Leaving Canada: Tax Consequences of Becoming a Non-Resident 2025

Leaving Canada permanently — or even semi-permanently — triggers significant tax consequences that many people are surprised by. When the CRA determines that you have become a non-resident of Canada, it treats your departure as a deemed sale of most of your worldwide assets. Understanding this before you leave is essential for planning.

When Does Someone Become a Canadian Non-Resident?

You become a Canadian non-resident when you sever your significant ties to Canada. There is no fixed date or specific form — the CRA determines your residency status based on facts. Generally, you become a non-resident on the latest of:

• The day you left Canada
• The day your spouse and dependants left Canada (if leaving together)
• The day you become a resident of another country under a tax treaty

The Departure Tax: Deemed Disposition

On the day you become a non-resident, the ITA treats you as having sold (and immediately reacquired) most of your worldwide property at fair market value. This is called a "deemed disposition" or "departure tax." It means:

• Any accrued capital gains on your worldwide assets become taxable in Canada
• You have not actually sold anything — but you are taxed as if you had
• Capital gains from the deemed disposition are included in your final year's Canadian tax return (the year of departure)

Assets Subject to Deemed Disposition

• Stocks, ETFs, mutual funds, and other investment portfolio holdings
• Private business shares
• Foreign real estate and investments
• Cryptocurrency
• Personal property worth more than $100 (cars, boats, art, collectibles)

Assets Exempt from Deemed Disposition

• RRSPs: Your RRSP is exempt from deemed disposition — it remains intact but withdrawals will face 25% withholding tax (reduced by treaty) once you are a non-resident
• RRIFs: Similarly exempt — same rules as RRSP
• CPP and OAS: These are pensions, not property, and continue as-is
• Real estate in Canada: Canadian real estate is not subject to deemed disposition — instead, it remains "taxable Canadian property" and any eventual sale while non-resident is taxable in Canada
• Business assets in Canada: Business property used in Canadian business operations is exempt

Your Departure Year Tax Return

In the year you leave Canada, you file a regular T1 return for the portion of the year you were a Canadian resident. This return includes:

• All income earned while resident (employment, investment, business)
• All capital gains from the deemed disposition of eligible assets
• Form T1161 (List of Properties by an Emigrant of Canada) — lists all property held on departure date worth over $25,000
• Schedule 3 (Capital Gains and Losses) for deemed disposition gains

TFSA on Departure

Your TFSA does not face a deemed disposition on departure, but once you become a non-resident, any contributions made to the TFSA attract a 1% per month penalty tax. You should cease all TFSA contributions immediately upon becoming a non-resident. Ideally, plan to withdraw your TFSA balance before departing to avoid the administrative complexity of maintaining it as a non-resident.

Post-Departure Canadian Tax Obligations

After becoming a non-resident, your Canadian tax obligations are reduced but not eliminated:

• Canadian rental income: 25% withholding tax unless you elect to file a section 216 return, which allows you to pay tax on net rental income instead
• Canadian dividends: 25% withholding (15% under Canada-US treaty, for example)
• RRSP/RRIF withdrawals: 25% withholding (reduced by treaty — often to 15–25%)
• Employment income earned in Canada post-departure: Still taxable in Canada
• Capital gains on sale of Canadian real estate: Taxable in Canada; FIRPTA-equivalent withholding applies if selling to a non-resident buyer

Provincial Taxes on Departure

Province-of-departure taxes apply based on the province where you were resident on January 1 of the departure year. This means even if you move from Ontario to Alberta and then immediately emigrate, Ontario provincial tax rates apply for the entire year if you were an Ontario resident on January 1.

Pre-Departure Planning: Steps to Consider

1. Identify all assets subject to deemed disposition and calculate potential capital gains tax
2. Consider whether to crystallize gains (sell and rebuy) while still a resident if it is beneficial from a planning standpoint
3. Withdraw TFSA balance before departure date
4. Decide what to do with RRSP — leave it or begin converting to RRIF
5. Update all financial accounts with new address and non-resident status (institutions must withhold appropriately)
6. Notify the CRA of your departure address
7. File final T1 return by April 30 of the year following departure
8. Engage a cross-border tax professional — this process is complex and the consequences of mistakes are costly