Shares fell after leaving Canada: departure tax refund?

Departure tax loss after emigration: can a drop in value reduce it?

Yes, but only for shares that were taxable Canadian property when you sold them. For those, section 128.1(8) lets you elect to move the loss on the later sale back to your departure year, cutting the gain you reported there. For shares that were not taxable Canadian property at the sale, which covers most listed shares, Canada has no rule that reduces the departure gain unless you move back while still owning them.

A Canadian home, condo or rental you own directly is not part of departure tax, so there is nothing to reclaim; it is taxed only when you sell. See selling your home after leaving Canada or non-residents selling Canadian property.

The amount moved back is the least of three figures:

A case is not simple when the shares are private company shares, when you received dividends after leaving, when you deferred the tax, when you already sold and did not elect in time, or when your new country also taxes the sale. Gather the departure return and Form T1243, the departure-date valuation, the sale agreement and proof of price, every dividend and withholding slip since you left, and any section 116 certificate.

Which shares qualify for the post-emigration loss election?

Shares qualify only if they were taxable Canadian property at the moment you sold them. Under the definition in section 248(1), summarized in T4058, that means:

Shares of your own operating company, whose value comes from its business rather than Canadian land, are usually not taxable Canadian property, so a later drop in their value does not reduce the departure gain. A small holding of listed bank or technology shares is not either. The 60-month look-back can keep shares in the definition after a company has sold its real estate, so test the whole period. For valuing private shares at departure, see departure tax on private company shares.

How does the election work, and which return is it made in?

The election is made in writing in your non-resident return for the year you sold the shares. That return also reports the sale itself on Schedule 3, as T4058 describes for taxable Canadian property. The elected amount is subtracted from your departure-date proceeds and added to your sale proceeds, so the later loss shrinks by the same amount it moves back.

To get the departure year reassessed, section 152(6) requires the CRA's prescribed form to amend the departure return (an amending request), filed by the filing due date of the sale-year return. Miss that date and the departure year may not be reassessed for the loss. If you elected on time but missed the amending deadline, you can still ask in writing for the departure year to be reassessed within 10 calendar years after the end of that year (section 152(4.2)); the CRA decides whether to grant it.

Already sold and did not elect, or missed the date? The CRA can accept this election late or amended at its discretion under section 220(3.2), if you apply within 10 calendar years after the end of the sale year, so the loss is not automatically lost. The request needs the sale facts and a reason for the delay. An accepted late or amended election carries a penalty of $100 for each complete month from the original due date to the day you apply, up to $8,000 (section 220(3.5)).

The result is a lower departure-year tax: a refund if you paid it, or a smaller balance if you deferred it. Only the taxable part (50%) of the amount moved back comes out of taxable income.

If you deferred with security, no interest runs while the security is accepted, up to April 30 after the sale year (section 220(4.5)). A departure-year balance left unpaid without security, or still unpaid after that date, carries interest until the reduction counts as paid. Under section 161(7) it counts from 30 days after the latest of three dates: the end of the sale year, the day you file the sale-year return, and the day you file the amending request.

How do dividends received after leaving shrink the loss?

Dividends paid on the shares while you were non-resident reduce the loss you can carry back. Section 40(3.7) treats a former resident as a corporation for those dividends, so the stop-loss rule in section 112(3) cuts the loss by taxable dividends, capital dividends (paid under a subsection 83(2) election) and Part XIII deemed dividends received on the shares after you left. Section 128.1(8) measures the loss after these rules.

Section 112(3.01) excludes a dividend received when you and people not at arm's length with you owned no more than 5% of any class of the company's shares, on a share you held throughout the 365 days before the sale. An owner of a private company usually fails that test, so expect every dividend, including a capital dividend, to count. Keep every NR4 slip, because the dividends and the tax withheld on them are the starting point.

Deferred departure tax and shares worth less: what do I owe and send when I sell?

The CRA describes the deferred amount as departure-year tax that falls due when you sell; neither the Act nor the CRA's guidance says it falls with market value. Form T1244 defers the departure-year tax itself; when you sell, the tax deferred for those shares falls due. The CRA says payment is due by April 30 of the year after the sale. The deferred amount drops only if the post-emigration loss election cuts the departure-year tax, so for shares that are not taxable Canadian property, expect the deferred amount for those shares to come due. Confirm the figure with the CRA before paying less than the amount secured.

