When you leave Canada and become a non-resident for tax purposes, Canada treats you as having sold all of your property at fair market value on the day you leave. This is called a "deemed disposition." Any resulting capital gains are taxable in your final Canadian tax return. Proper planning before departure can significantly reduce this tax hit.
What Is Departure Tax?
Departure tax is the colloquial term for the income tax triggered by the deemed disposition rules when you cease to be a Canadian resident. It is not a separate tax — it is capital gains tax calculated as if you sold all of your non-exempt property the day before you left Canada.
The deemed disposition applies on the day you cease to be a Canadian resident — this is the date you cut your residential ties and leave, not necessarily the date you cross the border.
Assets Subject to Deemed Disposition
The following types of property are subject to deemed disposition when you leave Canada:
- Shares in Canadian and foreign public companies
- Units in mutual funds, ETFs, and investment funds
- Shares in private corporations (Canadian or foreign)
- Partnership interests
- Bonds, debentures, and other debt instruments
- Foreign real estate (not Canadian real estate — see below)
- Personal use property and listed personal property above certain thresholds
Assets Exempt from Deemed Disposition
Importantly, several major asset categories are exempt from the departure tax deemed disposition:
- Canadian real property: Not subject to deemed disposition (but subject to Part XIII withholding when eventually sold as a non-resident)
- RRSP and RRIF: Exempt from deemed disposition on departure; taxed as income when withdrawn (Part XIII withholding applies to non-resident withdrawals)
- DPSP (Deferred Profit Sharing Plans): Exempt
- Stock options: Subject to specific rules — not fully exempt
- Pension plans: Exempt from departure tax; taxed when benefits are paid
- RESP: Generally continues for the beneficiary's education
TFSA and Departure — Important Note
Your TFSA is not subject to departure tax on departure. However, once you become a non-resident, you should not make further TFSA contributions — the CRA levies a 1% monthly tax on contributions made while non-resident. You can leave your existing TFSA open and it will continue to grow, but you cannot add to it or count accumulated contribution room while living abroad.
Calculating the Deemed Disposition Gain
For each asset subject to deemed disposition, the gain is calculated as:
Deemed proceeds = Fair market value on departure date
Cost = Adjusted cost base (ACB)
Taxable capital gain = (FMV - ACB) × 50% (capital gains inclusion rate)
The 50% inclusion rate means only half of your capital gains are added to income and taxed at your marginal rate.
T1161 — List of Properties at Departure
If the total fair market value of all your property at the time you leave Canada exceeds $25,000, you must file Form T1161 (List of Properties by an Emigrant of Canada) with your final T1 return. This form lists all of your property at departure, even if no gain resulted.
Penalties for failing to file T1161 when required: $25/day, up to a maximum of $2,500 per year.
Security in Lieu of Departure Tax — Form T1244
If you owe departure tax but do not have the cash to pay it (for example, you hold illiquid private company shares with unrealized gains), you can elect to defer payment by posting security with CRA. File Form T1244 to request an election to defer payment of tax from deemed disposition. Interest applies, but you avoid having to liquidate assets to pay the tax.
Filing Your Final Canadian Tax Return
- File a T1 for the year you leave Canada — a "part-year" return
- Report income from January 1 to your departure date as a resident
- Calculate deemed disposition gains on all applicable property
- Include Form T1161 if total property value exceeds $25,000
- File by April 30 of the following year (or June 15 if self-employed)
- You may need to file NR73 (Determination of Residency Status — Leaving Canada) for a formal determination
Planning Strategies Before Leaving Canada
- Crystallize losses: Sell investments with unrealized losses before departure to offset gains
- Time your departure: If you have large gains, consider whether departing in a year with lower income reduces the marginal rate applied
- Contribute to RRSP: Final RRSP contributions before departure reduce taxable income on your departure return
- Withdraw TFSA: Since TFSA withdrawals are tax-free in Canada but may be taxed in your destination country, consider withdrawing and re-investing abroad
- Get a valuation: For private company shares and hard-to-value assets, get a professional FMV appraisal before departure