Who this is for
- Owners of shares in a Canadian private corporation who are ceasing to be Canadian residents
- Owners who hold the business through a holding company
Not covered here
- The full departure return and every departure form
- Posting security to defer the tax
- Running or paying yourself from the corporation after you move
Do I pay departure tax on my private company shares?
Yes, in most cases. When you stop being a Canadian resident, subsection 128.1(4) treats you as having sold almost everything you own at fair market value immediately before you leave, then bought it back at that same value. Shares of a private corporation are not on the list of exclusions, so the gain on them is taxed even though nobody pays you anything. You report it on Form T1243 and carry the gain to Schedule 3 of your return for the year you leave; 50% of the gain is taxable. That taxable part is added to your income for the year you leave and taxed at your federal and provincial rates. A large gain can also trigger minimum tax, which counts the whole gain rather than 50% of it (subsection 127.52(1)); the lifetime exemption guide below explains why it is hard to recover from abroad.
What makes a case not simple:
- No market price. The value is a judgment you must defend.
- A freeze, rollover or reorganization in the past, which changes your cost base.
- A holding company between you and the business.
- A real-estate-heavy company, whose shares can remain taxable in Canada after you leave.
- Several shareholders or a shareholder agreement that limits sales.
- Tax you cannot pay in cash, which leads to the deferral election and security.
- You came to Canada recently or owned the shares before you arrived, which can exclude the shares or raise their cost.
- A move to a country with no tax treaty with Canada, or one that also taxes the same gain.
What to gather: the share register and articles, your cost history for every share, the company's recent financial statements and T2 returns, and a value for the shares as at your departure date.
The overall departure rules, the final return and the list of forms are in leaving Canada.
Are the shares deemed sold if nobody buys them?
Yes. The deemed sale needs no buyer and no money. Paragraph 128.1(4)(b) excludes, for an individual, Canadian real property, property of a business you carry on through a fixed place of business in Canada (a permanent establishment), certain rights and interests such as registered plans, and property of short-term residents. Shares of a corporation are not in those exclusions, even when the corporation's own assets are real estate or business property.
One exclusion can apply to shares: if you were resident in Canada for no more than 60 months in the preceding 120 months, shares you already owned when you last became resident, or inherited after that, are not deemed sold. Shares you bought or subscribed for while living in Canada are still caught. How to count the months is in leaving Canada within five years of arriving.
The new cost of the shares after you leave is the value used on departure (paragraph 128.1(4)(c)). That reset matters for every later dividend, sale or wind-up.
Private shares also count toward the Form T1161 list of property, which is required when your reportable property is worth more than $25,000 (subsection 128.1(9)). See the T1161 guide.
What value goes on T1243 for private company shares?
The value is fair market value at the moment immediately before you stop being resident. The CRA's dispositions of property page uses fair market value but gives no method for valuing private shares. Because there is no quoted price, you choose the figure and must be able to support it if the CRA asks.
The usual support is a written valuation as at your departure date, prepared from the company's own records. A valuation of a private company commonly looks at:
- The balance sheet on or near the departure date: cash, investments, real estate, receivables and debts.
- Earnings and cash flow over recent years.
- What each class of shares is entitled to, such as fixed redemption values on preferred shares.
- Any shareholder agreement that restricts sale or sets a price formula.
- Whether your block is a controlling or minority interest.
How much weight to give a minority position or a sale restriction depends on the facts; there is no fixed percentage in the Act or on the CRA's page. Keep the valuation, the balance sheet it used and your notes with the return. If the CRA later questions your number, see when the CRA disputes your departure value.
What is my cost base for the shares?
