7 Big Tax Mistakes to Avoid When Moving from Canada to India

Moving from Canada to India involves complex tax implications that can cost you thousands if handled incorrectly. Here are the seven critical tax mistakes NRIs make during this transition—and proven strategies to avoid them.

1. Understanding Canadian Tax Residency

   Canada recognizes four types of tax residency:

   • Factual Resident: Primary ties to Canada (home, spouse/family, personal property)
   • Deemed Resident: Physically present in Canada for 183+ days in a tax year
   • Non-Resident: No significant ties to Canada, established residence elsewhere
   • Deemed Non-Resident: Factual resident but deemed non-resident under tax treaty

   It's vital to break residential ties systematically and document your departure to avoid continued worldwide tax obligations.

2. Properly Break Canadian Ties

   To avoid dual residency complications, systematically sever your Canadian connections:

   • Close or designate bank accounts as non-resident
   • Cancel health cards, driver's licenses, and club memberships
   • Sell or rent out your Canadian home

   Even after a permanent move, maintaining too many ties can result in CRA deeming you a factual resident.

3. Don't File Unnecessary Forms

   Many file NR73 (Determination of Residency Status) unnecessarily, potentially triggering CRA scrutiny. Only file if:

   • Your residency status is genuinely unclear
   • You need official confirmation for treaty benefits
   • You're maintaining significant Canadian ties
   • A tax advisor specifically recommends it for your situation

4. Plan for the Exit (Departure) Tax

   Canada imposes departure tax on deemed disposition of certain assets when you cease residency.

   Taxed: Stocks, bonds, mutual funds, stock options, certain life insurance policies Not taxed: Principal residence, personal-use property, business assets, RRSP/RRIF

   Key actions:

   • Get professional valuation for significant holdings
   • Consider posting security instead of immediate payment
   • Plan asset transfers to Canadian spouse if applicable

5. Use the Tax Treaty to Your Advantage

   The Canada-India tax treaty can significantly reduce your tax burden, but you must actively claim benefits:

   • Reduce withholding tax on pensions from 25% to 15%
   • Claim foreign tax credits to avoid double taxation
   • Use tie-breaker rules if deemed resident in both countries

   Requirements:

   • Obtain Tax Residency Certificate from Indian authorities
   • File appropriate forms with Canadian payers
   • Maintain detailed records of taxes paid in both countries

6. Don't Assume Your Canadian Accounts are Tax-Free Forever

   Canadian withholding taxes apply to most retirement account withdrawals as a non-resident:

   • RRSP/RRIF: 15% treaty rate (vs 25% standard)
   • LIF/LRIF: 15% treaty rate
   • CPP/OAS: Generally exempt under treaty

   Consider withdrawing smaller amounts periodically rather than lump sums to manage the tax impact and stay in lower tax brackets.

7. Secure Tax Residency in India

   Establish clear Indian tax residency to access treaty benefits and avoid dual residency issues:

   • Stay in India for 182+ days in the financial year
   • Maintain Indian bank accounts, address, and employment
   • Obtain PAN card and file Indian tax returns

   Complete your registration with local tax authorities promptly to ensure treaty protection and avoid complications.

Bonus: Smart Exit Timing

Optimize your exit:

• Leave Canada early in the tax year to minimize deemed resident days
• Time asset sales before departure to access principal residence exemption
• Coordinate with Indian arrival to establish clear residency transition

Summary

Successfully navigating the tax implications of moving from Canada to India requires careful planning, proper documentation, and often professional guidance. The key is understanding both countries' rules and using available treaties and exemptions to minimize your overall tax burden while ensuring full compliance in both jurisdictions.