Deferring Canada's Departure Tax: T1244 and Security

Can I postpone departure tax on shares I cannot sell?

Yes, if you elect in time and give any security required. You can elect on Form T1244 to postpone paying departure tax until you sell or otherwise dispose of the property (a sale, gift or other transfer). The deemed sale and its income still go on your departure-year return; only payment is postponed (subsection 220(4.5)).

The CRA says you can elect regardless of the amount of tax; neither its page nor subsection 220(4.5) requires that you be unable to sell. Rights under an employee benefit plan are excluded (CRA: deferring departure tax).

First establish which assets face departure tax and how large the gain is. Canadian real estate, registered plans and some employee options follow different rules, covered in Leaving Canada. Shares you owned when you last became a Canadian resident, or inherited since, are also outside the deemed sale if you were resident in Canada for no more than 60 months in the preceding 120 months (paragraph 128.1(4)(b)). If the shares are qualified small business corporation shares, the lifetime capital gains deduction (limit for qualifying property: C$1.275 million) may reduce or remove the deemed gain, and minimum tax can still apply (subsections 110.6(2.1) and (5); Selling your business). For a payout or wind-up of your own company, see Moving across the border with a company.

Can I defer all or part of the federal and provincial tax?

Yes, both. You choose how much to defer, up to the federal tax on T1244 line 10 and the provincial or territorial tax on line 13, and you can limit the election to some properties by listing them on page 2. Departure tax you do not elect is due on the usual balance-due day, April 30 of the year after you leave (CRA: T1244 instructions).

When do I have to give the CRA security?

If you elect and the federal tax on the departure income is above the published threshold, you must arrange adequate security. The threshold measures tax, not the property's value or the capital gain (CRA: T1244 instructions).

These are the amounts in the CRA's current departure-tax guidance and on Form T1244; confirm them before filing. You may also be asked for security covering provincial or territorial tax (CRA: security requirements).

At or below the threshold no security is needed, but you still file T1244; it is not a tax exemption. Above it, the Act treats a first slice of your federal tax as already secured, so the security the CRA asks for can be less than the full tax, adjusted for payments made and possibly including provincial tax. Ask the CRA to confirm the amount (subsections 220(4.5) to (4.52)).

What security does the CRA accept, and how do I arrange it?

The CRA's departure-tax page and T1244 require "adequate security" but publish no list of acceptable types, and the Act asks only that it be adequate and accepted by the CRA. The private shares that create the tax are not automatically approved collateral. T1244 has a CRA-use box for the amount, type and expiry date of the security, so expect a documented, dated arrangement (T1244; subsection 220(4.5)).

The CRA's departure-tax service covers arranging security, reporting dispositions and unwinding deferred tax, with a toll-free number and a collect number from outside Canada and the US (CRA: departure-tax help). Call early enough to finish before the deadline.

1. Draft T1243 and the departure return so the tax amount is known, and decide which property and amounts T1244 will cover.
2. Gather valuations, share records, transfer restrictions and details of existing claims against the proposed collateral.
3. Ask the CRA what it will accept, how to document it, where to send the election and whether provincial amounts need separate cover; keep proof of submission and of acceptance, including any expiry or replacement terms.

A telephone discussion or an unaccepted proposal is not security the CRA has accepted.

How and by when do I file T1244, T1243 and T1161?

File the signed T1244 by April 30 of the year after departure and attach a copy to the departure return. Contacting the CRA about security does not replace filing it. Each spouse who leaves files their own (CRA: Form T1244; T1244 instructions).

A late T1161 carries its own penalty even when no return is required: C$25 for each day late, at least C$100 and at most C$2,500. What each form reports is in Leaving Canada (T1243 instructions; T1161 instructions). Qualifying self-employment moves the ordinary filing deadline to June 15, but not the T1244 deadline (CRA: filing and payment dates).

Is deferred departure tax interest-free if security is rejected or I elect late?

