Leaving Canada (Emigrants) — Montreal CPA Firm Near You: Residency Exit Rules, Departure Tax, TFSA, HBP/LLP, and Filing Your Final Return

When you leave Canada to live in another country, your tax situation changes in a fundamental way. At some point, you stop being a resident of Canada and become a non-resident for income tax purposes. That change—called emigration—can trigger a deemed sale of certain property (departure tax), change which income you must report, affect your eligibility for benefits and credits, and alter how you file future Canadian returns.

This guide explains what it means to be an emigrant for tax purposes, when you become a non-resident, what you must do when leaving, how to complete your final Canadian return, what departure tax is, how TFSAs and HBP/LLP are treated, and what happens to your benefits and credits after you go. It is written for individuals and families who are leaving Canada to settle elsewhere, including those returning to a previous home country.

Residency: Are You an Emigrant?

You are generally considered an emigrant for Canadian income tax purposes if you meet both of the following:

1. You leave Canada to live in another country; and

2. You sever your residential ties with Canada.

Severing residential ties means you no longer keep your main ties in Canada. This usually looks like:

• Disposing of or giving up your home in Canada and establishing a permanent home in another country

• Moving your spouse or common-law partner and dependants outside Canada

• Disposing of personal property and breaking social ties in Canada while acquiring ties in another country

If you leave Canada but keep significant residential ties (home, spouse, children, etc.), you are usually considered a factual resident, not an emigrant. However, if you also become a resident of a treaty country and are resident there under the tax treaty, you may be treated as a deemed non-resident. Deemed non-residents are subject to the same rules as emigrants.

When Do You Become a Non-Resident of Canada?

When you leave Canada to settle in another country, you generally become a non-resident of Canada for income tax purposes on the latest of:

• The date you leave Canada

• The date your spouse or common-law partner and dependants leave Canada

• The date you become a resident of the country you settle in

If you previously lived in another country before Canada and you leave Canada to re-establish yourself there, you typically become a non-resident on the date you leave Canada, even if your spouse temporarily remains behind to sell the house.

Determining the exact date matters for:

• Departure tax

• Reporting world income vs Canadian-source income

• Eligibility for credits and benefits

• Which part of the year is considered resident vs non-resident

If you are unsure of your status, it is wise to seek a residency determination or professional advice.

What You Need to Do When You Become an Emigrant

When you decide to leave Canada and become a non-resident, you must:

• Notify any Canadian payers (employers, pension administrators, financial institutions) that you are no longer a resident

• Update your address with the CRA and Revenu Québec (for Quebec residents)

• Consider how your departure affects RRSPs, TFSAs, HBP/LLP, and other tax shelters

• Review whether your property triggers departure tax

• Decide if you must or should file a Canadian return for the year of departure

If you owned property or goods when you left Canada, you may have to report a deemed capital gain on certain assets.

Do You Have to File a Tax Return for the Departure Year?

You must file a return for the year you leave Canada if any of the following apply:

• You owe tax

• You want a refund because too much tax was withheld

Filing is also strongly recommended if:

• You have departure tax to report

• You want to correctly close your resident status and avoid future CRA disputes

• You want to preserve RRSP room, tuition carryforwards, or other tax attributes

If you determine that you do not have to file, you should still inform the CRA of your departure date as soon as possible.

Which Income Tax Package Should You Use?

For the tax year in which you leave Canada:

• Use the income tax package for the province or territory where you resided on the date you left Canada.

Examples:

• You lived in Quebec before departure: use the federal package plus file a provincial return with Revenu Québec.

• You lived in Ontario: use the Ontario income tax package.

After departure, in future years, you generally use non-resident procedures rather than a regular provincial package, depending on the type of Canadian income you still receive.

When and Where to Send Your Tax Return

Filing deadlines are the same as for other individuals:

• April 30 of the year following the tax year; or

• June 15 if you or your spouse or common-law partner carried on a business in Canada (but any tax owing is still due April 30).

You must mail or file electronically with the CRA’s designated processing centre for your region. CRA’s website lists specific mailing addresses.

Good news for 2024 returns: emigrants can now use NETFILE, and EFILE restrictions have been lifted for deemed residents, subject to some exclusions. That makes it easier and faster to file a complete, accurate departure-year return.

Departure Tax: Deemed Disposition When You Leave

When you leave Canada, you are considered to have sold certain types of property at fair market value immediately before becoming a non-resident, and to have immediately reacquired them at that same value. This is called a deemed disposition. Any gain on this deemed sale is departure tax, which you must report as a capital gain.

Deemed disposition generally applies to:

• Shares in publicly traded or private corporations

• Units of mutual funds

• Certain personal properties like jewelry, paintings, and collections

• Other capital properties not exempt from departure rules

Some assets are excluded (for example, Canadian real property, certain pension rights, RRSPs, etc.), but must still be considered for overall planning.

If the total fair market value of all property you own upon leaving exceeds $25,000, you must:

• Complete Form T1161, List of Properties by an Emigrant of Canada.

Failure to disclose can lead to significant penalties even when there is no tax owing.

How to Complete Your Departure-Year Tax Return

Non-residents and emigrants can now file 2024 returns using both EFILE and NETFILE, provided their situation is compatible with CRA e-filing criteria.

Key steps in completing your return:

1. Residence information and departure date

   • On page 1 of your return, in the Residence Information section, enter your exact date of departure.

   • Do not enter a date of entry (unless you immigrated in the same year).

