Moving From Canada to South Korea: The Canada–Korea Tax Treaty

Moving to Korea from Canada: what tax applies?

Canada taxes you as a resident until you leave to settle in Korea and cut your main ties; from then on, Canada taxes only Canadian-source income, within the limits of the Canada–Korea tax treaty signed in 2006. On the way out, Canada treats most of your property as sold (CRA).

A case is not simple when both countries could call you resident, you own 25% or more of a Canadian company, you keep and rent a Canadian home, you keep running a Canadian company from Korea, or you keep working for a Canadian employer. Gather your move date, a list of what you own with values on that date, your Korean lease or home purchase, your Korean visa or registration, and every Canadian income slip. Korean tax law itself (when Korea treats you as resident, its rates and returns) is outside this page.

When do I stop being a Canadian tax resident after moving to Korea?

You usually become a non-resident on the day you leave to settle in Korea, if you do not keep your main residential ties, such as a home, a spouse or dependants in Canada (CRA). For how ties are weighed, see Canadian tax residency; for the exact day, see the date you become a non-resident.

If you keep ties to Canada and Korea also treats you as resident, Article 4(2) of the treaty breaks the tie in this order:

1. Permanent home: you are resident only where you have a permanent home available.
2. Centre of vital interests: if you have a permanent home in both, the country where your personal and economic relations are closer.
3. Habitual abode: if that cannot be decided, or you have a permanent home in neither, where you usually live.
4. Nationality: if still undecided, the country whose national you are.
5. The two tax authorities: if you are a national of both or neither, they settle it by mutual agreement.

When the treaty makes you resident only in Korea, section 250(5) of the Income Tax Act deems you not resident in Canada, even with ties left behind. The tie-breaker turns on facts, so keeping a Canadian home available is the usual trap. To get the CRA's view, see asking the CRA to decide your residency.

What do I owe Canada in the year I leave for Korea?

Canada treats you as selling most of your property at fair market value on the day you leave and taxes the gain on your final resident return. Canadian real estate and registered plans such as RRSPs and RRIFs are excluded, because Canada can still tax them later (s. 128.1). If you were resident in Canada for no more than 60 months in the preceding 120 months, property you owned when you arrived, or inherited since, is also excluded. If what you own is worth more than $25,000, you also list it on Form T1161. You can elect to defer paying the tax; if the federal tax deferred is more than $16,500, you must give the CRA security. For the forms, deadlines and the return, see leaving Canada; for cashing out an RRSP before or after the move, see RRSP cash-out timing.

Can Canada still tax my gains after I live in Korea?

Yes, for some property, but only where Canadian law reaches the gain and the treaty leaves Canada the right. Canada's law reaches a non-resident's gain on taxable Canadian property: Canadian real estate, and unlisted shares that took more than 50% of their value from Canadian real estate or resources at any time in the 60 months before the sale (s. 248(1)).

Article 13(5) is the trap for owners of a Canadian private company: the treaty keeps Canada's right, but Canada uses it only if the shares are taxable Canadian property. Either way, the shares are treated as sold when you leave, so the departure return taxes the gain up to the move; a later sale adds Canadian tax only on growth after departure, and only for taxable Canadian property. See departure tax on private company shares.

Does Korea tax the gain Canada already taxed when I left?

Generally no. Under Article 13(8), when Canada taxed a deemed sale on your departure, Korea may tax only the gain that builds up after you stopped being a Canadian resident. This applies only to property Canada taxed because you left, and not to property Korea could have taxed anyway had you sold it before moving. Keep the values from your departure return; they are your record of the starting point. How Korea computes the later gain is a Korean-law question.

How much does Canada withhold on my Canadian dividends and interest while I live in Korea?

Canada withholds at most 15% on dividends you receive as an individual, instead of the domestic 25%. The 5% rate applies only to a company controlling 25% of the voting power, not to an individual (Article 10).

Most interest from an arm's-length payer, such as a bank, carries no Canadian withholding at all; withholding applies to participating debt interest and interest from non-arm's-length payers (IC76-12R8). Where Canada does tax interest, Article 11 caps it at 10%. To claim the treaty rate, give your payer proof of Korean residence; see Canadian bank and brokerage accounts after leaving. Rates under other treaties are in non-resident tax rates in Canada.

What does Canada take from my RRIF, pension, annuity, CPP and OAS?

Under Article 18(2), Canada's tax on a periodic pension paid to you in Korea cannot exceed the lesser of 15% of the gross payment and the rate you would pay on those payments if you still lived in Canada. Korea may also tax the pension and credits Canada's tax (see below).

