Leaving Canada Within Five Years: The 60-Month Departure Tax Rule

Leaving Canada after less than 5 years: what escapes departure tax?

Property you owned when you last became resident, wherever it was held, or inherited afterward, escapes departure tax if you were resident in Canada for no more than 60 months in the preceding 120 months before you left. Property you bought while resident does not. The rule is in Income Tax Act section 128.1(4)(b)(iv), and the CRA's emigrant page applies it the same way.

The rule protects specific property, not the person. A two-year resident who bought shares in Canada is deemed to have sold those shares; someone resident more than 60 months in the last ten years is deemed to have sold both groups. Taxable capital gains are generally 50% of the gain.

A case stops being simple when you lived in Canada more than once, your arrival or departure date is unclear, you switched investments after arriving, or you own shares of a private company. Gather:

• Entry and exit dates for every stay in Canada in the last ten years.
• Statements showing what you owned, and its value, on the day you last became resident.
• Inheritance documents with the date you received each asset.
• Purchase records for everything bought after arrival.

For departure basics, see leaving Canada.

How does the 60-month rule count months?

The test looks back 120 months from your departure date and adds up every month you were resident in Canada in that window. If the total is more than 60, the rule does not apply. The count is not limited to your latest stay: an earlier period of residence inside the same 120 months counts too (section 128.1(4)(b)(iv)).

Each person is tested on their own months. A spouse who came earlier as a student can land on the other side of 60 from the rest of the family. For a jointly held account, apply the test to each owner's share.

Count from the date residency actually started and ended, not visa or landing dates alone. Those dates are fact-based; see Canadian tax residency and the date you become a non-resident. The Act does not say whether a part month counts as a month of residence. If your count is within a month or two of 60, the answer can turn on that reading and your exact dates; have it reviewed.

Do months as a student or worker count toward the 60?

Yes, if you were a resident of Canada during those months. The test counts months of residence, whatever your immigration status. Many students and work permit holders are residents for tax purposes; months spent here as a non-resident do not count. See international students leaving Canada and leaving after a work permit ends.

Which property does the rule cover?

The rule covers two kinds of property: what you owned at the time you last became resident in Canada, and what you received by inheritance or bequest after that date (section 128.1(4)(b)(iv)). Typical examples are foreign shares, funds and real estate you held before arriving. Gifts are not inheritances: an asset gifted to you while resident is not covered by the wording.

"Last" matters if you came more than once. Property you owned on your first arrival but not on your most recent one is not covered.

Which property is still taxed?

Anything you acquired while resident, other than by inheritance, is deemed sold at fair market value on your departure date. The source of the money does not matter: shares bought in Canada with savings wired from abroad are new property, not property you owned on arrival. The same goes for property that arrives without a purchase decision: units from dividend reinvestment, and shares from an employer plan that vest or are bought after you arrive. Report the gain or loss on Form T1243. You can elect on Form T1244 to defer paying that tax until you actually sell, by April 30 of the year after departure; above a threshold the CRA requires security (CRA). See leaving Canada.

Some property is outside the deemed sale for everyone, such as Canadian real estate, RRSPs, RRIFs, TFSAs, FHSAs and most pension rights (section 128.1(10), "excluded right or interest"; CRA). For a foreign home bought while resident, see foreign real estate when leaving Canada.

The lifetime capital gains exemption has its own residence conditions; meeting the 60-month rule says nothing about them. See using the capital gains exemption before leaving.

If I sold and rebought, or switched funds, is it the same property?

Generally no. Selling an asset ends your ownership of it, and what you buy with the proceeds is acquired while resident, so it falls outside the rule. Each security or fund unit is a separate property; the account that holds it is not. Switching from one fund to another inside a brokerage account, or reinvesting a sale, generally creates new property, which is deemed sold when you leave unless another exception applies.

Two points are less clear and fact-dependent: buying more units of the same security you held on arrival (identical properties are pooled for cost under section 47), and corporate reorganizations or fund mergers that swap your holdings. Get these reviewed with the trade records.

