Canada’s population is growing at one of the fastest paces ever, but you may have noticed it doesn’t quite feel that fast. Outside of discussions on how everyone wants to move to Canada, there’s quite a few signs the estimates are overstated. This is due to the data limitation Statistics Canada (Stat Can) can access for its estimates and projections. It turns out that Canada’s ability to track its population outflow has been limited, resulting in a “high probability” that 1 in 6 immigrants left within 20 years of arriving. It’s not a new trend either, but one that extends back for at least 40 years, accidentally compounding and overstating the country’s growth and economic outlook. Whoops!
Why Are 1 In 7 Immigrants To Canada No Longer Tax Filers Or Claiming Benefits?
About a year ago we trawled tax filer data sets and found recent immigrants stop filing taxes at an unusually high rate. About 91% of immigrants that arrived in 2017 filed taxes that year, but the cohort dropped off to just 85% by 2021. A similar issue is observed with people that arrived in 2019, going from 91% to 85% by 2021. The immediate standout is the acceleration. It’s occurring at a faster rate, but that’s not the only issue.
It’s easy to write it off as a pandemic trend. However, looking back to 2000 reveals it’s a much more broad issue. Over the whole timeline, roughly 1 in 7 immigrants dropped out of the tax filer database within a few years. The trend is accelerating, but the consistency over such a long period makes it hard to believe this rate of people just stops working and using services. Inquiring how Stat Can measures emigration (those who leave Canada), revealed this was an issue of methodology.
Canada Was Unable To Track Who Left Unless They Notified The Gov & Potentially Paid A Departure Tax
Canada has no clue who left the country unless the person outright declares it or they’re removed. Few, even those born in Canada, realize the government requires notice when severing your relationship with the country. Fewer realize they have to pay a Departure Tax.
The Departure Tax, also known as an exit tax, is a person’s final declaration and tax bill before the CRA says bon voyage! The assets a person takes with them is considered a deemed disposition. That’s accounting nerd for a paper sale, where the asset is considered sold at fair market value at the time of departure (even if it wasn’t sold).
Did your company transfer you to Canada, and now you’re being transferred back? Transferring that retirement portfolio out is considered a deemed disposition, triggering a capital gains bill as though you just cashed out. The CRA can hit the asset with a non-resident withholding order until the bill is settled.
Moved from Portugal 30 years ago and now plan to move back to enjoy your retirement in the sunshine? That gold chain you bought in the 90s because, well, it was the 90s? Hopefully you kept the receipt, because it’s a deemed disposition when it leaves the country and Canada wants its cut of the capital gains.
Yes, jewelry is one of the examples cited in the CRA Departure Tax guide. The other examples in the guide include (but aren’t limited to) investments, paintings, and any collections of value. Even if nothing is owed, a person isn’t assumed to have moved until they declare it and the issue is settled. Until then, the assumption is you’re just chilling somewhere quietly in the country, breakdancing on cardboard with your gold chain. Forgive me. I have no idea what young people do these days, and have a hard time believing anyone at the CRA would either.
It’s unclear how often the agency actually tries to collect but its been happening recently. A corporate accountant at one of the Big 3 recently told me an employee was transferred after nearly a decade in Canada, and moved before the sale of his primary residence closed. The CRA agent in charge of his file argued that because of that timeline, it was partially an investment property and not eligible for the principal residence exemption. Closing first can save you a bit of a headache.
High Probability That 1 In 6 Immigrants Left Canada From 1982-2017
About a week after my tax filer hypothesis, Stat Can took a stab at a better emigration model. They have the tricky task of doing this without a departure database that tracks how long people are gone. However, they did come up with an interesting methodology—tax filer data. What a novel concept.
The study argues that missing tax filer data doesn’t necessarily confirm a person has emigrated, but it’s a potential sign. Instead they drew from a much deeper database and assumed a high probability of a person leaving with the criteria that they:
- Are over 18 years old
- Haven’t died
- Filed at least one return
- Stopped filing for at least 3 years
- Assumed not a non-tax filing person
Setting a minimum age is an interesting factor. It’s not uncommon to skip filing taxes for children, so assuming a baby didn’t file because it’s off working in the Middle East doesn’t make sense. This skews the data towards more people. There’s more pros than cons to doing it this way, but it’s worth noting.
They crunched the numbers from 1982 to 2017 and found the “probability” of emigration was even higher. The odds of leaving was 1 in 20 (5.1%) within the first 5 years of arriving. However, it surges to 1 in 6 (17.5%) within 20 years of moving to Canada. “These results indicate that while emigration of immigrants is quite low annually, it becomes a relatively significant phenomenon over the long term,” wrote the agency.