Your adjusted cost base is what the shares cost you, adjusted by the rules that applied when you got them. The gain on T1243 is value minus that cost. The common starting points:
| How you got the shares | Usual starting cost |
|---|---|
| Subscribed for new shares | The amount you paid the company for them |
| Bought from another shareholder | The price you paid |
| Exchanged in a freeze or reorganization of share capital | Generally the cost of the old shares you gave up, spread across the new shares by value, less any non-share payment (subsection 86(1)) |
| Received for property transferred into the company under a rollover | Based on the amount set by the rollover election, less any non-share payment, not the value of the shares (subsection 85(1)) |
| Owned before you became resident in Canada | Generally their fair market value when you arrived, because subsection 128.1(1) deems a sale and reacquisition on arrival for property that was not taxable Canadian property |
A freeze often leaves you with preferred shares of high value and very low cost, so a large part of the departure gain can sit on shares that pay no regular dividend. A capital gains exemption claimed in an earlier year, or a past reorganization, can also change the cost. Rebuild the cost history from the minute book, the share register and past returns before you put a number on T1243.
Does a holding company change the departure gain?
A holding company does not move the gain out of reach. What you own is shares of the holding company, and those shares are deemed sold at their fair market value under paragraph 128.1(4)(b). Their value reflects everything the holding company owns, including its shares of the operating company.
The holding company itself does not have a departure. A corporation incorporated in Canada is generally deemed resident in Canada (subsection 250(4)), so its own assets are usually not deemed sold when you leave. The exception: if a tax treaty's tie-breaker rule makes the company resident in your new country (treaties use different tests, such as where it was incorporated or where it is managed), subsection 250(5) deems it non-resident and the company can face its own departure tax. Where the company is managed from, its status as a Canadian-controlled private corporation and withholding on payments to you are covered in non-resident owners of a Canadian corporation.
The deemed sale applies person by person. A spouse or child who also stops being resident has a deemed sale of their own shares; one who stays in Canada has none. Shares held by a family trust belong to the trust; see family trust beneficiary moving abroad.
Can the departure gain use the lifetime capital gains exemption?
Possibly. The exemption for qualified small business corporation shares requires you to be resident in Canada throughout the year (subsection 110.6(2.1)). In the year you leave, subsection 110.6(5) deems you resident throughout the year if you were resident throughout the year before. The shares must still meet every qualified small business test at the moment of the deemed sale, and the limit is $1.275 million of lifetime gains. How to test and claim it is in using the capital gains exemption before leaving Canada.
Are my shares taxable Canadian property after I leave?
Generally only if their value comes mostly from Canadian real estate or resources. Under the definition in subsection 248(1), shares of a corporation not listed on a designated stock exchange are taxable Canadian property if, at any time in the past 60 months, more than 50% of their fair market value came, directly or indirectly, from real property in Canada, Canadian resource property, timber resource property, or options or interests in those. Value that reaches the shares through another corporation counts only if that corporation's shares were themselves taxable Canadian property (same definition). Shares you received in a rollover for property that was itself taxable Canadian property are also treated as taxable Canadian property for 60 months after the exchange (paragraph 85(1)(i)).
Why it matters:
| Shares after you leave | Later sale | Section 116 | Post-emigration loss election |
|---|---|---|---|
| Taxable Canadian property (for example, a company that owns Canadian rental buildings) | Canada can tax the gain above the departure value, subject to any tax treaty | Notice to the CRA before the sale or within 10 days after it, and a certificate obtained by paying tax or giving security; without a certificate, the buyer can hold back 25% of the price (section 116; T4058). Shares a treaty exempts need no notice | Available |
| Not taxable Canadian property (for example, a consulting or software company) | Canada generally does not tax a non-resident's gain on the sale | Not required | Not available |
A company can pass the test because of real estate it held at any point in the past 60 months, so a company that sold its building recently can still be caught. A sale after you leave is covered in selling your Canadian company after moving abroad.
How are dividends and a wind-up taxed after I leave?
Dividends a Canadian corporation pays you as a non-resident face Part XIII tax (Canada's withholding tax on payments to non-residents) of 25%, withheld by the company, unless a tax treaty lowers the rate (subsection 212(2); T4058). This applies to capital dividends as well. On a wind-up, the amount distributed above the paid-up capital of your shares (broadly, what was paid into the company for them) is deemed a dividend (subsection 84(2)), so it is also subject to Part XIII tax.