Does the rule also take the property off Form T1161?

Yes, unless the property is taxable Canadian property. Property covered by the 60-month rule is not "reportable property" for Form T1161 under section 128.1(10), paragraph (c). T1161 is required when the total fair market value of your reportable property is more than $25,000. It is due by your filing due date for the departure year, even if you owe nothing; filing late costs $25 a day, at least $100 and at most $2,500 (CRA).

Taxable Canadian property stays on the list because Canada can still tax it after you leave. It includes Canadian real estate, property used in a business carried on in Canada, and, in some cases, shares or interests whose value comes mainly from Canadian real estate or resources (section 248(1)). Most property you bought while resident still counts toward T1161; Canadian-dollar cash, RRSPs, TFSAs and personal-use items under $10,000 do not. See the list of properties form.

What cost do I use: arrival value or what I paid?

Property you brought with you generally has a cost equal to its fair market value on the day you became resident; property you bought in Canada uses what you actually paid. On arrival, an individual is deemed to sell and reacquire most property at fair market value, except taxable Canadian property (section 128.1(1)(b) and (c)).

That matters in two cases: if you sell brought property before you leave, and if you fail the 60-month test, the arrival value is your cost on T1243. If the rule protects a property and it is not taxable Canadian property, Canada generally does not tax its later sale once you are a non-resident (section 2(3)); your new country may tax it under its own rules. For setting arrival values and the first return, see first year as a Canadian tax resident. For brokerage holdings, see investment accounts when leaving Canada.

What records prove what I owned on arrival?

Keep a statement dated on or near your arrival for each account, showing each holding and its value. Add deeds or purchase contracts for real estate, valuations for private company shares, and estate documents showing the date and asset for each inheritance. Keep proof of your travel dates for every stay, and trade confirmations for anything bought or sold after arrival.

If the CRA reviews your return, it can ask for documents that support your claims (CRA newcomers). A statement that shows only an account total, not each holding, may not show which assets were owned on arrival.

Example

All figures are illustrative and in Canadian dollars.

Shares brought from abroad

An engineer arrives with a foreign brokerage account holding shares worth C$150,000 and leaves four years later, 48 months of residence, with no earlier time in Canada in the last ten years. The same shares are now worth C$220,000. They were owned on arrival and the engineer was resident for fewer than 60 months, so there is no deemed gain and the shares are not listed on T1161.

ETFs bought in Canada

While resident, the same engineer also bought Canadian ETFs for C$60,000 with money brought from abroad. On departure they are worth C$75,000. They were acquired in Canada, so they are deemed sold: a C$15,000 capital gain on T1243, of which 50% is taxable. Because the ETFs are worth more than $25,000, the engineer still files T1161 and lists them, but not the protected shares.

Two stays in ten years

• Months 1 to 30: resident in Canada as a student, then leaves.
• Month 61: returns with foreign shares bought while abroad.
• Months 61 to 96: resident for 36 more months, then leaves.

Both stays fall inside the 120 months before the final departure: 30 + 36 = 66 months. That is more than 60, so the rule no longer protects the foreign shares owned on the last arrival. They are deemed sold, with their value on the month-61 arrival as their cost. Had the student stay ended more than 120 months before the final departure, only the 36 months would count and the shares would be protected.

Different for you?

• You are not sure when your residency started or ended: see Canadian tax residency and the date you become a non-resident; dates near the 60-month line need individual tax help.
• You lived in Canada more than once, or switched investments after arriving: the property-by-property analysis decides the tax; get individual tax help.
• You own shares of a private company or Canadian real estate: see departure tax on private company shares and the list of properties form; get individual tax help for the valuation.
• You have no records of arrival values: see first year as a Canadian tax resident; rebuilding values before the departure return is filed needs individual tax help.
• You came as a student or on a work permit: see international students leaving Canada or leaving after a work permit ends.
• You own a home abroad bought while resident: see foreign real estate when leaving Canada.
• You may move back to Canada later: see moving back after paying departure tax.