Leaving Canada: Departure Tax and Your Final Return

When do I become a non-resident of Canada for tax purposes?

You generally become a non-resident when you leave Canada to live elsewhere and sever your main residential ties. The date is usually the latest of the day you leave, the day your spouse or common-law partner and dependants leave, and the day you become resident in the new country. It is not necessarily your flight date. If you return to a country where you lived before Canada, a different departure-date rule may apply (CRA: Leaving Canada).

A home, spouse, or dependants remaining in Canada can keep you resident; a tax treaty can also change the result. The full ties analysis, including whether to submit Form NR73, belongs in Canadian tax residency. Keep evidence of when you left, where your family lived, when your foreign home became available, and when foreign residency began.

What is departure tax, and how is it calculated?

Departure tax is income tax on gains that arise because Canada treats certain property as sold for fair market value just before you become a non-resident, even when you keep it. You are treated as buying it back for that same value. Shares and other investments commonly fall within this rule (CRA: Dispositions of property; Income Tax Act, section 128.1).

For each affected asset, compare its departure-date fair market value with its adjusted cost base, subject to applicable capital-loss rules. Report the resulting gain or loss on Form T1243 and Schedule 3 of your departure-year return. The gain is part of your income-tax calculation; there is no separate flat departure-tax rate. Save valuation records and cost-base records in Canadian dollars. A private-company share value or a stock-option position can require judgment, so establish the treatment before filing (CRA: Reporting the deemed disposition).

Which property is exempt: my home, RRSP or TFSA?

Canadian real estate and specified registered rights are generally excluded from the departure deemed sale, but an ordinary investment account generally is not. The main categories are (CRA: Dispositions of property; Income Tax Act, section 128.1):

The short-term resident exception applies to the qualifying property, not to everything acquired while in Canada. Canadian real estate can still trigger reporting on a later sale; see Selling Canadian property as a non-resident. If you rent your home after leaving, see Non-resident landlords. Whether a home sale qualifies for the principal residence exemption is a separate question.

You can elect to include otherwise excluded Canadian real estate or qualifying Canadian business property in the deemed sale. Sign Form T2061A and attach it to your departure-year return by its filing due date (CRA: Form T2061A).

Which forms do I file: T1161, T1243 or T1244?

The three forms do different jobs: T1161 lists property, T1243 calculates deemed gains, and T1244 elects to defer payment. T1161 can be required even if you owe no departure tax or do not otherwise need to file a return (CRA: Dispositions of property).

Missing the T1161 deadline can cause a daily penalty even if your return has no tax owing. Its property list and the T1243 deemed-sale list differ, so reconcile both before filing (CRA: List of properties and penalty). If you were a Québec tax resident when you left and became a non-resident, include TP-785.2.5-V with your Québec return when your property exceeds Québec's reporting threshold; use TP-1033.2.A-V for a Québec deemed disposition when applicable (Revenu Québec: Leaving Québec).

Can I delay paying departure tax until I actually sell?

You can elect on Form T1244 to defer payment of eligible departure tax until the property is actually disposed of. The election does not remove the deemed gain from the departure-year return. Sign and file T1244 by April 30 after the year you leave, and attach a copy to your return. The CRA says the deferred amount is payable without interest when you dispose of the property; an employee benefit plan is excluded from this election (CRA: Form T1244; CRA: Deferring the tax owing).

You must provide adequate security if federal tax on the deemed-disposition income exceeds the published threshold. The latest published amounts are $16,500 for most emigrants and $13,777.50 for former Québec residents; provincial or territorial tax may require security too. These figures come from the CRA's latest published departure guidance for the preceding return year, so confirm them before electing. Contact the CRA early enough to arrange acceptable security before the election deadline (CRA: Deferring the tax owing).

After you dispose of deferred property, send the CRA its description from your original T1243, any share count, and the disposition date. Any resulting payment is due April 30 of the following year (CRA: Disposing of property after emigration).

What goes on my final Canadian tax return, and when is it due?

For the part of the year you were resident, report worldwide income in Canadian dollars. For the period after departure, report only Canadian-source income that belongs on a return; some payments instead have non-resident tax withheld at source. Enter your departure date and use the return package for the province or territory where you lived on that date (CRA: Leaving Canada).

The self-employment filing extension has exceptions, and weekend or holiday rules can move a due date (CRA: Filing due dates). File a departure-year return if you owe tax or want a refund. If no return is required, tell the CRA your departure date as soon as possible; you may still need to send T1161 by your filing due date. Tell Canadian payers and financial institutions that you are a non-resident (CRA: Leaving Canada; CRA: Dispositions of property). If you were a Québec tax resident when you left and became a non-resident, file a Québec departure-year return too (Revenu Québec: Leaving Québec).

What happens to my RRSP and TFSA after I leave?

