Moving to a new country is a significant decision and one of the primary considerations is the tax system. The following is not an exhaustive list, but does provide a general overview of Canadian tax considerations for Americans considering a move north of the border.

Tax Rates

Canadian income tax rates are high relative to the U.S. Whether you want it or not, Canadian taxes provide a wider array of services including health care, education, community facilities, social safety net, etc.

• The top combined federal and provincial marginal tax rate for individuals is 53.5% for residents of Ontario and British Columbia at C$220,000 of taxable income (roughly US$167,200). Some provinces and territories have slightly higher or lower tax rates. 
• Capital gain tax rates are half of the tax rate for ordinary income. Unlike the U.S., preferential Canadian capital gain tax rates do not require a minimum holding period. 
• Stock Options are taxed at capital gain tax rates.
• Eligible dividends from Canadian corporations are taxed preferentially.

Joint Tax Returns

Unlike the U.S., Canada does not allow spouses to file joint personal tax returns. Where spouses earn different amounts of income, there is a tax incentive to “split income” between them to minimize the tax payable. A taxpayer earning C$400,000 would pay approximately C$35,000 more in tax than if they and their spouse each earned C$200,000 depending on the province in which they reside.

Tax-Free Gains

Canada doesn’t tax appreciated capital assets prior to residing in Canada. It also doesn’t tax gains from the sale of your principal residence and provides a lifetime capital gain exemption of C$883,384 for Canadian residents who sell shares of a qualifying small business corporation. Canada doesn’t tax lottery or gaming winnings.

Departure Tax

When you cease to be a resident of Canada, you will be subject to capital gains tax on the unrealized appreciation of your worldwide assets excluding pension plans, Canadian real property and registered accounts in Canada such as a Registered Retirement Savings Plan, Tax-Free Savings Account, etc. You can defer this tax interest-free by providing Canada Revenue Agency with security for the deferred tax until you dispose of the assets.  You may avoid departure tax on the assets you owned when you became a resident of Canada provided you depart Canada within 5 years of your arrival.

Estate Tax

Canada is generally an inexpensive place to die. Unlike the U.S., it doesn’t have an estate tax. It taxes unrealized appreciation at death at capital gain tax rates.  Canada’s tax at death can be deferred if the decedent’s assets are transferred to the surviving spouse.

VAT: GST (HST and QST)

GST (Goods and Services Tax) and HST (Harmonized Sales Tax) and QST (Quebec Sales Tax) are all value added taxes (VAT). With limited exceptions (groceries, medical expenses, rents, insurance, etc.) they apply to all goods and services in Canada. GST is the federal component at 5%. Certain provinces have adopted the GST and combine the provincial component to form the HST and QST at total rates that range from 5%, for Alberta and territories without a provincial component, to 15%. All sales are subject to VAT, but only the ultimate consumer doesn’t get a refund for the taxes paid. British Columbia, Saskatchewan and Manitoba charge the GST and their own provincial sales tax.

Corporations

Canadian corporate and personal income taxes are integrated.  Whether the shareholder/employee receives compensation or dividends, their total tax burden will be the same. Combined federal and provincial corporate income tax rates are approximately 25% to 27%, but Canadian-controlled private corporations (CCPC) are taxed as low as 9% to 14% on up to C$500,000 of taxable income.

Canada Pension Plan

Canada’s social security system is called the Canada Pension Plan (CPP). The maximum annual pensionable earnings for 2020 is C$58,700.  An employee with pensionable earnings equal to or greater than that amount would pay C$2,898 with an identical amount matched by his/her employer (self-employed individuals pay both the employee and employer portions).

Medical Services Plan

Medical services are provided through provincial medical plans. Some provinces (Manitoba, Ontario, Quebec and Newfoundland and Labrador) require health care premiums in the form of payroll taxes others fund it exclusively from general revenues.

Education

Canadian provinces and territories provide free education from kindergarten to grade 12. Its education system is ranked as third in the world behind Japan and Finland. Canada also has a uniformly strong universities, most of which are publicly funded, that rank in the top tier of universities worldwide. Canadian post-secondary education costs are moderate compared to the U.S.

Culture – Canada is formally bi-lingual (English and French) but is a highly diverse, cosmopolitan culture that features ethnic groups from around the world in addition to large First Nations and Métis populations. About half of the population of its largest cities (Toronto, Montreal, Vancouver, Calgary, Edmonton, Ottawa) are visible minorities.

Political System – Canada is a constitutional monarchy and a parliamentary democracy. As a constitutional monarchy, the head of state in Canada is the Governor General, the representative of the Queen in Canada (England).  As a parliamentary democracy, the head of government is the Prime Minister.