Moving from Canada to the UK: Tax and the Canada-UK Treaty

When does Canada stop taxing you after moving to the UK?

Canada stops taxing your world income on the day you become a non-resident: usually the latest of the day you leave, the day your spouse and children leave, and the day you become resident in the UK (CRA Folio S5-F1-C1, ¶1.22). If you lived in the UK before coming to Canada and are going back, the CRA generally treats you as non-resident from the day you leave Canada (¶1.23). After that, Canada taxes only Canadian-source income, mostly by withholding.

Three things decide most cases:

A case stops being simple when you keep a home or family in Canada, own a Canadian corporation, hold large RRSP and investment accounts, or keep working for a Canadian employer or clients from the UK. Each of these changes what you owe on departure or later.

Gather before you file: your move date and UK arrival date, the date you became a Canadian resident if you came from abroad, what happens to your home, the cost and departure-date value of each non-registered holding, your RRSP, RRIF and TFSA balances, and a list of every Canadian payer (pension, bank, broker).

For the exact date rules, see the date you become a non-resident of Canada.

What if Canada and the UK both treat you as resident?

The Canada-UK treaty's tie-breaker in Article 4(2) decides, and if it points to the UK, Canada treats you as a non-resident for all purposes of the Income Tax Act (Folio S5-F1-C1, ¶1.37–1.38). The tests run in order and stop at the first one that settles it (Canada-UK convention):

1. Permanent home available to you.
2. Centre of vital interests: where your personal and economic ties are closer.
3. Habitual abode: where you usually live.
4. Nationality.
5. Mutual agreement between the two tax authorities.

The burden is on you: the CRA expects you to show that you are liable to tax in the UK (Folio S5-F1-C1, ¶1.43). Keep proof of UK residence and your UK tax filings. To ask the CRA for its opinion first, see asking the CRA to decide your residency.

How does departure tax work on a move to the UK?

When you leave, Canada treats you as having sold most of your property at fair market value and bought it back at once, and taxes any gain on your final return (CRA). Canadian real estate, RRSPs, RRIFs, TFSAs, pension plans and a few other plans and interests are left out. Moving back to the UK after a short stay? Property you owned when you last became a resident, or inherited since, is also left out if, before leaving, you lived in Canada no more than 60 months in the preceding 120 months: see leaving Canada within five years of arriving.

Form T1161 (when what you own on departure, not counting cash and personal-use items under $10,000 each, is worth more than $25,000), deferring the tax with Form T1244, and the final return are covered in leaving Canada (CRA).

Does the UK tax the same gain again?

The 2003 protocol added Article 13(10) to stop that. When Canada taxes a deemed sale on your departure and you then become UK resident, the UK may tax only the part of a later gain that did not build up while you were a Canadian resident (2003 protocol). The rule does not cover property the UK could have taxed under the treaty even before you moved.

How the UK applies this on its own return is a UK question this page does not answer. Keep a record of each holding's value on your departure date: it is the starting point on both sides.

Are CPP and OAS taxed in Canada if you live in the UK?

No. Canada withholds 0% on OAS and on CPP or QPP pensions paid to UK residents (Service Canada). Under the treaty as amended in 2003, periodic pension payments, including social security payments, are taxable only in the country where you live.

CPP and QPP death benefits are different: Service Canada lists 25% for UK residents.

Living in the UK also generally spares you the yearly OAS Return of Income: the CRA lists the UK among the treaty countries whose residents do not have to file it (CRA guide T4155). That changes if you plan to move to a country not on that list.

Which RRSP and RRIF payments count as periodic?

Only payments that fit Canada's definition of a "periodic pension payment" get the treaty's UK-only rule; the rest keep the full 25% non-resident rate (Income Tax Conventions Interpretation Act, s. 5).

The RRIF yearly line is the greater of twice the year's minimum payment and 10% of the fund's value at the start of the year.

Can you move an RRSP to a UK pension? Not without Canadian tax: the money has to come out first, any RRSP payment before maturity is a lump sum under this rule, and Canada withholds the full 25% on the way out. Whether to cash out before or after the move is covered in RRSP cash-out before or after leaving Canada. A section 217 return may recover part of that withholding: see the non-resident return for pension and RRSP income. To lower withholding at source with Form NR5, see lower withholding on Canadian pensions abroad.

How much does Canada withhold on dividends and interest paid to you in the UK?

Canada withholds 15% on dividends from Canadian companies to a UK-resident individual under the treaty, instead of the 25% statutory rate (2003 protocol, Article 10).

Canadian law taxes interest paid to non-residents mainly when the payer does not deal with you at arm's length, or when the interest depends on profits (Income Tax Act, s. 212(1)(b)). The treaty's interest cap is in Article 11 of the convention.

