Canada Departure Tax Calculation: A Worked Example, Step by Step

How is departure tax calculated in Canada?

Departure tax is ordinary income tax on a pretend sale. Just before you become a non-resident, section 128.1(4) treats you as selling most property you own at fair market value and buying it back at the same value. The gain is a capital gain, and 50% of it is taxable (section 38).

The steps, holding by holding:

1. List every property the deemed sale covers (see the next section).
2. Value each one at fair market value on your departure date.
3. Subtract its adjusted cost base (ACB), both in Canadian dollars.
4. Net the gains against the losses.
5. Take the taxable part: 50% of the net gain, less any capital losses carried forward from earlier years.
6. Add it to your income for the part of the year you were resident, and work out federal and provincial tax on the total.

Departure tax is the difference between your tax with the deemed gain and your tax without it. The work is simple for one account of listed shares in Canadian dollars. It is not simple with real estate abroad, private company shares, stock options, holdings bought in several currencies, or a gain big enough that you want to defer payment.

Gather: broker statements showing each holding's value on your departure date, purchase records or year-end statements showing cost, your last notice of assessment (it shows capital losses carried forward), your income to the departure date, and for real estate abroad, the purchase contract and an appraisal as of your departure date.

Which assets count, and which drop out?

The deemed sale covers almost everything you own except the items the law excludes. The CRA's list and Form T1243 give these exclusions:

Cash in Canadian dollars has no gain, so it adds nothing. Foreign-currency cash is deemed sold too, but only your net currency gain for the year above $200 counts (section 39(1.1)). You can elect to include Canadian real estate or business property on Form T2061A, but the election can only let a loss on that property offset other departure gains (section 128.1(4)(d)); see the T1243 guide. For what to do with a brokerage account, see investment accounts when leaving Canada.

What value do I use for each holding?

Use fair market value at the moment just before you stopped being resident, which in practice means the value on your departure date. Not the year-end value, and not the price you later sell at. Section 128.1(4)(b) sets the time; T1243 column 5 asks for "fair market value on the date you emigrated."

For listed shares and funds, the closing price on that date, shown on a broker statement or trade confirmation, is the usual evidence. Keep a copy. For foreign real estate or private shares there is no market price, so you need an appraisal or valuation you can defend; see departure tax on private company shares. Your departure date itself is a judgment about when your ties ended; Leaving Canada covers how it is set.

How do I work out the adjusted cost base, including US-dollar purchases?

Adjusted cost base is what you paid, including commissions, adjusted for events such as reinvested distributions and return of capital. For several purchases of the same security, use the average cost of all units (Guide T4037).

Foreign-currency amounts are converted separately. Section 261(2)(b) requires converting each amount at the spot rate for the day it arose. So:

• Cost: each purchase at the exchange rate on its purchase date.
• Value: the departure-date value at the exchange rate on the departure date.

Never subtract a US-dollar cost from a Canadian-dollar value, and never convert both at one rate. Currency movement is part of the gain or loss. A long purchase history in a foreign currency is where errors are most common.

How does the gain turn into tax?

The taxable half joins your other income for the part of the year you were resident, and graduated federal and provincial rates apply to the total. That is why there is no flat departure tax rate: the same gain costs more for someone with a high salary that year than for someone with little other income.

• Federal tax uses the federal brackets; the top federal rate is 33% on income above $258,482.
• Provincial tax uses the brackets of the province or territory where you lived on your departure date, whose package you file (CRA). Quebec residents also file with Revenu Québec.

To estimate it, work out tax on your income without the gain, then with it, and take the difference. Credits on a departure-year return are partly prorated; see the part-year return.

Do losses offset gains, and what about losses carried forward?

Yes. Losses on holdings that fell below cost reduce gains on the others, so T1243 lists each holding with its own gain or loss, including a full breakdown of any portfolio, and the totals go to Schedule 3 (Form T1243).

Net capital losses from earlier years can also be deducted, but only up to the year's taxable capital gains (section 111(1.1)). Check your notice of assessment for the balance. A departure-year net loss can be carried back the three preceding tax years. What happens to other unused losses and credits is covered in unused credits and losses when leaving Canada.

Is there a departure tax calculator?

A calculator can only estimate, because the answer depends on inputs a generic tool cannot know: each holding's cost and departure value in Canadian dollars, your other income to the departure date, your province, prorated credits and losses carried forward. The six steps above, with your own figures, give a better estimate than any single percentage. Whoever prepares the return still has to confirm each value and cost against records.