Yes, for the amount you validly elect and for which security is accepted or deemed accepted: the CRA says you pay it later, without interest, when you sell or otherwise dispose of the property (CRA). Under subsection 220(4.5) that relief covers only that amount and period, and it does not reach the instalment-interest rules in subsections 161(2), (4) and (4.01). Tax outside accepted or deemed security, including an unaccepted proposal, is ordinary unpaid tax: it is due on the balance-due day, and interest runs on it after that (section 220; subsection 161(1)).

If the CRA later finds the security inadequate, it must tell you in writing, and you have 90 days after the CRA's written notice to furnish replacement security for all or part of the amount. Accepted replacement security counts as accepted from the date of that determination; a shortfall that remains can cost you interest relief on that amount (subsection 220(4.53)).

Sending T1244 late does not automatically cure a missed deadline. Subsection 220(4.54) lets the CRA extend the time to elect, to furnish security or to replace security when it considers that just and equitable. Approval is discretionary, so ask early and do not assume it. If you never filed a departure return, see Left Canada without telling the CRA.

What if I cannot post security: pay part, sell part or ask for hardship relief?

The part you do not secure is ordinary tax due on the balance-due day. Your options are a smaller election, paying part from an actual sale, or asking the CRA to accept different or lesser security under the hardship rule. That rule applies only if you cannot, without undue hardship, both pay the tax and provide security (T1244 elected amounts; subsection 220(4.7)).

Illiquid shares do not, by themselves, show both conditions; the CRA decides on the facts. Prepare records of cash, borrowing capacity, other assets and what prevents a sale. The CRA must ignore any voluntary restriction on property that can reasonably be considered to have been entered into to influence the decision (subsection 220(4.71)). If you sell some property to raise cash, check the timing, any new Canadian or US tax, and the release of the deferred amount tied to it. For cancelling penalties or interest, see Penalties, interest and relief.

What happens when I sell or give away the property?

A later sale or other disposition can make some or all of the deferred tax payable. A gift also needs review as a disposition; the deferral does not depend on receiving sale proceeds (subsection 220(4.5)). If the recipient is your spouse or common-law partner, a child under 18 or anyone you do not deal with at arm's length, section 160 can make them jointly liable for tax you owe for that or earlier years, up to the property's value less what they paid, and the CRA may assess it at any time (section 160).

Send the CRA a notice addressed to Non-Resident T1 Adjustments at the Winnipeg Tax Centre, identifying the property as shown on the original T1243, the number of shares disposed of where applicable, and the disposition date. Payment of the resulting amount is due by April 30 of the year after the year of the sale or gift (CRA: reporting an actual disposition); use the CRA's current address directory. For a partial sale, distinguish the shares sold from those still held and ask the CRA for the remaining deferred-tax and security amounts.

A later sale at a lower price does not by itself reduce the departure gain. Subsection 128.1(8) lets you move a later loss back against the departure gain by a written election in the sale-year return, but only for capital property that is taxable Canadian property when you sell it (section 128.1). Shares of an unlisted company are taxable Canadian property only if, at any time in the previous 60 months, more than half of their value came from Canadian real property, Canadian resource or timber property, or options or interests in them, so the election is often unavailable for operating-company shares (CRA: taxable Canadian property). If your shares are taxable Canadian property, a non-resident sale can also require notice to the CRA and a buyer holdback: see Non-residents selling Canadian property.

What if I move back to Canada before selling?

Possibly. The CRA says that if you deferred departure tax and later become a Canadian resident again, you may now have to pay the deferred tax. You can instead elect to undo the departure sale, by writing to the CRA on or before your filing due date for the year you resume residence, listing the affected property and its fair market value (CRA: returning residents).

The election applies only if your last departure before returning was after October 1, 1996, and only to property you owned throughout your time away (subsection 128.1(6)):

Ask the CRA to reconcile the deferred balance and security with the election before assuming either continues unchanged, with your departure papers and return-date valuations in hand.