RRIF payments above a set yearly limit stop counting as periodic; see converting an RRSP to a RRIF as a non-resident. The withholding on CPP and OAS paid to Korea is set by Canadian law; check the CRA's Part XIII calculator, which IC76-12R8 points to for pension rates. A section 217 return can lower the tax on these payments, and an OAS Return of Income may be due (T4058); see the non-resident return for pension and RRSP income. To have less withheld at source, see lower withholding on Canadian pensions abroad.

I keep my Canadian home and rent it out: what does Canada tax?

Canada taxes the rent: by default the tenant or agent withholds 25% of the gross rent, or you can elect to file a section 216 return and pay tax on net rent (T4058). A later gain on the home stays taxable in Canada under Article 13(1). When you sell, the buyer must hold back 25% of the price (50% on a rented building) and remit it to the CRA unless you get a section 116 certificate first, and the buyer is liable if it does not (s. 116); see the buyer held back your sale proceeds. See non-resident landlords and selling your home after leaving Canada.

I keep working for my Canadian employer from Korea: which country taxes the pay?

Once you are no longer a Canadian resident, Canada taxes only pay for work done in Canada; the treaty leaves pay for work done in Korea to Korea (Article 15(1)). Canadian law taxes a non-resident's employment income only for duties performed in Canada (s. 115). Days you work in Canada can be taxed in Canada, unless Article 15(2) applies: you are in Canada no more than 183 days in any twelve-month period starting or ending in the calendar year, the pay is not from a Canadian-resident employer, and no Canadian base bears it. Paid by a Canadian employer, work days in Canada are usually taxable there. Employer payroll, source deductions and whether the arrangement creates a business presence in Korea are covered in working for a Canadian employer from abroad.

How is double tax avoided between Canada and Korea?

Korea gives you a credit for Canadian tax on income the treaty lets Canada tax, such as a capped pension or a Canadian rental profit (Article 22). The credit cannot exceed the Korean tax on that income. Keep every NR4 slip and Canadian assessment to prove what Canada took. For income the treaty gives only to Korea, Canada should not tax it; if it was withheld anyway, you can ask the CRA for a refund.

What do I file in Canada each year after the move?

Often nothing, if Canada's withholding on your income is final and you sell no taxable Canadian property (T4058).

See do you file every year after leaving Canada. If returns were missed, see non-resident Canadian returns and catch-up.

Example

All figures are in Canadian dollars and illustrative.

An engineer leaves Toronto for Seoul

An engineer leaves Toronto in August with a C$200,000 non-registered ETF account holding a C$60,000 accrued gain. The C$60,000 is a capital gain on the departure return; 50% of it, C$30,000, is added to taxable income. Under Article 13(8), Korea may tax only growth after August; how Korea records the starting value is a Korean-law question. The engineer keeps the departure return and the Form T1161 values as the record of what Canada already taxed.

A retiree in Busan

A retiree living in Busan draws C$30,000 a year from a RRIF, within the yearly limit for periodic payments. Canada's tax is capped by Article 18(2) at the lesser of 15% and the rate a Canadian resident would pay on C$30,000. In a later year the retiree also takes C$100,000 in one withdrawal from an RRSP; that lump sum is outside the cap and faces Canada's 25% non-resident rate unless a section 217 return lowers it.

An owner of 30% of a Canadian company

Three years after moving to Korea, an owner sells 30% of a Canadian private company. Article 13(5) leaves Canada the right to tax the gain, because the holding is above 25%; Article 13(7) does not apply, since Canada already treated the shares as sold when the owner left. The departure return already taxed the gain up to the move. Canada can tax growth after the move only if the shares are taxable Canadian property, which turns on how much of their value came from Canadian real estate or resources in the 60 months before the sale.

Different for you?

• Both Canada and Korea could treat you as resident: the Article 4 tie-breaker decides; review your home and ties with cross-border tax help and see asking the CRA to decide your residency.
• You own shares of your own Canadian company: the departure tax and Article 13(5) both apply; see departure tax on private company shares and get cross-border tax help.
• You keep and rent your Canadian home: see non-resident landlords, and get cross-border tax help for the section 216 return.
• Your pension or RRSP withholding is too high: see the non-resident return for pension and RRSP income and get cross-border tax help with the section 217 return.
• You keep running your Canadian corporation from Korea: Korea could also claim the company as resident; see corporation residency after the owner moves abroad and paying yourself from your corporation after moving abroad, and get cross-border tax help.
• You keep working for your Canadian employer from Korea: see working for a Canadian employer from abroad and get cross-border tax help if you still work some days in Canada.
• You missed your departure return or later returns: see non-resident Canadian returns and catch-up and get cross-border tax help.