When is departure tax due, and do instalment rules apply?

The tax is due with the departure-year balance, by April 30 of the following year (CRA). Interest runs on any balance not paid by then.

The departure gain does not create instalment interest. Section 128.1(5) works out instalment interest as if the deemed sale had not happened. Your other income can still require instalments; see tax instalment reminders.

If you cannot or do not want to pay now, you can elect on Form T1244 by April 30 of the year after departure to defer payment until you sell. Security is required once federal tax on the deemed gains exceeds $16,500 ($13,777.50 for former Quebec residents); see deferring departure tax. If your reportable property is worth more than $25,000, you also file Form T1161; see the property list form.

If my new country taxes the same gain later, does Canada give a credit?

Sometimes. When you later sell as a non-resident and your new country taxes the gain that built up while you lived in Canada, section 126(2.21) lets you claim that foreign tax against your departure-year Canadian tax. The limits:

• Real estate abroad: the tax must be paid to the country where the property is, or to a treaty country where you live when you sell.
• Other property: the tax must be paid to a country that has a tax treaty with Canada and where you live when you sell.
• The credit cannot exceed the Canadian departure-year tax caused by the deemed sale of that property.
• The foreign tax counts net of any credit that country gave you for the Canadian tax on the same gain (section 126(2.23)).

Claiming it means amending the departure-year return: section 152(6) requires the CRA's prescribed amending form by the filing due date of your return for the year you sell. Miss that date and the credit is no longer automatic. Moving to the US has its own treaty choices; see deferring departure tax when you move to the US. If the shares fell after you left, see shares that fell after you left Canada.

Example

These examples use Canadian dollars and round, illustrative numbers. The tax rates in them are assumed for the illustration, not published rates.

An ETF account, Ontario resident leaving on 30 June

• ETF account worth C$300,000 on the departure date; ACB C$180,000.
• Gain: C$300,000 − C$180,000 = C$120,000.
• Taxable half: C$60,000.
• Salary to 30 June: C$70,000. Income on the return: C$70,000 + C$60,000 = C$130,000.

The departure tax is federal plus Ontario tax on C$130,000 minus the same tax on C$70,000. The C$60,000 slice sits in higher brackets than the salary. If the combined rate on that slice averaged an assumed 35% (an illustration, not published Ontario rates), the departure tax would be about C$21,000, due by April 30 of the next year unless payment is deferred.

A mixed account with a US stock and a loser

• US stock bought for US$50,000 when US$1 = C$1.25: ACB C$62,500.
• Worth US$80,000 on the departure date when US$1 = C$1.38: C$110,400.
• Gain: C$110,400 − C$62,500 = C$47,900. Of that, C$6,500 comes from the exchange rate alone.
• A Canadian fund has a C$10,000 loss.
• Net gain: C$37,900. Taxable half: C$18,950, before any losses carried forward from earlier years.

Converting both amounts at C$1.38 would have shown a gain of only C$41,400 and under-reported it.

Private shares with a nil cost

• Shares of a private corporation valued at C$400,000; ACB nil.
• Gain C$400,000; taxable half C$200,000.

If the shares qualify for the lifetime capital gains exemption, part or all of the gain may be sheltered; departure tax on private company shares explains the test. Without it, federal tax on that income would be well above the security threshold. If the person chooses to defer payment until the shares are sold, they file T1244 and post security with the CRA; see deferring departure tax.

Different for you?

• You own private company shares or need a valuation: see departure tax on private company shares and get individual tax help.
• You own a home or condo outside Canada: it needs a departure-date appraisal, and its cost and value are converted to Canadian dollars at different rates; get individual tax help.
• You already left and never reported the deemed sale: see leaving Canada without telling the CRA and get individual tax help.
• You hold stock options or RSUs: see departure tax on stock options and RSUs.
• You hold crypto: see departure tax on crypto.
• Your holdings were bought in several currencies or over many years: rebuilding the cost in Canadian dollars is the hard part; individual tax help can handle the return.
• The tax is large enough to need security, or you want to defer: see deferring departure tax and get individual tax help.
• Your shares fell after you left: see shares that fell after you left Canada.
• You want to know what the return will cost: see the cost of a departure tax return.