Understanding Taxes for Canadian Expats in Spain
Navigating the world of cross-border taxes is one of the most significant challenges when moving abroad. This guide is designed to provide a clear overview of the key concepts you must understand as a Canadian living in Spain, from your initial obligations in Canada to your annual responsibilities in Spain.
Taxes for Canadian Expats: The Core Concept
Becoming a Tax Resident of Spain
Generally, you are considered a tax resident in Spain if you spend more than 183 days in the country during a calendar year, or if Spain is your primary center of economic or vital interests. As a Spanish tax resident, you are taxed on your worldwide income.
Ceasing to be a Tax Resident of Canada
To become a non-resident for tax purposes in Canada, you must sever significant residential ties. This includes factors like selling your primary home, moving your family, and closing bank accounts. It’s a determination based on facts, not just on leaving the country.
Canada's "Exit Tax": The Deemed Disposition
When you cease to be a tax resident of Canada, the Canada Revenue Agency (CRA) considers you to have sold most of your assets at their fair market value and immediately reacquired them. This is called a “Deemed Disposition.” You must report any resulting capital gains on your final Canadian tax return. It’s crucial to understand that certain assets, like Canadian real estate and registered accounts (RRSPs), are exempt from this rule.
How Your Canadian Assets are Taxed While Living in Spain
The Canada-Spain Tax Treaty: Avoiding Double Taxation
The primary purpose of the tax treaty between Canada and Spain is to prevent you from being taxed on the same income by both countries. It establishes rules to determine which country has the primary right to tax different types of income. In cases where both countries tax the same income, you can generally claim a foreign tax credit in one country for the taxes you’ve paid in the other.
Navigating Taxes Requires Expert Guidance
Cross-border tax is one area where professional advice is non-negotiable. The cost of a mistake can be significant. Our trusted partner specializes in tax planning for Canadian expats in Spain, ensuring you are fully compliant and financially optimized.
FAQ
Do I still have to file a tax return in Canada?
In the year you move, you will need to file a final tax return in Canada as a part-year resident. In subsequent years, you generally only need to file a Canadian return if you have Canadian-sourced income, such as rental income or certain pensions. It’s always best to consult a tax professional.
What is "Beckham's Law" and can I use it?
Beckham’s Law is a special tax regime in Spain that allows certain foreign workers moving to Spain to be taxed as non-residents (at a lower, flat rate on their Spanish income) for their first six years. It is not for everyone and has strict requirements, usually tied to a Spanish employment contract.
How is my Canadian rental property income taxed?
Under the tax treaty, rental income from a property in Canada is primarily taxed by Canada. You will need to file a non-resident tax return in Canada for this income. You must also report this income in Spain, but you can typically claim a foreign tax credit for the taxes you’ve already paid in Canada.
Do I have to declare my foreign assets to Spain?
Yes. If you are a tax resident in Spain and have foreign assets (such as bank accounts, investments, or property) valued at more than €50,000, you are required to file an annual informational declaration called the “Modelo 720”. The penalties for non-compliance are very high.
What happens if I receive an inheritance from Canada while living in Spain?
Spain has an inheritance and gift tax that applies to residents. If you receive an inheritance, even if it originates from Canada, you will very likely have to pay this tax in Spain. The rules and rates vary significantly depending on the autonomous community where you live.
