Once a taxpayer (i.e., individual, corporation or trust) becomes a Canadian resident, then they are subject to tax on their worldwide income.
Individuals are entitled to a personal tax credit, which is based on his/her presence in Canada. Their basic personal tax credit amount will be prorated for the part of the year for their presence in Canada. Following tax credits are not prorated, such as:
- Dividend Tax Credits
- Medical Expenses Tax Credits
- Foreign Tax Credits
- Canada Pension Plan (CPP) Tax Credits
- Employment Insurance (EI) Tax Credits
An individual will become resident of Canada once they purchased or rented house to live in or when their immediate family members moved to Canada.
Federal personal tax credit for 2019 is $12,069 whereas for 2018 it is $11,635. Alberta personal tax credit for 2019 is $19,369 and for 2018 is $18,690.
Deemed Disposition and Reacquisition of Property one day before the acquisition of Canadian residency
When a taxpayer becomes a Canadian Resident it is deemed that the taxpayer has disposed of all property except Canadian taxable property immediately before acquiring Canadian residency and proceeds of disposition is equal to fair market value. The taxpayer reacquires each asset deemed to have been disposed of at fair market value at a cost equal to its proceeds of disposition. These deemed dispositions and reacquisition rules ensure that all the capital gains and losses are triggered on all the property except Canadian taxable property on disposition. After that, if there are any gains, then it will be subject to taxation in Canada.
Mr. A was formerly a resident of India for income tax purposes. Mr. A’s family moved to Canada on March 15, 2017. Mr. A owns a house worth of $500,000 which was acquired by Mr. A for $400,000. So, due to this disposition and reacquisition rules, it is deemed that the house of Mr. A is disposed of for $500,000 and reacquired for $500,000 on March 14, 2017. After that, any gains on the property over $500,000 (ACB, i.e., Adjusted Cost Base) will be subject to Canadian Taxation. Personal Tax Credits will be prorated for 320 days in 2017 tax return.