Departure Tax When Leaving Canada

Understanding departure tax when leaving Canada is essential for individuals emigrating to the United States, Europe, the Middle East, Asia, or any other country. When you leave Canada permanently and sever tax residency, CRA imposes a deemed disposition on many of your assets. This means you are treated as though you sold them on the day you left Canada, even if you did not sell anything. The resulting capital gains become taxable as part of your final Canadian resident return. This exit tax prevents taxpayers from leaving Canada without recognizing accrued gains. Québec applies similar rules under its Taxation Act. This guide explains everything you need to know about departure tax when leaving Canada, how it is calculated, who is affected, and how to minimize the tax impact.

Legal and Regulatory Framework
Departure tax when leaving Canada is governed by the Income Tax Act, CRA Form T1243 (Deemed Disposition), Form T1161 (Reporting Property Abroad), Residency Determination Rules, the Canada–U.S. Tax Treaty, provincial residency rules including Québec-specific rules, capital gains legislation, and non-resident taxation rules. Québec has additional filing requirements when leaving the province. CRA closely monitors residency changes to prevent tax avoidance and ensure proper reporting.

What Triggers Departure Tax?
Departure tax applies when you become a non-resident for tax purposes. This occurs when you sever significant residential ties such as a home, spouse, dependents, provincial health coverage, driver’s licence, and bank accounts, and establish permanent ties in another country. You may physically live abroad and still be considered a Canadian resident if you have not severed ties. Once CRA deems you a non-resident, departure tax rules apply.

What Assets Are Subject to Departure Tax?
CRA imposes deemed disposition on most capital property, including:
• stocks, bonds, ETFs, mutual funds
• cryptocurrency
• rental property outside Canada
• shares of private corporations
• investment portfolios
• foreign property
• partnership interests
• certain trust interests
• collectibles, art, and valuable personal property

These assets are treated as though they were sold at fair market value the day you leave Canada.

Assets NOT Subject to Departure Tax
Not all assets are included. Excluded assets include:
• Canadian real estate
• RRSPs, RRIFs, TFSAs
• pensions and deferred compensation
• employer RRSP matching plans
• certain insurance policies

Canadian real estate is excluded because it will be taxed when you actually sell the property (using non-resident rules). Registered accounts are excluded because they are taxed upon withdrawal, not departure.

Deemed Disposition and Capital Gains
The core of departure tax when leaving Canada is the deemed disposition. The gain is calculated as:
fair market value on departure – adjusted cost base
These gains must be reported on the final resident tax return. Tax applies even if you continue to hold the asset abroad.

Form T1161: Mandatory Reporting of Foreign Property
If the total cost of certain property exceeds $25,000 at departure, Form T1161 must be filed. This includes:
• stocks
• mutual funds
• crypto
• foreign rental property
• private company shares
• inherited assets
Failure to file Form T1161 triggers penalties even if no tax is owed.

Form T1243: Calculating Departure Tax
Form T1243 calculates the capital gains from deemed disposition. It must be filed with your final Canadian return. Québec residents must also file TP-1033 when leaving Québec.

Electing to Defer Departure Tax
If departure tax is high, you can elect to defer paying it until you actually sell the asset. CRA allows deferral with Form T1244, with or without providing security depending on the amount. This prevents immediate cash flow problems for taxpayers with large investment portfolios.

Special Rules for Canadian Real Estate
Canadian real estate is not subject to departure tax, but future sales by non-residents require:
• Section 116 withholding
• Form T2062 Clearance Certificate
• filing non-resident tax returns
You may also lose the principal residence exemption depending on residency ties at departure.

Departure Tax for Québec Residents
Québec requires individuals leaving Canada to file TP-1033, confirm departure date, and report deemed disposition of taxable assets. Québec residency rules are stricter than federal. RAMQ termination and Québec driver’s licence cancellation are often required to prove departure.

RRSP, RRIF, and TFSA Rules Upon Departure
RRSPs and RRIFs are not subject to departure tax and are not considered disposed of. Withdrawals after becoming a non-resident are subject to Canadian withholding tax. TFSAs lose tax-free status once you become a non-resident; income becomes taxable in the new country and no new contribution room accumulates.

U.S. Resident Considerations
If you move to the U.S., the U.S. does not recognize deemed disposition. You may end up paying Canadian capital gains on exit and U.S. tax on future gains unless basis adjustments are claimed. Proper cross-border planning can avoid double taxation, but it must be planned before leaving Canada.

Common Mistakes When Leaving Canada
Common errors include failing to file T1161, incorrectly claiming non-residency, keeping too many ties in Canada, failing to report foreign property, forgetting to file T1243, misunderstanding TFSA taxability in foreign countries, failing to obtain tax advice before selling corporate shares, and assuming dual residency eliminates departure tax. These mistakes often lead to CRA reassessments.

Key Court Decisions
Courts confirm that residency is based on factual ties, not personal intentions. Courts also confirm CRA’s authority to assess departure tax even when taxpayers argue they “did not know” about deemed disposition rules. Québec courts enforce strict departure reporting, especially when property or business assets remain in Québec.

Why CRA and Revenu Québec Audit Departing Taxpayers
Audits focus on unreported investment portfolios, incorrect residency declarations, mismatched dates with immigration records, large capital gains not reported, failure to disclose foreign assets, continued use of Canadian credit cards or health services, and real estate holdings inconsistent with non-resident status.

Mackisen Strategy
Mackisen CPA provides complete departure tax planning and compliance. We prepare T1161 and T1243 forms, calculate deemed disposition gains, plan tax-efficient departure strategies, coordinate Québec TP-1033 filings, manage RRSP/RRIF and TFSA implications, structure corporate share freezes or reorganizations before departure, optimize cross-border treatment for U.S. residents, and defend taxpayers in CRA or ARQ residency audits.

Real Client Experience
A Montréal executive moving to the U.S. faced a large departure tax on corporate shares. Mackisen restructured the estate freeze before departure, reducing tax dramatically. Another client failed to file T1161; CRA issued penalties, which we successfully reversed. A family moving to Europe had significant crypto assets; we calculated departure gains and filed all forms. A Québec resident moving abroad needed RAMQ cancellation and Québec departure filings; Mackisen coordinated all documentation and ensured full compliance.

Common Questions
Do I owe tax when leaving Canada? Yes, on deemed disposition of certain assets.
Do I need to file T1161? Yes if assets exceed $25,000.
Is Canadian real estate taxed at departure? No, only when sold.
What happens to my RRSP? It remains tax-deferred; withdrawals taxed later.
Does TFSA stay tax-free abroad? No — most countries tax TFSA income.
Can I avoid departure tax? Not fully, but proper planning can reduce it.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps individuals navigate departure tax when leaving Canada with precision, strategy, and full compliance. Whether preparing returns, minimizing exit tax, or defending residency in CRA or ARQ audits, our expert team ensures a smooth transition and optimal tax outcomes.