The company's retained earnings do not disappear when you leave. They come out later as dividends or a wind-up distribution, and Canada withholds on them. How to pay yourself after moving is in paying yourself from your corporation after moving abroad. Whether to close the company first is in close or keep your corporation when leaving Canada.
Can a later loss reduce my departure gain?
Only for shares that are taxable Canadian property when you later dispose of them. Subsection 128.1(8) lets you elect, in the return for the year of the later sale, to move a loss on those shares back against the departure gain. The amount moved back is the least of the amount you choose, the departure gain and the later loss.
The later loss is first reduced by dividends you received on the shares after leaving, because subsection 40(3.7) applies the dividend stop-loss rules to you as a non-resident. Draining the company by dividends and then selling or winding up at a low value therefore leaves less loss to carry back. For shares that are not taxable Canadian property, this election is not available. Details are in shares fell after you left Canada.
If you become resident in Canada again and still own the shares, you can elect under subsection 128.1(6) to reduce or undo the departure gain, whether or not the shares are taxable Canadian property. The election is due by your filing-due date for the year you return.
Can I defer departure tax because I can't sell the shares?
Yes, you can elect on Form T1244 to postpone paying the tax on the deemed sale until you actually dispose of the shares. The election is due by April 30 of the year after departure, and if the federal tax on the income from the deemed sale is more than $16,500 ($13,777.50 if you lived in Quebec, which also has its own deferral and security), you must give the CRA adequate security (CRA). See deferring departure tax.
What should I gather before my departure date?
Gather these while you can still reach the company's records easily:
- Share register, articles and minute book: every class, number of shares and owner.
- Cost history: subscription receipts, purchase agreements, freeze or rollover elections and any exemption claimed.
- Company balance sheet at or near the departure date, plus recent financial statements and T2 returns.
- A valuation of your shares as at the departure date, with the documents it relied on.
- Real estate test: a list of the company's Canadian real property over the past 60 months, and what share of value it represented.
- Shareholder agreements that limit sales or set a price.
- Your departure date evidence, since the value is fixed at that moment.
Example
These scenarios are illustrative and use Canadian dollars.
Consulting company with no real estate
You own 100 common shares of your consulting company, bought for C$100. A valuation as at your departure date puts them at C$600,000. On T1243 you report a gain of C$599,900, and half of it, C$299,950, is added to income for the departure year. Federal tax on C$299,950 of added income is well above the security threshold, so if you choose to defer, you file T1244 and arrange security. After you leave, the shares are not taxable Canadian property.
Holding company that owns a rental building
Your holding company owns one Canadian rental building. Your shares cost C$200,000 and are worth C$900,000 when you leave. You report a C$700,000 gain on T1243. Because the shares draw most of their value from Canadian real estate, they remain taxable Canadian property. If you sell them later, you notify the CRA under section 116, and without a certificate the buyer can hold back part of the price.
Dividends, then a lower sale
You leave with real-estate company shares that cost C$200,000 and are valued at C$1,000,000 (departure gain C$800,000).
- Year 1 after leaving: the company pays you C$300,000 of dividends, with Part XIII tax withheld.
- Year 2: you sell the shares for C$600,000. Against the C$1,000,000 reset cost, the loss is C$400,000.
- Under 40(3.7), the C$300,000 of dividends reduces that loss to C$100,000.
- Because the shares are taxable Canadian property, you notify the CRA under section 116, file a Canadian return for year 2 and elect under 128.1(8); the departure gain drops from C$800,000 to C$700,000.
Different for you?
- The company's value is large, there was a freeze, or family members, a trust or others also own shares: the value and cost base are judgment calls the CRA can test; get individual tax help before you file T1243.
- You need to defer the tax and pledge the shares as security: see deferring departure tax and get individual tax help.
