Canada is scrambling to grow its tax base via immigration but it has encountered a tiny problem—a lot of immigrants stopped paying. Statistics Canada (Stat Can) data shows a large share of immigrants that arrived in 2019 stopped filing taxes shortly after. Looking at the historical data, it’s not a new trend—but the drop off is accelerating. This begs the question, did these immigrants leave and fail to notify the government of their departure?
Canada Saw A Large Share of Recent Immigrants Stop Filing Taxes
Canada has seen a sharp drop off in the rate of recent immigrants filing taxes. The share of immigrants to arrive in 2019 and file taxes for that year was a robust 91%, according to the national “retention rate” of taxfilers. For the 2021 tax year, filed in 2022 usually, the rate fell down to just 85.5% for that same cohort of immigrants. Shedding 5.5 points over just 3 tax years seems unusually fast, but how does it compare to historical data?
A similar rate is observed with 2017 arrivals. About 91% of immigrants admitted that year also filed, but it drops down to 87.5% in 2019. A sharp drop, but it takes until 2021 to drop down to a similar rate (85.1%) as the above cohort. The rate fell marginally below the 2019 arrivals, but it took 5 years instead of 3 years, meaning the trend accelerated.
Canada’s Retention Rate Isn’t Just A Pandemic-Related Issue
Looking at just those two groups, it’s easy to dismiss it as a pandemic-related issue. Let’s go further back—jumping to those admitted in 2011. The share of this cohort that filed in the year of admission was 92.7%, with retention falling to 88.3% by the third filing year. By 2017, six filing years later, the rate fell down to 85.7%—around the same level of the previous two cohorts. It took a little longer, but ultimately ended in the same place. No pandemic during this period, but cities where immigrants typically land (Toronto and Vancouver) did see an explosion in frothy shelter costs.
Canada Used To See Much Higher Taxfiler Retention
Readily available data was only available until 2007, but it shows the past few years are exceptional. The rate was 94% for those who filed in that initial year of arrival. By 2010, three filing years later, it was still at 90.5%—right around where the latest cohort started. The data only followed these cohorts for 10 years, but the rate remained at 86.1% by 2017. After a decade, the rate remained significantly higher than the 2019 cohort after just a third tax year.
Recent Immigrants No Longer Filing May No Longer Live In Canada
It’s clear the retention of taxfilers is falling at an accelerated rate, but understanding why isn’t. Historical trends demonstrate this isn’t a new issue, but one that pre-dates 2020. However, a trend that does align with this timeline is shelter costs.
We see a sharp and relatively fast drop at the same time as Canada’s immigrant hubs become bubbly. The decline accelerates as home prices across the country become similarly exuberant. It’s hard to believe that roughly 1 in 7 recent immigrants just had no taxfiler data from that point on. However, it’s easier to understand that’s the share leaving after arrival.
A survey of recent immigrants found an even higher share regret moving to the country due to shelter costs. It also found a large share of those respondents were considering moving back, or moving elsewhere.
The possibility Canada doesn’t understand who left is also extremely high. A person is believed to be a “factual” resident if they maintain residential connections to the country. To be considered a non-resident, one needs to notify the national tax agency if that changes.
Failing to notify a government of leaving can occur for a lot of reasons. It can be as simple as a person didn’t understand they were supposed to notify anyone of their departure. Some people get their residency then leave, considering it a security blanket against foreign governments. Some people leave and aren’t sure if they’ll come back, and don’t want to screw anything up.
It can also be more complicated, such as trying to avoid the departure tax. For those unaware, all assets (investments, jewelry, etc.) are considered sold and reacquired when a person permanently leaves, potentially resulting in capital gains owed. By not notifying the country of a departure, tax authorities likely believe the person is just not filing taxes.
In any case, the impact on housing demand is interest. If these people are in Canada and effectively live outside of the credit system, their ability to pump significant capital into the market is unlikely. Forget about a mortgage. As for a person that no longer lives in Canada, well… they don’t present much demand at all, do they?
Hi Stephen,
I enjoy your newsletter and posts on X. Thank you.
Have you considered that some of these immigrants are people whose temporary visa expired and they are working in the shadow economy? I teach international students at a private college and have seen a lot of this.
Carolyn