You can generally keep an RRSP and a TFSA after becoming a non-resident. Neither is normally sold for departure-tax purposes. Canadian withholding can apply when an RRSP pays you; a TFSA withdrawal remains exempt from Canadian tax, although your new country may tax it (CRA: Leaving Canada; CRA: Non-residents and income tax).

You may still contribute to an RRSP after departure if you have unused deduction room. Check whether a contribution is deductible on a Canadian return (CRA: Non-residents and income tax).

A non-resident TFSA contribution, apart from a qualifying transfer or exempt contribution, is subject to a monthly tax of 1% while it remains in the account; an excess contribution can cause another tax. You receive the annual TFSA room for a year in which you were resident for part of the year, but contributions after your non-resident date are taxable. You get no new annual room for a full non-resident year. Room from withdrawals made while abroad becomes usable only when you become resident again (CRA: How non-residency affects your TFSA). Check any Home Buyers' Plan or Lifelong Learning Plan balance separately because leaving triggers special rules (CRA: Leaving Canada).

How are pension, RRSP, CPP and OAS payments taxed after I leave?

Canadian payers generally withhold non-resident tax from pension, RRSP, CPP, and OAS payments at the domestic rate of 25%, unless a tax treaty reduces it. Tell each payer and financial institution your non-resident status and country of residence so the applicable withholding can be assessed (CRA: Non-residents and income tax; CRA: Leaving Canada).

Withholding is usually the final Canadian tax on pension, RRSP, and CPP payments, though a section 217 return may be available. OAS can also face recovery tax based on world income. Depending on the treaty rate, an OAS recipient may need to file Form T1136 by April 30 even without a section 217 election; missing it can interrupt OAS payments (CRA: Who can elect under section 217; Government of Canada: OAS recovery tax).

Do I keep getting the Canada child benefit and other credits?

Generally, a non-resident is no longer eligible for the Canada child benefit, Canada Groceries and Essentials Benefit, or GST/HST credit. Tell the CRA when you leave and contact it promptly if payments continue afterward (CRA: Leaving Canada; CRA: Non-residents and income tax). If a parent and child remain in Canada, the resident parent who primarily cares for the child may still qualify for the child benefit (CRA: Who can apply).

Departure can also limit credits on your final return. Federal non-refundable credits are calculated separately for the resident and non-resident parts of the year, and provincial or territorial credits can have different conditions (CRA: How to complete your tax return).

What do I still file in Canada after I leave?

Non-resident status ends Canadian tax on most foreign-source income, but Canadian-source income may still require withholding or a return. Canadian employment or business income and a sale of taxable Canadian property can require a Canadian return; pensions and some investment payments are commonly settled by withholding unless you elect another method (CRA: Non-residents and income tax).

If you owned foreign property or a foreign company while resident, check whether pre-departure foreign reporting is still due; see Foreign property and affiliate reporting.

What if I move back to Canada later?

If you re-establish Canadian tax residency while still owning property that faced departure tax, you may elect to unwind some or all of the earlier deemed disposition. Send a written request with the affected property and its fair market value by the filing due date for the return year. The adjustment has limits, and previously deferred tax or security may need to be settled or released (CRA: Unwinding a deemed disposition).

Keep your departure-year T1243, valuation records, proof of any tax paid, and records of later disposals. Re-entry also changes TFSA contribution eligibility and may reset cost amounts for property under the immigration rules (CRA: How non-residency affects your TFSA; Income Tax Act, section 128.1).

Example

Illustrative amounts in Canadian dollars. A person becomes a non-resident after moving abroad. On the departure date, shares in an ordinary investment account have a fair market value of C$100,000 and an adjusted cost base of C$40,000. The deemed sale creates a C$60,000 capital gain to report on T1243 and Schedule 3, even though the shares are not sold. At the current one-half inclusion rate, C$30,000 is a taxable capital gain before allowable losses; the tax depends on the full return (Income Tax Act, section 38).

The person also owns a Canadian home worth C$500,000, an RRSP worth C$80,000, and a TFSA worth C$20,000. Those assets are generally excluded from the departure deemed sale. The home alone exceeds $25,000, so this person must file T1161; the shares also belong on the list (CRA: List of properties). If the person wants to postpone payment on the shares' departure gain, T1244 must be elected on time, and security may be required.

Different for you?

• Your family, home, or work remains in Canada: the departure date and residency result need a full ties review. See Canadian tax residency.
• You are moving to the United States: coordinate both countries' residency dates, treaty position, and returns. See Moving from Canada to the US.
• You keep or later sell a Canadian home: rental withholding and sale reporting follow separate rules. See Non-resident landlords and Selling Canadian property as a non-resident.
• You control a Canadian private corporation: becoming a non-resident may change its Canadian-controlled private corporation status as well as create a gain on your shares. Review both before moving (CRA: Type of corporation).
• You have stock options, a large portfolio, or a plan to return: departure values, elections, and later adjustments can materially change tax. Gather cost records, departure-date fair market values, proof of the move, and registered-account statements for tax preparation.