Canada's departure tax is one of the most significant — and often overlooked — tax consequences of leaving Canada to become a non-resident. When you emigrate, the Income Tax Act (ITA) treats you as though you sold all of your property at fair market value on the day you became a non-resident. This triggered "deemed disposition" can result in a large tax bill even though you have not actually sold anything.
Subsection 128.1(4) of the Income Tax Act provides that when a person ceases to be a Canadian tax resident, they are deemed to have disposed of each property they hold (with specific exceptions) for proceeds equal to the fair market value (FMV) of that property at the time of departure. Simultaneously, they are deemed to have immediately reacquired each property at that same FMV — establishing a new adjusted cost base (ACB) in the new country.
The result: any capital gains that accrued while you were a Canadian resident are taxable in Canada, even though no actual sale occurred.
| Asset Type | Departure Tax? | Notes |
|---|---|---|
| Stocks, ETFs, mutual funds | Yes | Gain = FMV minus ACB at departure |
| Foreign real estate | Yes | FMV minus original cost |
| Private company shares | Yes | Valuation required — can be complex |
| Cryptocurrency | Yes | Treated as capital property |
| Life insurance policies (cash value) | Yes (sometimes) | Depends on policy type |
| Canadian real estate | No | Remains taxable Canadian property |
| RRSP / RRIF | No | Exempt; 25% withholding on withdrawals as non-resident |
| TFSA | No deemed disposition | But contributions as non-resident = 1%/month penalty |
| CPP / OAS entitlements | No | Pensions, not property |
| Principal residence | No (if eligible) | Principal residence exemption may apply for the years it qualifies |
The departure tax can be deferred for certain assets if the taxpayer posts security with the CRA. The CRA must accept the security (typically a letter of credit or other acceptable form). Deferral means you can delay paying the departure tax until you actually sell the asset, rather than at the time of departure. This is helpful when assets are illiquid (such as private company shares where no sale has occurred).
Your departure year T1 tax return includes:
The return is due April 30 of the year following departure (or June 15 if you were self-employed). You file a single T1 for the partial year of residency.
If you leave Canada and are deemed to have disposed of assets on departure, then return to Canada and re-establish Canadian residency, you are deemed to have reacquired those assets at the FMV established on departure. This prevents you from being taxed twice on the same gains that accrued during your non-residency period.
US citizens (dual citizens) face unique complexity: they are subject to both Canadian departure tax on deemed dispositions AND continue to be taxed by the US on worldwide income regardless of where they live. US citizens leaving Canada should consult specialists in both Canadian and US international tax law — the interaction is complex, and some assets may trigger tax in both jurisdictions.
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