- Your company owns, or owned in the past five years, Canadian real estate: the shares stay taxable in Canada and a later sale needs section 116 clearance; see selling your Canadian company after moving abroad and get individual tax help.
- You are leaving from Quebec: Quebec taxes the deemed sale too, with its own election and security; get individual tax help.
- You want to sell the business before leaving: see selling your business.
- You owe the company money: see shareholder loans when you leave Canada.
- The shares may qualify for the lifetime exemption: see using the capital gains exemption before leaving Canada.
- You are deciding whether to close the company: see close or keep your corporation.
- The shares lost value after you left: see shares fell after you left Canada.
- You are moving to a country without a tax treaty with Canada, or your new country also taxes the gain: dividend withholding and double tax depend on the treaty; get individual tax help.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| General taxable capital gain inclusion rate General rule under Income Tax Act section 38(a); exceptions apply | 50% | Justice Laws: Income Tax Act, section 38 Checked |
| Canadian departure exception for property owned on immigration For an individual who owned the property when they last became Canadian resident | No more than 60 months in the preceding 120 months | Justice Laws: Income Tax Act, section 128.1(4)(b)(iv) Checked |
| Fair market value threshold for Form T1161 Total fair market value of reportable property owned on departure; the form is required above this amount | $25,000 | CRA: Dispositions of property for emigrants of Canada Checked |
| Lifetime capital gains exemption limit for qualifying property 2026 indexed limit; the increase and resumed indexation were enacted in the Budget 2025 Implementation Act | $1.275 million Tax year 2026 | Finance Canada: 2026 exemption limit Checked |
| Share of an unlisted share's value from Canadian real property, resource or timber property that makes it taxable Canadian property Tested at any time in the 60 months before the time in question; value through a corporation counts only if that corporation's shares were themselves taxable Canadian property | More than 50% | Income Tax Act, subsection 248(1), taxable Canadian property Checked |
| Section 116 notice after disposition After disposition of taxable Canadian property subject to subsection 116(3), unless valid advance notice was given | 10 days | Income Tax Act: subsection 116(3) Checked |
| Federal buyer holdback without a certificate for capital property Applied to the amount by which the purchase price exceeds any certificate limit, for property subject to subsection 116(5) | 25% | Income Tax Act, subsection 116(5) Checked |
| Statutory Part XIII withholding on dividends to non-residents Before an applicable treaty reduction; applies to dividends paid or credited by a corporation resident in Canada | 25% | Income Tax Act, subsection 212(2) Checked |
| Departure-tax payment deferral election deadline An individual files Form T1244; section 220(4.5) specifies the emigration-year balance-due day | April 30 of the year after departure | CRA: Dispositions of property for emigrants Checked |
| Federal departure tax deferral security threshold Security is required when federal tax on deemed-disposition income exceeds this amount; latest CRA-published amount is for the 2025 return | $16,500 Tax year 2025 | CRA: Dispositions of property for emigrants of Canada Checked |
| Federal departure tax deferral security threshold for former Quebec residents Security is required when federal tax on deemed-disposition income exceeds this amount for former Quebec residents; latest CRA-published amount is for the 2025 return | $13,777.50 Tax year 2025 | CRA: Dispositions of property for emigrants of Canada Checked |
Primary sources
- Income Tax Act, section 128.1 (emigration, post-emigration loss, T1161)
- Income Tax Act, section 40 (subsection 40(3.7))
- Income Tax Act, section 248 (taxable Canadian property)
- Income Tax Act, section 116
- Income Tax Act, section 212
- Income Tax Act, section 85
- Income Tax Act, section 86
- Income Tax Act, section 84
- Income Tax Act, section 110.6
- Income Tax Act, section 250
- Income Tax Act, section 127.52 (minimum tax)
- CRA: Dispositions of property
- CRA: T1243 Deemed Disposition of Property by an Emigrant of Canada
- CRA: T4058 Non-Residents and Income Tax
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.