Leaving Canada with Lots of Disney Stock – Tax Issues?

Question

Hi Phil

I recently stumbled across your blog and I think you may be the right guy to answer my questions. I’ll be leaving Canada permanently to work in California (I’m also a US citizen) for a small start up venture. Other than a condo we own in Victoria (which we’ll be selling before leaving) I also own a significant amount of Disney stock that was purchased for me by my father when I was a child. If I were to sell the stock the capital gain would be well in excess of $500,000.

I’ve been reading up on the implications of leaving Canada and other than the Disney stock I think I’m ok. Do I have any other options for handling the capital gain in the Disney stock when I leave or will I need to pay the full amount of tax?

Thanks for your time

XXXXX

Answer

Hi XXXX

Thanks for the email and congrats on the new career opportunity. Unfortunately your options are fairly limited if you actually intend on becoming a non-resident of Canada. You can always continue to file as a Canadian resident while you live in California however you’ll end up paying a lot more tax on your current income and double tax with respect to the income sourced to California. This option is also not advisable as CRA will likely deem you to be a non-resident of Canada once you leave (or whenever they realize you’re gone) and your Disney stock will be “deemed to be disposed” and tax on the capital gain will be payable. There may be an argument that you are in fact not a non-resident of Canada, but based on the fact that you mentioned the move was “permanent” it’s unlikely this argument would be successful.

You also have the option of leaving Canada and reporting the capital gain without having to pay the full amount of tax owing immediately. Since you won’t necessarily be selling the Disney stock you can post security for the amount of tax owing, likely the Disney stock, if it’s your most significant asset.

That however would simply result in deferring the taxes owing not eliminating the tax. Also note that under the Canada-US tax treaty you’ll be able to elect on the disposition for US purposes as well in order to avoid paying tax on the eventual disposition of the stock in the US, or at least to the extent of the accrued gain currently.

Considering your dual citizenship it may be wise to give me a call to assess whether you’ll have any further tax requirement or consequences for the move down south. Please give me a call at 250-381-2400 and we can chat about your situation in more detail.

Regards

Phil