Moving from Canada to Dubai or the UAE: Canadian Tax

Does moving to Dubai end Canadian tax?

Moving to Dubai ends Canadian tax on your world income only when you also cut your residential ties with Canada. The CRA treats you as an emigrant once you leave to live elsewhere and sever those ties (CRA: Leaving Canada). Citizenship and a UAE residence visa do not decide it.

After you become a non-resident, Canada still taxes:

• the deemed sale of most of your property on the day you leave (departure tax);
• Canadian pensions, OAS, CPP, RRSP and RRIF payments and dividends, through non-resident withholding;
• some other Canadian income, such as rent from a Canadian property or work done in Canada.

What makes a UAE move harder than most: for most movers the treaty gives no tie-breaker (below), so Canada's view rests on your ties alone. If you stay a Canadian resident, Canada taxes your UAE salary, and the treaty's double-tax relief only offsets tax actually payable in the UAE on that income (treaty, Article 24), so if no UAE tax is payable, nothing offsets the Canadian tax.

Your case is not simple if your spouse, children or home stay in Canada, you keep a Canadian corporation or rental, you hold large unrealized gains, or you already left without filing a departure return. Each can leave Canada taxing your UAE salary or raise a bill that is hard to undo.

Gather before you go: your move date, your UAE lease and residence visa, what happens to your Canadian home, where your spouse and children will live, a list of what you own with its value on departure day, and every Canadian payer that will keep paying you (pensions, CPP, OAS, RRSP or RRIF, dividends, interest, rent).

Does Canada have a tax treaty with the UAE, and who counts as a UAE resident under it?

Yes. Canada has a tax convention with the UAE, but its residence rule covers few Canadian movers. Article 4(1)(b)(i) treats an individual as a UAE resident only if the person is a UAE national with a substantial presence, permanent home or habitual abode in the UAE, and personal and economic relations closer to the UAE than to any other country (Canada-UAE convention).

A Canadian, Indian, British or other expatriate who is not a UAE national is not a UAE resident under the treaty, however long they live in Dubai. A UAE tax residency certificate or residence visa does not change this. Two results follow:

• If both countries could call you resident, the treaty's tie-breaker (Article 4(3)) cannot assign you to the UAE.
• Canada's rule that ends your Canadian residence when a treaty assigns you elsewhere (Income Tax Act, s. 250(5)) cannot help you.

The CRA may also assume you are not a treaty resident of another country unless you show otherwise (Folio S5-F1-C1, ¶1.43). In plain terms: for a non-national, nothing in the treaty can end Canadian residence; only cutting your Canadian ties can.

If the treaty does not apply, what decides whether you stay a Canadian resident?

Only your ties to Canada decide it. Under the CRA's folio, you generally remain a factual resident unless you cut your significant residential ties when you leave (Folio S5-F1-C1, ¶1.10). Building strong ties in the UAE does not, on its own, end Canadian residence (¶1.21).

Separately, someone who is not a factual resident but stays in Canada 183 days or more in a calendar year is deemed resident for that year (s. 250(1)(a)). For the full test, see Canadian tax residency. For the exact date residency ends, see the date you become a non-resident.

Which ties most often keep a Dubai mover a Canadian resident?

Three ties do most of the damage: a Canadian home kept available, a spouse or children who stay behind, and frequent long trips back.

• A home kept for visits. A house or condo left empty or furnished for your use is generally a significant tie. Leasing it to an unrelated tenant on arm's-length terms may change that, depending on the facts (¶1.12). For the rental side, see non-resident landlords; for the keep-or-sell choice, see keep or sell your home when leaving Canada.
• Family staying behind. A spouse who stays to finish a school year or a job in Canada can keep you resident until they leave: the CRA generally uses the latest of your departure, your family's departure and the date you become resident elsewhere (CRA: Leaving Canada). See family stays in Canada while you work abroad.
• Frequent returns with other ties. Regular visits combined with a home, a car, provincial health coverage or a business kept in Canada add weight to staying resident.

If your ties are mixed, you can ask the CRA for a residency opinion.

What departure tax applies when you move to the UAE?

The ordinary Canadian departure tax applies, the same as for any destination: on the day you become a non-resident you are treated as selling most property at fair market value, with exceptions such as Canadian real property and registered plans (CRA: Dispositions of property). What is excluded, Form T1161, the final return and the T1244 deferral are covered in leaving Canada.

The treaty election is narrow. Paragraph 8 of the treaty's Protocol lets an individual taxed in Canada on a deemed sale elect to be treated in the UAE as having sold and bought back the property at fair market value (Protocol, para. 8). It sets a cost for UAE tax purposes and does not reduce Canadian departure tax. Its text does not name a residence or nationality condition, but because it only affects UAE tax, its value depends on UAE law; get advice before relying on it.

How much does Canada withhold on dividends, pensions, CPP and OAS paid to you in the UAE?

