Departure Tax on Property Abroad When You Leave Canada

Is my house or apartment abroad deemed sold when I leave Canada?

Yes, unless an exception applies. On the day you stop being a Canadian resident (your departure date; how it is set is in leaving Canada), you are treated as selling everything you own at fair market value. The main property the law leaves out is real estate situated in Canada (a few other kinds are also left out). Foreign real estate, such as a home, apartment or rental unit in another country, is therefore deemed sold, and you are treated as buying it back at the same value (Income Tax Act s. 128.1(4)(b) and (c); CRA). If you own it with someone else, only your share is deemed sold, and only for owners who are leaving.

The gain is the departure-day value minus your cost, both in Canadian dollars. Generally 50% of a capital gain is taxable, and it goes on your departure-year return, calculated on Form T1243.

What makes a case not simple:

• You lived in the home abroad and may want to shelter it with the principal residence exemption, while also owning a Canadian home.
• The property was rented out and you claimed depreciation.
• You will sell it later and the other country will tax the same gain.
• You bought it years ago and have no cost records in Canadian dollars.

What to gather: purchase papers, renovation receipts, a departure-date valuation and the dates you lived in or rented it; the full list is below.

Why is a home abroad taxed on departure when a Canadian home is not?

Because Canada keeps the right to tax Canadian real estate after you leave, but not real estate elsewhere. A non-resident pays Canadian tax on a gain only from taxable Canadian property, which includes Canadian real estate but not property abroad (s. 2(3)). Your departure date is Canada's last chance to tax the growth on a home abroad, so the law taxes it then.

For a Canadian home or cottage you keep, see keep or sell your home when leaving Canada and a cottage or second home when leaving Canada.

Is it exempt if I owned it before I came to Canada or inherited it?

Only under the short-residence rule. Property you owned when you last became a resident, or inherited after that, is left out of the deemed sale if you were resident in Canada for no more than 60 months in the preceding 120 months before leaving (s. 128.1(4)(b)(iv)). If you were resident longer, owning it before you arrived does not exempt it, but your cost is generally its value on the day you became resident, so Canada does not tax growth from before your arrival (s. 128.1(1)(c); Folio S1-F3-C2, para 2.74). How to count the months is in leaving Canada within five years of arriving.

What value and cost do I use, and which exchange rate?

Use the property's fair market value on your departure date as the sale price, and its cost plus capital improvements as the cost. Convert each amount to Canadian dollars at the Bank of Canada rate for the day it arose: the purchase price at the purchase date, each renovation at its date, and the value at the departure date (s. 261(2); CRA).

Currency movement becomes part of the gain. A home that held its value in local currency can still show a Canadian-dollar gain if that currency rose against the Canadian dollar. For a day before March 1, 2017, the CRA says to use the Bank of Canada noon rate (Folio S5-F4-C1).

The departure value is the price the property would fetch on that day. Keep evidence of that value, such as a written appraisal dated close to your departure. A mortgage does not reduce the gain: use the full property value, not your equity, so the tax can exceed the cash you could raise without selling. A loss on a home used for your own enjoyment does not count: a loss on personal-use property is nil (s. 40(2)(g)(iii)).

Can the principal residence exemption shelter a home abroad I lived in?

Possibly. A property outside Canada can qualify as your principal residence if you ordinarily lived in it, and you designate it on Form T2091(IND) (Folio S1-F3-C2, para 2.74; CRA form).

Two limits matter. Only years you were resident in Canada count toward the exempt part, and the extra "1 +" year applies only if you were resident in the year you acquired it (Folio S1-F3-C2, para 2.20). And your family unit can designate only one home per year, so each year you use for the home abroad is a year your Canadian home loses. Decide before you file: a year you designate for one home cannot also be used for another home of your family unit. The rules are in the principal residence exemption guide.

Does a property abroad go on T1161 and T1243, and did I owe T1135?

Yes to the departure forms. If what you own when you leave is worth more than $25,000 in total, you file Form T1161 and list the property abroad on it. Its gain is calculated on Form T1243 and carried to Schedule 3, the capital gains schedule of your return (CRA). Details: Form T1161 and Form T1243.

Form T1135 depends on use. A home abroad held mainly for your own use is personal-use property and is not reported; a property rented out mainly for profit is reported if the cost of all your specified foreign property, not counting personal-use property, passed $100,000 at any time you were resident, including the resident part of your departure year (s. 233.3(1); CRA T1135 questions). Categories: which holdings count on T1135.

