Taxation of Immigrants to Israel: A Canadian Perspective

For many Canadians, making Aliyah—immigrating to Israel—is a significant life decision rooted in cultural, religious, or personal reasons. However, it’s also a complex financial transition that requires a thorough understanding of both Canadian and Israeli tax laws. Tax residency, asset declaration, capital gains, and pension income all need to be carefully considered when planning such a move.  

  1. Tax Residency and Emigration from Canada

Canada taxes individuals based on residency status, not based on citizenship. A resident of Canada is taxed on their worldwide income, while non-residents are taxed only on certain types of Canadian-source income. When a Canadian decides to emigrate for income tax purposes, they must sever their residential ties to Canada—such as a home, drivers license, spouse or dependents in Canada, or Canadian health insurance coverage—to be considered a non-resident for tax purposes (Note: A full discussion on severing ties is beyond the scope of this article).  Upon departure, the Canada Revenue Agency (CRA) will deem the individual to have disposed of certain assets at fair market value, often triggering a “departure tax” on capital gains accrued to that point¹. 

However, emigrants often maintain financial or familial ties to Canada, making it harder to qualify as a non-resident. This can lead to dual tax residency issues that must be resolved through the Canada–Israel Income Tax Convention. 

  1. Taxation in Israel and the 10-Year Exemption

Israel taxes based on residency, which considers physical presence and center of life factors. New immigrants, or olim, benefit from generous tax incentives: they receive a 10-year exemption from Israeli taxes on most foreign-source income, including capital gains, dividends, and pension income². However, it’s important to note that these exemptions do not relieve the individual of reporting obligations. Misunderstanding or misusing these incentives can result in future scrutiny or penalties. 

  1. The Canada–Israel Tax Treaty

The Canada–Israel tax treaty exists to prevent double taxation and to define how income such as pensions, dividends, and employment earnings should be taxed. For example, Canadian pensions received by new residents of Israel may be taxed in Canada, but Israel may allow for a foreign tax credit on that income to avoid dual taxation. The treaty also helps resolve disputes where a taxpayer is considered a resident by both countries. Proper treaty election and documentation are essential to taking advantage of these benefits³. 

  1. Capital Gains, Real Estate, and Departure Tax

Canadian emigrants must pay attention to capital gains implications when relocating. The CRA’s departure tax applies to most assets that have appreciated in value. For real estate, while Canada may exempt a former principal residence from some or all capital gains taxation, Israeli authorities might tax the same property upon its eventual sale if it is not considered exempt under Israeli law. Strategic timing of the sale or formal valuation at the time of departure can help minimize exposure. 

  1. Pensions and Retirement Income

Retirees must consider how their pensions will be taxed after immigration. The tax treaty allows for Canadian pensions to be taxed in Canada, and potentially in Israel as well. Coordination between the two systems is necessary to apply for foreign tax credits or exemptions. Some pension income may be exempt from Israeli taxes under the 10-year new immigrant exemption, but proper classification is crucial to avoid misreporting. 

  1. Reporting Obligations

Even with exemptions, both countries impose strict reporting standards. Canadians must file a final return and inform the CRA of their departure, possibly completing form T1161 AND T1243 (List of Properties by an Emigrant). Israelis must report global income once the 10-year exemption ends and may be required to disclose foreign assets even earlier. Failing to report correctly in either country can result in penalties and interest. 

Aliyah brings with it emotional, spiritual, and logistical challenges—but taxation shouldn’t be left to chance. Canadians considering immigration to Israel should engage tax professionals who understand both jurisdictions. Proper planning before departure ensures a smooth transition and minimizes the risk of double taxation or non-compliance. 

References 

  1. Canada Revenue Agency. “Emigrants.” Government of Canada. https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html 
  2. Nefesh B’Nefesh. “General Tax Issues When Making Aliyah from Canada.” https://www.nbn.org.il/life-in-israel/finances/taxes/general-tax-issues-when-making-aliyah-from-canada/ 
  3. Government of Canada. “Canada–Israel Income Tax Convention.” https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/israel-convention-2016.html 

 

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