We will become Financially Independent in 2024 and travel the world. This also means that we will not be in Canada for part of the year. Now, it is time to think about the pros and cons of our decision.
Whether you’re considering a move to Canada or already living here, one critical aspect to understand is your residency status. In this blog post, we’ll delve into becoming a factual resident in Canada and discuss the pros and cons of this particular status.
This post is based on our understanding by reading CRA’s website. Do your homework and consult with a specialist.
What is a Factual Resident in Canada?
A factual resident is an individual who maintains residential ties with Canada but may not be physically present in the country for the entire tax year. Residential ties can include a home, a spouse or dependents in Canada, a Canadian driver’s license, or bank accounts. Factual residents are subject to Canadian tax laws on their worldwide income, just like regular residents.
The Pros of Being a Factual Resident in Canada
- Tax Benefits: Factual residents benefit from Canada’s progressive tax system and access to various tax credits and deductions.
- Healthcare: Factual residents, even temporarily residing outside Canada, can maintain their eligibility for Canada’s universal healthcare system.
- Social Programs: Eligibility for Canada Pension Plan (CPP) and Old Age Security (OAS) is preserved for factual residents.
- Investment Opportunities: Factual residents can take advantage of various Canadian investment opportunities, such as Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs).
- Banking and Financial Services: Having a Canadian bank account and maintaining financial ties can make managing your finances and assets easier.
The Cons of Being a Factual Resident in Canada
- Tax Obligations: Factual residents are required to report their worldwide income to the Canadian government, which can be a complex process.
- Residential Ties: Maintaining residential ties can be cumbersome, especially when living abroad, and may involve continuing costs like mortgage payments.
- Simplified Tax Treaty Benefits: Factual residents may miss out on certain benefits provided by tax treaties between Canada and other countries.
- Possible Double Taxation: Depending on your circumstances and the tax laws of your country of residence, you may face the possibility of double taxation on some types of income.
- Rigid Reporting: Factual residents must diligently report changes in their residential ties, income, and assets to the Canadian tax authorities.
Final considerations and your unique situation
Your decision to become a factual resident in Canada should be based on your specific circumstances and long-term goals. It’s crucial to consult with a tax professional or immigration expert who can guide you through the legal requirements and implications. Moreover, staying informed about any changes in Canadian tax laws is essential for successful financial planning.
By weighing these pros and cons against your personal situation, you can make an informed decision about your status as a factual resident in this welcoming and vibrant nation.
If you are a factual resident, what is your experience so far? Any tips?
For more information, check the CRA’s website.
