Becoming a Non-Resident of Canada: What Departure Tax Means for You

You have accepted a job overseas, retired to sunnier skies, or decided to settle permanently in another country. Exciting as that move may be, Canada has a parting gift waiting in your final tax return: departure tax. Many Canadians are blindsided by it because it does not work like an ordinary tax bill — you do not need to actually sell anything to trigger it.

This article explains the departure tax framework under Canadian law, what property it applies to, and what steps you can take to manage the impact before you leave.

What Is Departure Tax?

When you cease to be a Canadian tax resident, the Income Tax Act (Canada) treats you as having sold all of your property at fair market value on the day before your departure — even if you have not sold a single share or asset. This is called a deemed disposition.

The goal is to tax any capital gains that accrued while you were a resident of Canada. Without this rule, you could leave Canada with a portfolio of appreciated investments and sell them later as a non-resident, paying little or no Canadian tax on gains that built up entirely while you lived here.

Your Departure Date

Your departure date for tax purposes is not necessarily the day you board the plane. It is the date you severed your significant residential ties to Canada (see our companion article on tax residency and significant ties). If your spouse stayed behind or your home remained available for your use, your departure date may be later than you expect — and departure tax consequences may be deferred or complicated accordingly.

Getting the departure date right is critical because it determines which tax year the deemed disposition falls into.

What Is Deemed Disposed?

The deemed disposition applies broadly to most capital property you own on the departure date, including:

• Shares of Canadian and foreign public companies
• Shares of private corporations (subject to specific rules)
• Mutual fund units and ETFs
• Real estate outside Canada (Canadian real estate has separate rules for non-residents)
• Partnership interests
• Certain trust interests

You calculate a deemed gain (or loss) by comparing the fair market value on your departure date against your adjusted cost base (ACB) — roughly what you originally paid plus any adjustments. Capital gains are included in income at the applicable inclusion rate (as of writing — confirm the current inclusion rate with CRA or a tax professional).

What Is Excluded from the Deemed Disposition?

Not everything is caught. Key exclusions include:

• Canadian real property — land and buildings in Canada are not deemed disposed on departure because Canada retains the right to tax non-residents on gains from Canadian real property when they actually sell (through the section 116 clearance certificate process).
• Canadian Resource Property and timber resource property
• Business property used in a permanent establishment in Canada
• Registered accounts — RRSPs, RRIFs, and TFSAs are not deemed disposed, though other rules apply to non-residents holding these accounts.
• Pension entitlements (CPP, OAS, employer pensions)

The Security Election: Deferring Payment

If you do not have the cash to pay the tax on unrealised gains — because nothing has actually been sold — you may be able to elect to post security with the CRA in lieu of paying the tax immediately. This election allows you to defer payment until you actually dispose of the property.

The security can take various forms (government bonds, letters of credit, etc.) and must be posted by your filing deadline. This is a complex administrative process and requires careful coordination with a cross-border tax professional.

Your Final Canadian Tax Return (the "Departure Return")

In the year you leave Canada, you file a part-year resident return covering January 1 to your departure date. On this return you report:

1. All worldwide income earned while you were a resident
2. The deemed capital gains from the departure tax deemed disposition
3. Any applicable deductions and credits

After your departure date, you may also need to file an NR return for any Canadian-source income earned as a non-resident (rental income, employment income from Canadian sources, etc.) for the remainder of the calendar year.

Deadlines are the same as a regular T1 return (generally April 30 of the following year, or June 15 if you or your spouse had self-employment income — verify current deadlines with CRA).

RRSP and TFSA After You Leave

• RRSP — you can generally keep your RRSP after becoming a non-resident. Withdrawals will be subject to Canadian non-resident withholding tax. You cannot make new contributions. Whether your new country taxes RRSP growth or withdrawals depends on its domestic rules and any tax treaty with Canada.
• TFSA — once you become a non-resident, contributions to a TFSA are subject to a monthly penalty tax (as of writing — verify with CRA). Most advisors recommend ceasing contributions immediately.

Planning Before You Leave

The smartest time to think about departure tax is before you become a non-resident. Possible strategies include:

• Crystallising losses before departure to offset deemed gains
• Timing the departure date to fall in a lower-income year
• Using the capital gains exemption on eligible small business shares or farm/fishing property before leaving
• Restructuring ownership of certain assets (complex — requires professional advice)

None of these strategies should be implemented without qualified tax advice. Rushing a departure can lock in poor outcomes.

Frequently asked questions