Immigrants With Money & Talent Are Most Likely To Leave Canada
The same probability models show those with the most options are more likely to have already left. Immigrants from highly advanced economies had the highest emigration rate within 20 years. The countries that topped the list were the US (40% return), Taiwan (37.5%), France (34.7%), and Hong Kong (30.1%).
Particularly of note is the outflows in the countries that provide the bulk of Canada’s immigration. The probability is high that roughly 1 in 8 Indians (17.5%) who immigrated have emigrated. Over 1 in 5 people from China (21.9%) are also likely emigrants. These two countries also have the fastest growing middle classes in history. As developing countries turn into advanced economies, the value proposition Canada provides needs to evolve or the outflow is likely to accelerate while killing off the inflow migration.
Affluence and skill is also a major factor. The agency cites previous studies that found emigrants have higher levels of “human capital” such as incomes and advanced education. Those who arrived to work as doctors, health sector management, and information technology tend to be over-represented in Canada’s emigration probability models.
“Immigrants in economic categories are highly attracted to the economic opportunities available to them, not only in Canada but also in other countries,” wrote the authors.
Canada’s Population Grew, Just Not Nearly As Fast As Stated
None of this is to say that Canada’s population didn’t grow at a breakneck speed. The country’s policymakers made a very concentrated effort to grow the population, selling immigrants on a path to prosperity. They pitched it as a place where refugees could establish themselves. When that didn’t drum up enough business, policymakers bankrolled a massive campaign to comb rural India and sell kids that barely spoke English on the idea of upward mobility. All they had to do was attend one of the expensive, poorly regulated diploma mills that popped up a few months prior.
The population certainly did grow sharply, but those numbers have been significantly overstated. Expectations of growth, particularly when it comes to issues like housing and Government debt service costs, and economic projections are also likely overstated. Though as we say in capital markets, it’s not what you know that determines price—it’s what others believe.
That said, the data collection is set to improve. The country began an entry/exit program—it’s just taken a spectacularly long time to implement. It began with US land borders back in 2013 (!) and was supposed to be implemented in 2020 for all land travel, but experienced some hiccups. All air carriers were expected to have implemented their collection back in November 2022, and they expect to have a robust roll out in place by March 2025.
The exit data won’t tell us who’s left permanently for a few years, since it needs time for confirmation. However, the CRA has stated they plan to use it for enforcement of benefits. That will most likely extend to collecting Departure Taxes.
Coincidentally, the agency received stronger audit powers in the most recent budget, along with the increased capital gains rate that applies to Departure Taxes. Part of the reason we argue the new capital gains changes are less about targeting a tiny number of wealthy people, and focused on capturing the boom of retirement wealth. However, that’s an issue for another day.
This tracks. It was common in the late 80s it was common to move to Canada from Hong Kong to obtain citizenship as a safety before the transition to China. Then it became popular in the mid-2010s ahead of the full enforcement of Hong Kong becoming China (remember the protests that everyone was worried about right before 2020?)
Bloomberg: “Canada Is So Expensive That Some Ukrainian Immigrants Are Leaving”
Literally walking back into trying to dodge conscription instead of trying to pay Canada’s cost of living.
https://www.bloomberg.com/news/articles/2023-11-16/canada-is-so-expensive-that-some-ukrainian-immigrants-are-leaving
I hate to be THAT guy, but this is why Canadians against immigration don’t understand why Musk is anti-border immigration and pro-high skilled visas.
The US was building a team with the best academic performers in the world. Entrepreneurs had to generate signficant activity and make huge investments for a US visa.
In Canada, they wanted any student to study at any diploma mill as long as they could find a loan guarantee for $20k+, and pay 3x what domestic students did. I’m fully aware that many of these kids knew what they were doing, but they didn’t expect the government to not give them residency since the gov claimed they were needed for labor.
We have actually no idea how many really left, and it it utterly mystifying why we don’t have exit controls… Anecdotally I know many immigrants who returned back home after a few years here, all same story.. not great job opportunities far too expensive and too much tax ) ..so clearly large numbers have departed.
But how do we know they just stopped filing returns and just stayed here?. It’s too expensive for many to live here and pay tax, or just simply went into the underground cash only economy, which by now must be vast….
So tired of these poor me comments.You have entered another Country.And you plan not to follow the rules File your taxes why do you think that you are entitled .And you can break laws commit fraud Disrespect Canadians who have been honest and followed the rules
Heeey, this is exactly what I’ve been saying for literally years – Canada cannot continue to rely on immigration because their home countries are going to start enticing them to stay/go home. We have to figure out how to continue on with less immigration. The people at the century project are literally nuts if they think they’re going to reach anywhere near their goal, and especially by immigration like they seem to be advocating.
Isn’t this article sort of admitting that it’s the most productive immigrants who might emigrate out, the net taxpayers, and the least productive, possibly welfare recipients, who are less likely to leave?