Does Canadian deferral protect me from US tax on the same gain?

T1244 changes only when Canadian tax is paid; it does not defer or reduce US tax. US tax residents generally report worldwide income, so a later sale can involve US tax as well as payment of the deferred Canadian bill (IRS: Publication 519).

The Article XIII(7) treaty election is separate and is made on the US return, not on T1244. If you were not yet subject to US tax on the gain when you left Canada, it can give you a US cost equal to the departure value; if you were (for example, a US citizen), it can instead bring US gain into the year of the deemed sale (IRS: Revenue Procedure 2010-19, sections 4.01 and 4.02). The IRS requires documentation that the gain was recognized and reported for Canadian tax; T1244 postpones payment, not reporting. The election goes on the timely filed US return for the first tax year ending after the move, with Form 8833, not at a later sale (section 4.01(3)). Its effect on US basis and its filing requirements are in Moving from Canada to the US.

Do former Quebec residents need a separate provincial deferral?

Yes. Former Quebec residents use a separate Revenu Québec election, Form TP-1033.2-V, for Quebec departure tax, and T1244 tells them to leave its provincial lines 11 to 13 blank. Quebec's gain is worked out on its own form, TP-1033.2.A-V (T1244 instructions; Revenu Québec: TP-1033.2-V).

The edition read for this page, dated March 2021, requires the election with the Quebec return by April 30 of the year after you emigrate, and adequate security by the same date when Quebec's tax on the deemed-disposition income is above C$12,875. Confirm with Revenu Québec that this edition and that threshold are still current before relying on them.

Unlike the CRA guidance, that form lists security types: an irrevocable letter of guarantee in Canadian dollars from a financial institution with a head office or place of business in Quebec, a conventional hypothec over Quebec real estate, and certificated shares of Canadian private corporations. These are Quebec's categories, subject to its acceptance, not a list of what the CRA accepts (Quebec form and instructions).

Example

All figures are illustrative Canadian dollars, not a tax calculation.

In Year 1 an individual leaves Ontario for the US holding private-company shares with a C$200,000 tax cost and a supported C$600,000 departure value. The deemed gain is C$400,000, and transfer restrictions prevent an immediate sale. Assume no exemption applies to the gain, and that the departure return produces C$60,000 of eligible federal tax and C$30,000 of provincial tax.

The individual reports the gain on T1243 and Schedule 3 and lists the shares on T1161. The C$60,000 of federal tax is above the federal security threshold, so security the CRA accepts is needed; the CRA confirms the amount, and the provincial tax may need its own cover. T1244 and the accepted security are due by April 30 of Year 2.

If the individual sells all the shares in Year 4, the CRA needs the property description, share count and sale date, and the deferred tax is due by April 30 of Year 5. If the individual instead returns to Canada still holding the shares, the deferred tax may become payable unless the election to undo the departure sale is filed. For shares of an operating company, that election can cut the departure gain only by lowering their Canadian cost on return by the same amount.

Different for you?

Gather the departure return, valuations, share records, proposed security documents and US residency dates before seeking a review.

• Private shares, disputed valuations, insufficient collateral, a lower sale price, a return to Canada or Quebec departure tax: these require judgment about elections and security; use cross-border tax.
• You own the company whose shares you are deferring: see Moving across the border with a company and Selling your business.
• Unsure when Canadian tax residence ended or resumed, or both countries treat you as resident (the treaty tie-breaker decides): see Canadian tax residency.
• Need the departure-tax calculation or property exemptions: see Leaving Canada.
• Missed the T1244 deadline: see the extension paragraph under the interest question above. Never filed a departure return: see Left Canada without telling the CRA.
• RRSP withdrawals or an unpaid Home Buyers' Plan balance: see Home Buyers' Plan balance when you leave Canada.
• US treaty election, existing US citizenship or residency, or US state treatment: start with Moving from Canada to the US.
• Penalties or interest already assessed: see Penalties, interest and relief.