2. Spouse or common-law partner’s information

   • You must enter your spouse’s or partner’s net world income for 2024 for the period you were a resident.

   • This includes income from all sources inside and outside Canada.

   • If applicable, also enter universal child care benefit amounts received and repaid.

3. Income to report

   • For the resident part of the year: report worldwide income in Canadian dollars from all sources.

   • For the non-resident part of the year: you generally pay Canadian tax only on specific Canadian-source income. Some of this is reported on a return; some is subject to non-resident withholding at source and may not require filing.

Understanding which income is reportable and which is subject simply to withholding is critical for correct compliance.

What Income Do You Have to Report?

Resident portion of the year:

• All worldwide income (employment, self-employment, investment, capital gains, rental, foreign income), converted to Canadian dollars, for the period from January 1 to your date of departure.

Non-resident portion of the year:

• Only certain types of Canadian-source income are reportable on a Canadian return (for example, employment, business income, certain pensions or rentals).

• Many other types (such as certain investment income) are subject to non-resident withholding tax and are not required to be reported unless you elect to do so.

The rules for non-resident income can be complex. Separate guidance under non-resident taxation may apply.

What Deductions Can You Claim?

Generally, you can claim most deductions that apply to you for the part of the year you were a resident. Some examples:

• RRSP contributions

• Childcare expenses

• Support payments

• Employment expenses if applicable

Moving expenses:

• As a general rule, you cannot deduct moving expenses for a move out of Canada.

• Exception: you may be able to deduct moving expenses if:

  • You left Canada to attend a post-secondary educational institution as a full-time student; and

  • You received a taxable Canadian scholarship, bursary, fellowship, or research grant to attend.

For that exception, you must meet both conditions and follow the rules at line 21900 for moving expenses.

What Credits Can You Claim?

Federal non-refundable tax credits:

• You are limited to the sum of the credits that apply to:

  • The part of the year you were a resident; and

  • The part of the year you were a non-resident, under specific rules.

You cannot claim more than you would have been allowed if you had been resident for the entire year.

Provincial or territorial non-refundable tax credits:

• Typically follow the same logic as federal credits, but with different amounts.

• You calculate them on the Form 428 for the province where you resided on your date of departure.

CPP/QPP overpayments:

• If you were not living in Quebec before departure, CPP overpayments follow the standard federal rules.

• If you were living in Quebec, you may need to complete Form RC381 to calculate CPP/QPP contributions and overpayments. Overpayments may be claimed using special coding (code 55520) and added to your credits.

Federal refundable tax credits:

• Certain credits (like the eligible educator school supply tax credit) can be claimed if they relate to the resident portion of the year.

• In some cases, you may claim them in full for expenses relating to the non-resident portion if your Canadian-source income for that period represents 90% or more of your net world income for that part of the year.

• However, you cannot claim more than if you had been resident all year.

Provincial or territorial tax credits (Form 479):

• You generally are not entitled to these credits unless you were a resident of the province or territory on December 31 of the year.

Which Forms to Use to Calculate Tax and Credits

To calculate your departure-year tax and credits:

• Complete the T1 return and the provincial or territorial Form 428 for your last province of residence.

• Quebec residents must also complete the appropriate Revenu Québec forms.

After You Leave Canada

Electing Under Section 217

If, after leaving, you receive certain types of Canadian-source income (for example, pension, RRIF, or other eligible income), the Canadian payer will deduct non-resident withholding tax. In many cases, this withholding is your final tax obligation on that income.

However, you may benefit from electing under section 217 of the Income Tax Act to:

• File a return as a non-resident, including that income,

• Apply regular graduated tax rates and deductions, which can reduce overall tax compared to flat withholding.

This election is optional but can be very advantageous in some situations.

TFSA, HBP, and LLP After Emigration

Tax-Free Savings Account (TFSA):

• You can keep your TFSA and continue to enjoy tax-free investment income and withdrawals for Canadian tax purposes.

• As a non-resident, you cannot contribute to a TFSA; contribution room does not increase while non-resident.

• Contributions made while a non-resident are subject to penalty taxes.

Home Buyers’ Plan (HBP) and Lifelong Learning Plan (LLP):

• Special rules apply if you leave Canada while participating in these plans.

• You may need to accelerate repayments or include amounts in income if conditions are not met.

• CRA has specific guidance under the HBP and LLP programs.

Receiving Benefits and Credits After Leaving

It is critical to inform CRA of your departure date. As a non-resident, you are generally no longer eligible for:

• GST/HST credit

• Canada child benefit (including most related provincial/territorial programs)

If you receive such payments after leaving, you must contact the CRA and expect to repay them.

Why Mackisen

Leaving Canada is one of the most sensitive tax events in a person’s life. Choosing the wrong departure date, overlooking deemed dispositions, or mishandling TFSAs, RRSPs, and benefits can lead to unnecessary tax, penalties, or ongoing disputes.

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps emigrants:

• Determine the correct departure date and residency status

• Prepare complete departure-year tax returns (federal and Quebec)

• Identify assets subject to departure tax and plan for cash flow

• Complete T1161 and other required disclosure forms

• Coordinate cross-border issues with your new country of residence

• Evaluate section 217 elections for post-departure income

• Manage TFSA, RRSP, HBP, LLP, and other registered plans correctly

• Avoid benefit overpayments and future CRA collections

If you are planning to leave Canada, or recently left and are unsure how to handle your emigration for tax purposes, Mackisen can guide you through every step so that you exit cleanly, minimize tax, and stay compliant in both Canada and your new country.