Packing your bags for a new life abroad is exciting, but there’s one thing you don’t want to leave behind: an unexpected tax bill.
When you give up Canadian residency, you may be subject to what’s called the departure tax, a capital gains tax on certain assets you own when you leave. It’s not a punishment; it’s Canada’s way of taxing the growth in your investments before you move your tax home elsewhere.
At Accounting Montreal, we help Canadians understand, plan for, and in many cases reduce their departure tax before leaving the country.
What Is Departure Tax?
Departure tax is Canada’s way of “pretending” you sold certain assets the day before you became a non-resident, even though you haven’t sold them. This triggers a capital gains tax on the increase in value since you bought them.
Which Assets Are Affected?
Subject to departure tax:
- Shares in Canadian or foreign corporations
- Mutual funds
- Certain real estate outside Canada
- Certain investments and trusts
Not subject to departure tax:
- Canadian real estate
- RRSPs, RRIFs, and pensions
- Personal-use property worth less than $10,000 CAD
- TFSA (though different rules apply for contributions after departure)
Tip: Some assets are exempt, but can still have tax implications later when sold.
When Does Departure Tax Apply?
It applies when you sever Canadian tax residency, meaning the CRA considers you a non-resident for tax purposes. Determining this status is the first step before calculating departure tax.
How to Calculate Departure Tax
- Determine the fair market value (FMV) of your taxable assets on the day before you became a non-resident.
- Subtract your adjusted cost base (ACB), essentially, what you paid for them.
- The result is your capital gain, which is 50% taxable.
Reference: CRA – Departure tax
Planning Strategies to Reduce Departure Tax
- Sell assets before leaving to lock in gains at a time of your choosing.
- Use available capital losses to offset gains.
- Consider emigrating at year-end to spread income over two tax years.
- Take advantage of the $250,000 exemption for certain small business shares.
Filing Requirements
You must file:
- T1 General Return for the year of departure
- Form T1243 – Deemed Disposition of Property
- Form T1161 – Listing of Property by an Emigrant of Canada (if applicable)
Why Professional Help Matters
Departure tax planning involves:
- Correctly valuing assets
- Using the right exemptions
- Timing your move strategically
- Coordinating with your new country’s tax rules
At Accounting Montreal, we’ve helped countless Canadians leave the country without leaving behind unnecessary taxes.
If you’re planning to leave Canada, the departure tax can be one of the most significant and avoidable financial surprises. With the right planning, you can reduce or even eliminate it.
Contact Accounting Montreal today to book a pre-departure tax planning session.
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