When I sell it later, can Canada credit the tax the other country charges?

Yes, within limits. If you sell after leaving and pay income tax on the gain to the country where the property sits (or to the treaty country you then live in), you can deduct from your departure-year tax the foreign tax on the part of the gain that grew while you lived in Canada (s. 126(2.21)).

The credit reduces tax already assessed, so it may mean a refund, years after you left. It needs foreign tax actually paid: if the other country does not tax the gain, or the property later sells for less than its departure value, Canada does not refund the departure tax, because the post-emigration loss rule covers only Canadian property (s. 128.1(8)). Keep your departure-year return, the T1243 and the departure valuation for the eventual sale. The foreign tax rules, and whether the other country gives you a new cost at arrival, are country questions; see the country guides such as moving from Canada to the UK.

Can I defer the departure tax on it?

Yes. You can elect to postpone paying the tax on deemed-sold property until you actually sell it, with no interest, but the CRA requires security once the federal tax deferred is above $16,500 ($13,777.50 for former Quebec residents) (CRA). Elect by April 30 of the year after you leave; the security process is in deferring departure tax. If you later move back to Canada still owning the property, you can elect to reduce or remove the departure gain (s. 128.1(6)(c)); see moving back to Canada after paying departure tax.

What about a property I rent out abroad?

A rental building is deemed sold too, and any depreciation (capital cost allowance) you claimed on it while resident can come back as income. If the building's departure value is more than its undepreciated balance, the difference is added back to income as recapture, up to the full depreciation claimed when the value reaches the building's original cost; any value above original cost is a capital gain (s. 13(1); s. 128.1(4)(b)). Split the departure value between land and building, because only the building is depreciable.

Rent earned up to your departure date goes on your departure-year return. For rent and sales while resident, see property outside Canada.

What should I gather?

• Purchase contract, closing statement, legal and transfer costs, with dates
• Receipts for renovations and additions, with dates
• An appraisal as of your departure date
• If you owned it before arriving: a value as of the date you became resident
• Years you lived in it, rented it or left it empty; any principal residence designations already made
• For a rental: depreciation claimed each year and rent records
• After a later sale: the sale contract, the foreign return and proof of foreign tax paid

Example

These examples are illustrative and use Canadian dollars.

An apartment bought while living in Canada

A resident bought an apartment in Taipei for C$300,000, and no one in the family ever lived in it. On the departure date it is worth C$500,000. The C$200,000 gain goes on T1243, and C$100,000 of it is taxable on the departure-year return. Because no one in the family ever lived in it, it cannot be designated as a principal residence.

The same apartment sold four years later

• Departure year: the deemed sale adds C$30,000 of federal tax (provincial tax comes on top; the top federal rate is 33%).
• Years 1 to 3: the apartment is held; nothing changes in Canada.
• Year 4: the apartment sells for C$600,000, and the other country charges C$67,500 on the whole C$300,000 gain since purchase. C$200,000 of that gain (two thirds) grew while the owner lived in Canada, so C$45,000 of the foreign tax relates to it.
• By April 30 of year 5: the owner asks the CRA to amend the departure year. The federal credit is C$30,000, the lower of C$45,000 and the federal departure tax on that apartment.

A flat owned before arriving

A newcomer owned a flat in London before moving to Canada, had never lived in Canada before, and leaves after four years (48 months). Because total residence in the 120 months before leaving is under 60 months, the flat is left out of the deemed sale, so it is not on T1243.

Different for you?

• You also own a Canadian home and lived in both: the designation choice affects both properties; see the principal residence exemption guide and get individual tax help.
• The property abroad is a rental with depreciation claimed: recapture and the land-building split need numbers; see property outside Canada and get individual tax help.
• The departure tax is large or you cannot sell yet: see deferring departure tax and get individual tax help.
• You sold after leaving and paid tax abroad: the amended departure return has a deadline; get individual tax help.
• You cannot prove the cost, or the property is valuable: the cost and departure value need evidence the CRA will accept; see the CRA disputes your departure value and get individual tax help.
• You arrived within the last five years: see leaving Canada within five years of arriving.
• You are moving to the country where the property sits: see the country guide, such as moving from Canada to Taiwan or moving from Canada to Hong Kong.
• You missed T1161, T1243 or T1135 in past years: see late departure forms and penalties and get individual tax help.