Emigration and Departure Tax

A person who stops being resident in Canada is treated as having sold most of their property at fair market value on the day they leave. The resulting tax on accrued gains is known as departure tax. It ensures that gains built up while resident are taxed by Canada.

PROPERTY SUBJECT TO THE DEEMED DISPOSITION

• Shares, mutual funds, ETFs and other investments in non-registered accounts.

• Foreign real estate and other property.

• Interests in private corporations and partnerships.

PROPERTY EXCLUDED

• Canadian real property (it remains taxable in Canada when eventually sold).

• Canadian business property used in a permanent establishment in Canada.

• RRSPs, RRIFs, pensions, TFSAs and FHSAs (withdrawals after departure are subject to non-resident withholding tax).

• Employee stock options.

• Property owned on arrival by short-term residents (resident 60 months or less in the previous 10 years).

FILING ON DEPARTURE

• File a return for the part of the year resident, reporting worldwide income to the date of departure and the deemed dispositions.

• Form T1243 lists deemed dispositions.

• Form T1161, List of Properties by an Emigrant of Canada, is required if the total fair market value of all property owned at departure exceeds $25,000 (excluding cash, registered plans and personal-use property under $10,000). The penalty for not filing can reach $2,500.

PAYING THE TAX

• The tax on deemed gains can be deferred without interest until the property is actually sold, by electing on Form T1244.

• Security must be posted if the federal tax on the gains exceeds about $16,500 (the tax on $100,000 of gains).

• If the person returns to Canada still owning the property, the deemed disposition can be unwound.

AFTER DEPARTURE

• Canadian banks and brokers must be told of non-resident status so they can apply Part XIII withholding tax.

• Most benefit payments (Canada Child Benefit, Groceries and Essentials Benefit) stop.

• TFSA contributions while non-resident are subject to a 1 percent monthly penalty tax.

RELATED PAGES

• Residency and Who Must File

• Capital Gains and Losses

• T1135 Foreign Income Verification