Usually 25%, the full Part XIII rate. The CRA applies that rate to taxable amounts paid to non-residents unless a treaty or the Act reduces it (CRA: Part XIII rates). For a non-national in the UAE, the treaty's reduced rates are not available, because they need UAE treaty residence.

Service Canada's country table has no UAE row, so UAE residents fall under "all other countries" at 25% on OAS, CPP and QPP (Service Canada: taxes on pensions abroad). A section 217 return can sometimes recover part of the tax withheld on pensions and RRSP or RRIF payments; see non-resident return for pension and RRSP income. Whether to cash out an RRSP first is covered in RRSP cash-out before or after leaving Canada, and other rates in non-resident tax rates in Canada. Interest from Canadian bank accounts and GICs follows its own rules; see Canadian bank and brokerage accounts after leaving.

Can you still get OAS and CPP in the UAE?

CPP keeps paying abroad; OAS keeps paying only if you reach 20 years after age 18, counting years in Canada alone or together with years lived and worked in a country that has a social security agreement with Canada. Canada has no such agreement with the UAE (Service Canada: agreements), so years in the UAE cannot be counted toward the 20.

• OAS: payments may stop if you are outside Canada for more than six months and do not meet the 20-year rule (Service Canada: while receiving OAS). Tell Service Canada before you leave.
• OAS Return of Income: the UAE is not on the CRA's list of countries whose residents are excused, so a UAE resident receiving OAS generally files one by April 30 each year, or the pension can be suspended. It reports your world income, and the OAS recovery tax, which no treaty limits here, can reduce or cancel OAS when that income is high (T4155).
• CPP: paid to you in the UAE with non-resident tax withheld.

What proof should you keep that you left Canada?

Keep records that show each significant tie was cut on a clear date. With no treaty to fall back on, your non-residence rests on these facts, and the CRA can ask you to show them (see CRA residency questionnaire).

• UAE lease or title deed and residence visa, with dates;
• sale closing papers for your Canadian home, or an arm's-length lease to an unrelated tenant at market rent;
• proof your spouse and children moved (school enrolment, their lease or visa);
• notices cancelling provincial health coverage, a Canadian driver's licence and memberships;
• a travel log of days spent in Canada each year;
• your final Canadian return with the departure date on page 1 (CRA: Leaving Canada).

Example

These examples are illustrative; all figures are in Canadian dollars.

Engineer moves to Dubai with his family

An engineer, not a UAE national, sells his Toronto condo and moves to Dubai with his spouse and children. His non-registered portfolio is worth C$200,000 on departure day, with a C$60,000 unrealized gain. He reports that gain on his final Canadian return as if he had sold the portfolio; half of it, C$30,000, is his taxable capital gain, and the tax on that is his departure tax. The treaty gives him no UAE residence, so his non-residence rests on the ties he cut. Later, C$4,000 of Canadian dividends are paid to him: the payer withholds the full 25%, C$1,000, because the treaty's 15% rate needs UAE treaty residence.

Consultant keeps her Calgary house

A consultant moves to Dubai on a C$300,000 salary that is not taxed in the UAE. She keeps her Calgary house empty for visits, and her spouse stays to finish the school year. With a home available and a spouse in Canada, she likely remains a factual resident of Canada for at least that period. If she is still resident, Canada taxes her full salary for that period, with no UAE tax to credit and, as a non-national, no tie-breaker to rely on.

Retiree with 15 years in Canada

A 66-year-old retiree who lived in Canada for 15 years after age 18, and never lived or worked in a country with a social security agreement with Canada, moves to Abu Dhabi. With fewer than 20 years, his OAS may stop once he has been away more than six months. His CPP of C$900 a month continues, with C$225 a month withheld at the full 25% rate.

Different for you?

• Your home, spouse or children stay in Canada: these are significant ties, so you may still be a Canadian resident; see family stays in Canada and get cross-border tax help before you file.
• You are a UAE national with ties in both countries: the Article 4(3) tie-breaker may apply; get a cross-border tax review.
• You own a Canadian corporation: see paying yourself from your corporation after moving abroad and cross-border tax help.
• You rent out your Canadian home or another property: see non-resident landlords for NR6 and the section 216 return, and get cross-border tax help.
• You will spend long stretches in Canada each year: frequent stays can keep you resident, and 183 days or more in a year makes you deemed resident; see Canadian tax residency and get cross-border tax help before you file.
• You receive the Canada child benefit or other benefits: see benefits after leaving Canada.
• You keep working for a Canadian employer: see working for a Canadian employer from abroad.
• You hold large unrealized gains: see leaving Canada for departure tax, T1161 and deferral.
• You already left and never filed a departure return: see non-resident Canadian return and catch-up and get cross-border tax help.
• You are moving somewhere else: see the other country pages, such as moving from Canada to Singapore or moving from Canada to the UK.