Canada and the Departure Tax
When you leave Canada and become a non-resident, the Income Tax Act treats you as if you’ve sold certain assets, even if you haven’t. This is called departure tax. It can create immediate tax liabilities and complex compliance issues, especially for individuals with investments, shares, or business interests.
A Toronto tax lawyer at Kirshen Tax Law can help you determine if departure tax applies, minimize its impact, and coordinate CRA filings before or after you leave the country.
What Is Departure Tax?
Departure tax is a deemed disposition of certain property when an individual ceases to be a resident of Canada for tax purposes. This means that, on your exit date, you are considered to have disposed of many assets at their fair market value and immediately reacquired them, triggering capital gains or losses.
Departure tax generally applies to:
- Shares of public or private corporations;
- Units in mutual funds;
- Cryptocurrency;
- Certain real estate located outside Canada;
- Interests in trusts; and
- Other taxable Canadian property not excluded by regulation.
Cash, Canadian real estate, RRSPs, TFSAs, and pensions are not subject to departure tax, but they may have separate non-resident tax consequences.
When Does Departure Tax Apply?
You are subject to departure tax if you are a Canadian tax resident and then become a non-resident. This determination is based on your residential ties, not just where you live.
You are considered to have emigrated when:
- You leave Canada and establish ties to another country;
- You sever significant residential ties with Canada; and
- You are no longer considered resident under the tie-breaker rules of a tax treaty.
Your departure date is critical for determining both the deemed disposition value and reporting deadlines.
What Needs to Be Filed?
When you emigrate, you are required to:
- Report the deemed disposition on your final Canadian return (Form T1243);
- List of property, if applicable (Form T1161);
- Elect to defer tax, if eligible (Form T1244); and/or
- File all standard income tax forms and slips for your year of departure.
Failure to file can result in penalties, interest, and CRA reassessments.
Can Departure Tax Be Deferred?
Yes, in certain cases. You may be able to defer the departure tax by filing Form T1244 and providing security to the CRA for the deferred amount. This deferral prevents you from having to pay a large tax bill before you’ve actually sold the asset. However, it’s not automatic, CRA approval and collateral may be required.
We advise clients on whether deferral makes sense based on their asset mix, tax treaty protections, and future plans.
Why Work with a Tax Lawyer?
Departure tax can have long-term consequences. CRA may challenge your non-residency, deny your treaty relief, or reassess your valuation of assets. A tax lawyer can help:
- Determine your departure date and tax residency status;
- Calculate departure tax accurately;
- Coordinate the completion of the T1243, T1161, and other required forms;
- Handle CRA inquiries, objections, or reassessments related to your emigration; and
- Coordinate with your foreign advisors and accountants.
We act as your legal representative in Canada to ensure your exit is properly documented and defended.
Kirshen Tax Law Can Help
Leaving Canada doesn’t mean leaving tax problems behind. A Toronto tax lawyer at Kirshen Tax Law can guide you through the departure tax process, reduce your exposure, and make sure your departure is clean from a legal and tax perspective. Contact us today to book a free consultation.
Jeff Kirshen BA, JD (CA), JD (US)
Tax Lawyer | Founder, Kirshen Tax Law
Disclaimer
The content on this website, including articles and blog posts, is provided for general informational purposes only. It reflects the laws and regulations as of the date of publication, which may have since changed. This content is not intended to serve as legal advice and should not be relied upon as such. Tax laws and situations can be complex and unique to each individual. The information provided may not apply to your specific circumstances. For personalized advice regarding your tax or legal matters, we recommend consulting a qualified lawyer.