So, you’re planning to leave Canada and start a new life abroad?
Congrats on the new adventure! But before you get too excited about exchanging money and booking flights, there’s one important thing you need to know: you might owe Canada a departure tax.
This article will walk you through:
- Who qualifies as a “departing” tax resident?
- Why does the CRA charge departure tax?
- What forms do you need to file—and what penalties should you avoid?
- How can you legally defer or reduce your tax bill?
Step 1: Are You a Tax Resident?
Canada’s tax system is based on residency, not your passport, visa, or PR status.
How does CRA determine if you’re a resident?
The CRA looks at how strong your ties are to Canada, in two main categories:
Primary Ties – The Big Three
- Do you have a spouse or children still in Canada?
- Do you own or live in a home in Canada?
- Do you keep your provincial health card?
If you have most or all of these, the CRA will likely still consider you a resident.
Secondary Ties – The Supporting Cast
- Do you have a Canadian driver’s licence, credit cards, or bank accounts?
- Are you keeping a Canadian cell phone number?
- Are you still part of Canadian clubs or insurance plans?
The more of these you retain, the more likely CRA says you’re still a resident.
So, When Are You Actually Considered to Have Left?
You’re officially considered to have “emigrated” when:
- You meet the non-residency criteria, and
- You’ve cut most of your primary and secondary ties.
The CRA usually marks your departure date as the day you permanently leave Canada and establish a home in another country.
Heads up: Even if you physically leave Canada, CRA might not consider you non-resident if your spouse and house are still here. That means: no escape from tax just yet!
Step 2: What Is the Departure Tax?
A. In Simple Terms
It’s a tax based on the assumed sale of certain assets the moment you leave Canada. The CRA pretends you sold them and taxes any capital gain up to that point.
B. Why Does Canada Do This?
Because Canada taxes you on your worldwide income and assets while you’re a resident.
Once you leave:
- Canada loses the right to tax future gains.
- So it says: “Before you go, pay tax on the growth so far.”
Even though you didn’t actually sell anything, the CRA treats it like you did—and wants its share.
Step 3: Which Assets Are Affected?
Not everything gets taxed. Only specific assets are included in the departure tax calculation.
Subject to Departure Tax:
- Stocks, mutual funds, crypto
- Shares of private companies
- Foreign real estate (not your home)
- Valuable art or collectibles
- Beneficial interests in certain trusts
These are considered “deemed disposed of” on your departure date, and you’ll be taxed on any unrealized gains.
Not Subject to Departure Tax:
- Your principal residence (in Canada or abroad)
- Assets inside RRSP, TFSA, RESP, RRIF
- Employer-sponsored pension plans
- Some Canadian pension income
These either aren’t capital property or are handled through different tax rules.
Step 4: What Forms to File—and How?
Departure tax doesn’t happen automatically. You have to file the right forms in your final Canadian tax return.
What You Need:
- T1 Tax Return + Schedule A (Emigrants) – Your final tax return as a resident, covering up to the date of departure.
- Schedule 3 – To report deemed capital gains/losses.
- Form T1243 – Lists assets that are “deemed disposed of.”
- Form T1244 – If you want to defer paying the tax (you’ll need to provide security).
- Form T1161 – If you hold over $25,000 in certain assets, you must report them—even if no tax is due. Penalty for not filing: $2,500.
Step 5: Can I Avoid Paying This Tax Now? (Yes, With a Catch)
You might be thinking: “But I didn’t sell anything!”
Fair enough. The CRA understands, so they let you defer the tax—if you provide a guarantee.
A. What Can Be Deferred?
Most financial assets, private company shares, and valuables qualify.
You must:
- Fill out Form T1244
- Provide a security (like a bank letter of credit, mortgage on assets, or cash deposit)
Usually, you’ll need help from a tax professional.
B. How Long Can You Defer?
Until you sell the asset or die—whichever comes first.
Note: You’ll be charged interest every year. It’s not a free pass.
Step 6: Do I Still Pay Canadian Taxes After Leaving?
Yes—if you still earn Canadian-source income, you still have to file.
Examples:
- Rental income from Canadian property
- Dividends or interest from Canadian investments
- Employment income from Canada
- RRSP withdrawals, CPP, OAS, pensions
- Capital gains in special cases
How to File:
- Section 216 Return – For rental income (report actual income/expenses; may save tax vs. withholding).
- Section 217 Return – For pension and RRSP withdrawals.
- NR4 Slips – Some income is taxed at the source, no need to file (but check).
Just because you’re not a “resident” doesn’t mean the CRA forgets you exist.
Step 7: Smart Tax Planning Before You Leave
Sell Certain Assets Before You Leave
If you were already planning to sell, do it as a resident—you’ll get your basic personal exemption, and maybe pay less tax.
Handle Your TFSA
Once you leave, your TFSA stops growing tax-free. You also can’t make new contributions. Consider withdrawing or relocating assets.
Think Through Your RRSP
Still useful after departure—but future withdrawals will be taxed. Plan when and how to access it.
Cut Your Ties
Cancel health insurance, licences, phone plans, etc. Reduce ties so CRA won’t argue you’re still a resident.
Talk to a Pro
Departure tax is complicated. An experienced tax advisor or accountant is worth the investment.
Final Thoughts
Leaving Canada is a big life change. Don’t let tax issues ruin your journey.
The CRA won’t ignore you just because you moved. In fact, they’ll want to settle your taxes before you go. But if you plan wisely, you can:
- Lower your tax bill
- Defer payment when needed
- Avoid penalties
- Leave on good terms
If you don’t want to pay “goodbye taxes” for no reason—read this guide twice, then talk to a professional.
Got tax questions? Want to save more money? Book your FREE 30-minute consultation now!