Posting Security Instead of Paying Departure Tax in Full

The situation

Agnieszka had run a self-employed security consulting practice out of Kingston for nine years, contracting her services to warehouses, event venues and construction sites across the region rather than working for a single employer. Her partner, Sarah, worked as a landscaper, taking on seasonal contracts of her own. When Agnieszka's mother's health declined in Poland, the two decided, after months of back and forth, that Agnieszka would relocate to care for her, at least for the next several years, while Sarah wound down her landscaping contracts and prepared to follow a season later.

Agnieszka came to Treadstone Law a few months before her planned departure date, expecting the conversation to be about immigration paperwork on the Polish side. Instead, the first question our team asked was about what she owned: a modest investment account built up over years of self-employed savings, a portion of the equipment and goodwill tied to her security consulting practice, and a small non-registered brokerage account she and Sarah held jointly. That question mattered more than she realized, because leaving Canada for tax purposes is not just a matter of booking a flight. It carries its own tax event, separate from anything on the immigration side, and it does not wait for a person to actually sell anything before it applies.

The problem

Under the Income Tax Act, a person who ceases to be a resident of Canada is treated, for tax purposes, as if they sold most of their property at fair market value the moment before they left, and immediately reacquired it at that same value. This is often called departure tax, though the formal term is the deemed disposition on emigration. It applies whether or not anything was actually sold. The idea is that Canada wants to tax the growth in value that happened while someone was a resident, before that growth moves outside the country's reach.

Residency for tax purposes is not simply about citizenship or where a person's passport is issued. The Canada Revenue Agency looks at a range of connections to Canada — a home kept available here, a spouse or dependants remaining behind, social and economic ties, and where a person actually spends their time — to decide when residency actually ends. Because Sarah was staying in Kingston for a further season to finish her landscaping contracts, and the couple intended to keep their jointly held brokerage account and a shared bank account active in the short term, there was a real question about exactly when Agnieszka's Canadian residency would be treated as ending, and our team worked through that timing carefully before turning to the tax itself.

Once a departure date was reasonably established, the deemed disposition rule meant Agnieszka would be treated as having sold her investment holdings and her interest in the goodwill and equipment of her consulting practice at their value on that date. The accrued, unrealized gain worked out to roughly $30,000. Ordinarily, the resulting tax is due with the tax return for the year of departure, the same as tax on any other income earned that year. Agnieszka had not sold anything and had no plans to. The cash simply was not there to hand over to the CRA on property she still owned and had no intention of liquidating, and finding it would have meant either delaying the move or selling investments at a time she hadn't chosen.

What we did

1. Confirmed the departure date and the property affected. Our team reviewed which assets fell within the deemed disposition rule and which did not. Certain property, including Canadian real estate and property connected to a business carried on in Canada, is generally excluded from the immediate deemed disposition rule and taxed later instead, on an ordinary basis. Agnieszka's brokerage holdings were caught; the equipment and goodwill tied to her Kingston-based consulting practice, since she intended to keep contracting with Canadian clients remotely for a period, needed a closer look before being folded into the calculation.
2. Calculated the deemed disposition and the resulting tax. We worked with Agnieszka's accountant, Emily, to value the affected holdings as of the departure date and to confirm the resulting taxable gain, which came to roughly $30,000 once the calculation was finalized. This became the figure that mattered for the next step, since the option available to her turns on the actual amount owing.
3. Prepared and filed the election to post security instead of paying immediately. The Income Tax Act allows a departing taxpayer to elect to defer payment of the tax on the deemed disposition, rather than paying it with that year's return, by providing adequate security to the CRA for the deferred amount. Done properly, this means no cash changes hands until the property is actually sold, at which point the deferred tax becomes payable along with any further gain or loss realized on the real sale. Our team prepared the election, arranged for Agnieszka to pledge a portion of her brokerage holdings as the security itself rather than sourcing a separate letter of credit, and filed it within the required deadline tied to her departure-year return.
4. Set up tracking for the deferred liability. A deferred tax bill does not disappear; it sits attached to the property until it is sold, refinanced, or the taxpayer becomes a resident again and the disposition is effectively unwound. We gave Agnieszka a written summary of what was deferred, what would trigger payment, and what records she would need to keep for her accountant in Poland and in Canada, so the liability would not come as a surprise years later.

The outcome

The CRA accepted the security election without dispute. Agnieszka left Canada without paying the roughly $30,000 in departure tax up front, and without having to sell investments she wanted to hold onto. The security she posted, a pledge over part of the brokerage account itself, cost her nothing beyond some paperwork and the minor inconvenience of having those specific holdings flagged and restricted from sale without notifying the CRA. She and Sarah moved forward with their plan on their own timeline rather than one dictated by a tax bill.

The deferred amount remains attached to the underlying property. If Agnieszka sells those investments in the future, the roughly $30,000 becomes payable at that point, along with tax on whatever additional gain or loss occurred after her departure date. If she returns to Canada as a resident before then, the disposition is generally reversed for tax purposes, and no departure tax ends up payable on that property at all. Either way, the outcome she needed at the time, the ability to leave without an immediate cash demand on property she hadn't sold, was achieved cleanly. Sarah joined her in Poland the following spring, once her landscaping contracts for the season were finished and the couple's shared accounts in Kingston had been wound down in an orderly way rather than rushed to meet a filing deadline.

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