Your bank or broker applies the treaty rate only after you give it your new address and residence, usually on Form NR301: see Canadian bank and brokerage accounts after leaving. Rent from Canadian property follows its own rules: see non-resident landlords.

Can Canada still tax your gains for six years after you leave?

The treaty lets it, but Canadian law uses that right only for certain property. Article 13(9) keeps Canada's right to tax gains on property you sell in the year you leave or within six years after you leave (2003 protocol). Canadian law taxes a non-resident's gains only on taxable Canadian property (Income Tax Act, s. 2(3)), such as Canadian real estate and some private-company shares.

Listed shares are taxable Canadian property only in narrow cases, for example when you and related persons owned 25% or more of a class and most of its value came from Canadian real estate. Selling your Canadian home after you leave is covered in selling your home after leaving Canada.

Do Canada-UK social security rules help you keep OAS in the UK?

Not for OAS eligibility. To keep receiving OAS while living outside Canada, you need at least 20 years of Canadian residence after age 18. With fewer, OAS stops six months after the end of the month you stop living in Canada, and restarts only if you move back (Old Age Security Act, s. 9; Service Canada). Most social security agreements can count years in the other country toward that, but the Canada-UK convention is a limited agreement dealing only with contributions and cannot help you qualify for Canadian benefits (Service Canada: United Kingdom). A separate arrangement lets UK residents use certain Canadian residence periods toward UK benefits, a UK question this page does not answer.

Example

All figures are illustrative and in Canadian dollars.

A couple moves to London and rents out their Ottawa house

They rent the house to an unrelated tenant at market rent and move with their children. The house is Canadian real estate, so departure tax leaves it out. Renting it is a separate change in use that counts as a sale at market value unless they elect under section 45(2) in their return for that year (Income Tax Act, s. 45): see selling your home after leaving Canada. Their brokerage account is worth C$250,000 with C$70,000 of growth, so the C$70,000 gain goes on their final returns, each reporting their share, with 50% of it included in income. Under Article 13(10), the UK may later tax only growth that did not build up while they lived in Canada. The rent is Canadian income and is handled under the non-resident landlord rules.

A retiree in Edinburgh draws CPP, OAS and an RRSP lump sum

She gets C$1,000 a month of CPP plus OAS. Service Canada withholds nothing, because both are taxable only in the UK. She then takes C$50,000 out of her RRSP in one payment. That is not a periodic pension payment, so Canada withholds 25%, or C$12,500. RRIF payments within the yearly line would instead be periodic pension payments, which the treaty leaves to the UK. Whether that route fits is covered in RRSP cash-out before or after leaving Canada.

A teacher sells Canadian shares four years after moving

Year 0: she leaves; her listed Canadian shares are deemed sold, and Canada taxes the growth to that date. Year 4: she sells the shares. Article 13(9) lets Canada tax the gain, because she left fewer than six years ago. Canadian law taxes it only if the shares are taxable Canadian property, which a small holding of listed shares usually is not. If they were shares of a private company holding mostly Canadian real estate, Canada would tax only the growth since she left, because the departure sale reset her cost to that day's value (Income Tax Act, s. 128.1(4)(c)). She would notify the CRA within 10 days after the sale, the buyer would hold back part of the price until a clearance certificate issues (s. 116), and she would file a Canadian return: see buyer held back your sale proceeds.

Different for you?

• You keep a home, a spouse or children in Canada: you may stay a Canadian resident, and the tie-breaker decides. See Canadian tax residency or book a cross-border tax review.
• You own a Canadian corporation: your shares count in departure tax, dividends paid to you abroad face non-resident withholding, and the corporation's own status can change. See non-resident owners of a Canadian corporation or book a cross-border tax review before you leave.
• You have large RRSP or RRIF balances: whether each payment is a lump sum or periodic, and whether it comes before or after you leave, sets the Canadian tax. See RRSP cash-out before or after leaving Canada or book a cross-border tax review to plan it.
• You keep working for a Canadian employer or clients from the UK: pay for work you physically do in the UK is generally taxable only in the UK under Article 15 of the convention, but days you work in Canada for a Canadian employer stay taxable in Canada, so Canadian payroll deductions and your travel days need reviewing before you go. Book a cross-border tax review.
• You need the departure forms and final return: see leaving Canada.
• You rent out your Canadian home: see non-resident landlords.
• You may move back: see returning to Canada after years abroad.
• You need the general non-resident rates: see non-resident tax rates in Canada.
• Years have passed with nothing filed, or the CRA has written to you: book a cross-border tax review before you reply.