Canada Departure Tax Guide (Leaving Canada, Deemed Disposition)

the Canadian departure tax (the "emigration tax") for the individuals leaving Canada. When a taxpayer ceases to be the Canadian resident, the CRA deems the taxpayer to have disposed of all the capital property at the fair market value (the "deemed disposition" under s. 128.1 of the ITA). The taxable capital gain (the difference between the fair market value and the cost base) is reported on the departure tax return. The exempt property includes the Canadian real estate (the real property situated in Canada), the business property (the property used in the business carried on in Canada through the permanent establishment), the pension property (the RRSP, the RRIF, the DPSP, the PRPP, the employer pension plans), the life insurance policies, and the qualifying trust property. The departure tax election (the "s. 128.1 election") allows the taxpayer to defer the tax on the exempt property by posting the security (the "deemed disposition deferral" — the Form T1244). The Form T1161 (the "Departure Tax Return") must be filed by the "departure date" (the date the taxpayer ceases to be the Canadian resident). The Form T1243 (the "Deemed Disposition of the Capital Property") is filed with the departure tax return. The non-resident tax return (the s. 115 return) is filed for the year the taxpayer becomes the non-resident (the "departure year"). The soft landing rules (the "substantial presence" rules) allow the taxpayer who leaves Canada for less than 2 years to maintain the Canadian residency (the "temporary absence" — the taxpayer must maintain the significant residential ties).

Deemed Disposition

Property deemed sold: All the capital property (the "non-exempt property") is deemed to have been sold at the fair market value on the "departure date" (the date the taxpayer ceases to be the Canadian resident). The deemed disposition includes the stocks, the bonds, the ETFs, the mutual funds, the precious metals, the cryptocurrency, and the personal-use property (the art, the jewelry, the collectibles).
Capital gain calculation: The gain is the fair market value minus the adjusted cost base (ACB). The inclusion rate is 50% or 66.67% (depending on the total gains for the year and the $250,000 threshold). The departure tax is payable in the year of the departure.
Losses: The deemed disposition can also trigger the capital losses. The losses can be carried forward or carried back (but the losses from the deemed disposition are subject to the special rules — the "stop-loss" rules for the non-residents).
Principal residence: The Canadian principal residence is NOT subject to the departure tax (the principal residence exemption applies). The deemed disposition of the principal residence is fully exempt (the "principal residence exemption" under s. 40(2)(b)).

Exempt Property & Deferral Election

Canadian real estate: The Canadian real property (the land, the buildings, the condos, the rental properties) is NOT subject to the deemed disposition. The taxpayer continues to hold the property as the non-resident and pays the tax when the property is sold (the s. 116 clearance certificate is required).
Business property: The property used in the business carried on in Canada through the permanent establishment is NOT subject to the deemed disposition. The taxpayer continues to hold the business property as the non-resident.
Pension property: The RRSP, the RRIF, the DPSP, the PRPP, and the employer pension plans are NOT subject to the deemed disposition. The taxpayer continues to hold the pension property and pays the withholding tax on the withdrawals (the Part XIII tax at 25%, reduced by the tax treaties).
Deferral election (Form T1244): The taxpayer can elect to defer the departure tax on the non-exempt property by posting the security (the "security deposit" — the CRA accepts the cash, the bank guarantee, or the bond). The security must equal 100% of the deferred tax (the "departure tax deferral"). The taxpayer pays the tax when the property is eventually sold (in the "disposition year").

Departure Year Tax Return

Form T1161 (Departure Tax Return): The taxpayer must file the T1161 by the "departure date" (the date the taxpayer ceases to be the Canadian resident). The T1161 reports the deemed disposition of the non-exempt property.
Form T1243 (Deemed Disposition Schedule): The schedule lists the deemed disposition of each property (the description, the cost base, the fair market value, the gain). The T1243 is attached to the T1161.
Tax payment: The tax on the deemed disposition must be paid by the "departure date" (the date of the emigration). The CRA charges the interest from the departure date (the prescribed rate + 4%).
Non-resident return (s. 115): The taxpayer must also file the s. 115 return (the "non-resident income tax return") for the year of the departure. The s. 115 return reports the Canadian-source income earned after the departure date.

Soft Landing & Temporary Absence

Temporary absence: The taxpayer who leaves Canada for less than 2 years may be treated as the "temporary absence" — the taxpayer does NOT cease to be the Canadian resident if the significant residential ties are maintained. The taxpayer must maintain the home, the spouse, or the dependants in Canada.
Short-term absence: The taxpayer who leaves Canada for less than 6 months (the "short-term absence") is generally not considered to have ceased the Canadian residency. The taxpayer must maintain the residential ties and the "intention to return."
Substantial presence: The taxpayer who has been in Canada for 183+ days in the departure year may be the "deemed resident" even if the taxpayer has ceased the residential ties. The "substantial presence" rule (the 183-day deeming rule) applies.

For the moving to Canada and the newcomer tax rules, see our Moving to Canada Guide →. For the US citizens living in Canada and the cross-border tax rules, see our US Citizens Tax Guide →.