.

For an Australian Expat in Canada, while there are no initial tax consequences, this event can have significant tax implications should you eventually decide to leave Canada. The deemed disposition rules trigger a calculation of capital gains or losses on assets that you owned at the time you leave Canada. The CRA uses these figures to determine any taxable gains that must be reported, even if no actual sale has occurred.

Assets Affected by Deemed Disposition

The deemed disposition rules generally apply to most of your worldwide assets, such as shares, investment portfolios, and real estate held outside of Canada. For example, if you own Australian shares, rental properties, or managed funds, these may all be subject to the deemed disposition rules when you move to or from Canada.

However, some assets are excluded. The rules do not apply to Canadian real property, registered retirement plans such as RRSPs, certain types of employment-related pensions, or Tax-free Savings accounts (TFSA). Your Australian superannuation fund is often excluded from the rules, too. You can find an exhaustive list of the exempt assets here.

For an Australian Expat living in Canada, it is important to identify which of your assets may fall under the deemed disposition rules in order to avoid unexpected tax liabilities. For any assets that are not exempt, it is also essential to assess whether an exemption under the 60-month rule may be available based on your circumstances.

The 60-Month Rule

A unique feature of the deemed disposition rules is the 60-month exemption, which can be particularly relevant for an Australian Expat in Canada who intends to reside temporarily. If you become a resident of Canada for tax purposes, but plan to return to Australia within 60 months (5 years), you may be exempt from the deemed disposition rules on certain assets that you owned before arriving in Canada.

Under the rules, assets you owned when you last became a tax resident of Canada, such as Australian shares or real estate, may be exempt from deemed disposition if you emigrate from Canada within 60 months or less during the previous 10 years before you emigrated.

This can allow you to steer clear of Canadian taxation on the accrued gains of your Australian assets while you’ve been a tax resident in Canada, provided you depart within 60 months of your arrival. However, if your stay extends beyond that period, the deferred gains become taxable in Canada at the time of departure under the deemed disposition rules.

For an Australian Expat in Canada, this exemption may offer significant tax savings and flexibility, but it requires careful planning and record-keeping from the moment you arrive.

Reporting Foreign Assets – Form T1135

Another crucial requirement for any Australian Expat in Canada is the obligation to report specified foreign property to the CRA. If the total cost of your foreign assets exceeds CAD 100,000 at any time during the year, you must file Form T1135, the Foreign Income Verification Statement.

This includes foreign bank accounts, shares in non-Canadian companies, rental properties outside Canada, and certain trusts. The form is not used to calculate tax but to disclose your ownership of foreign property.

Failing to file Form T1135 can result in significant penalties. The CRA can impose a penalty of $25 per day, up to a maximum of $2,500 for a simple failure to file. If the failure is deliberate or involves gross negligence, penalties can increase to $500 per month, up to $12,000. Additional penalties and interest may apply if the omission leads to unreported income.

Why Professional Advice Matters

Navigating the deemed disposition rules and associated reporting requirements can be challenging, especially when managing cross-border tax obligations between Australia and Canada. The interaction between Canadian and Australian tax systems, the treatment of shares, real estate and superannuation, and the application of tax treaties all add layers of complexity.

A qualified Financial Adviser and Tax Accountant who understands both jurisdictions can help an Australian Expat in Canada plan effectively, avoid unnecessary tax exposure, and ensure full compliance with Canadian tax laws.

Conclusion

The Canadian deemed disposition rules can have a lasting impact on your wealth if you are an Australian Expat in Canada. Understanding which assets are affected, how the 60-month rule operates, and the importance of correctly filing Form T1135 are all essential steps in managing your financial life across borders. With careful planning and professional guidance, you can make the most of your time in Canada while keeping your tax affairs in order both at home and abroad.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the link below:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.