When you sell, send these to the CRA:

1. A list to Non-Resident T1 Adjustments with the description of the shares as shown on your original T1243, the number of shares sold and the date you sold them (CRA).
2. For taxable Canadian property, a section 116 notice within 10 days of the sale. Without a certificate the buyer may hold back 25% of the price. See non-residents selling Canadian property.
3. The non-resident return for the sale year, reporting the sale and making the election.
4. The amending request for the departure return, by the filing due date of the sale-year return.
5. Payment of whatever deferred tax remains due.

Security and interest mechanics belong to deferring departure tax.

Listed shares that fell after leaving: is there any Canadian relief?

Usually not. Listed shares you hold below the ownership test are not taxable Canadian property, so the election is unavailable and the departure gain stands. The one Canadian exception is moving back while you still own them; see below. A sale by a non-resident of shares that are not taxable Canadian property is generally outside Canadian tax, so the loss gives no Canadian deduction either. The departure tax is still owed, or still due when you sell if you deferred it.

Relief, if any, depends on your new country. Some countries treat your cost as the departure-date value, so a sale below it gives a loss there; others use your original cost. Moving to the US, the treaty offers an election to step up US cost; see moving from Canada to the US. A separate rule, section 126(2.21), credits, against departure-year tax, tax a treaty country charges on the part of a gain that built up while you lived in Canada. It can still apply after a drop if your new country uses your original cost and the sale shows a gain over it; it gives nothing when no foreign tax falls on that part. Like the loss election, it needs the amending request for the departure return, filed by the filing due date of the sale-year return.

Does moving back to Canada help?

It can, if you return while still owning the shares; conditions apply. For shares that stayed taxable Canadian property from departure to return, section 128.1(6)(a) lets you elect to unwind the departure disposition. For other shares, such as most listed shares, section 128.1(6)(c) lets you elect to cut the departure gain by up to the shares' value on the day you return, and your cost on return falls by the same amount. Either election is due by the filing due date for the year you return. Once the shares are sold, that route is closed and only the loss election remains. See moving back after paying departure tax.

What records prove the drop?

The CRA will want to see both ends of the loss and everything between. Keep:

• The departure return, Schedule 3, Form T1243 and any T1244 and security agreement
• The departure-date valuation, with how it was reached (for private shares, a valuation report and the company's balance sheet)
• The sale agreement, closing statement and proof of payment received
• Exchange rates used, if the sale was in another currency
• Every dividend paid since you left, with NR4 slips and withholding records
• The section 116 notice and certificate, and any buyer holdback

If the CRA questions the departure value itself, see the CRA disputes your departure value.

Example

All figures are illustrative and in Canadian dollars.

Real-estate company shares sold for less

Unlisted shares of a company holding Canadian rental buildings: cost C$300,000, worth C$800,000 at departure, gain C$500,000. Three years later they sell for C$600,000, a C$200,000 loss. The shares are taxable Canadian property, so the owner elects C$200,000 in the sale-year return and files the amending request. The departure gain falls to C$300,000; half of the C$200,000, C$100,000, comes out of departure-year taxable income. The refund, or the cut to a deferred balance, is the departure-year tax on that C$100,000 at the owner's departure-year rates.

The same shares paid dividends after leaving

Same facts, but the company paid C$50,000 of taxable dividends after the owner left. Section 40(3.7) cuts the loss from C$200,000 to C$150,000. Only C$150,000 moves back, so the departure gain falls to C$350,000 and C$75,000 comes out of departure-year taxable income.

Listed bank shares that fell

A small holding of listed bank shares worth C$100,000 at departure falls to C$70,000 before sale. The shares are not taxable Canadian property, so no election is available. The departure gain stands; any relief for the C$30,000 drop depends on how the new country sets the cost.

Different for you?

• You need the amending form, the election, a section 116 certificate and a refund handled together: get help with your individual tax return.
• You sold years ago and never made the election, or missed the filing date: get help with your individual tax return.
• You deferred the tax and need to settle the security: see deferring departure tax.
• The shares are in your own company (selling it, winding it up, or it lost value): see selling your Canadian company after moving abroad.
• You still own the shares and are moving back: see moving back after paying departure tax.
• The CRA is challenging the departure value: see the CRA disputes your departure value.
• You moved to the US and want US cost reset to the departure value: see moving from Canada to the US.