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Own a Company? Leaving Canada? Beware


If you own shares of a private company, and you’re thinking of leaving Canada, there’s a new trap you need to be aware of.

When you leave Canada, you are deemed to have disposed of most types of capital property at fair market value. The accrued, but unrealized gain is subject to tax. The top tax rate in most provinces is getting close to 25%.

After you leave, you may want to continue the company’s operations, or not. But you will eventually have to get your money out of the corporation.

When you take the money out, it will normally come as dividends. Dividends to a non-resident of Canada are subject to Canadian withholding tax at 25% (there are lower rates if you move to a treaty country).

But the bottom line is that there are two taxes on essentially the same value – essentially $50 of tax.

Evisceration of the special credit

To avoid this problem, a credit was established so that the dividend withholding tax could be applied against the tax on the deemed disposition.

However, this credit applies only where the shares are Taxable Canadian Property (“TCP”). Until 2010, private company shares were usually TCP, but they changed the definition so that most no longer qualify.

The solution? Planning

To limit your exposure to double taxation, it’s important to do your planning before you move, not after.