Canadian Departure Tax Planning
Leaving Canada triggers a deemed disposition of most assets at fair market value — creating a taxable capital gain even if you have not sold anything. TYM minimizes departure tax through pre-departure planning, manages the T1 departure return, and coordinates your US arrival filing.
Departure tax planning must begin before you leave Canada. Once you have ceased to be a Canadian resident, the deemed disposition has already occurred and the tax liability is fixed. Retroactive planning is limited to deferral elections and loss harvesting — both of which are more effective when planned in advance.
Departure tax cannot be undone retroactively.
The deemed disposition occurs on the date you cease to be a Canadian resident. Planning must happen before that date. If you are planning to leave Canada, contact TYM at least 6 months before your planned departure date.
What Is Subject to Deemed Disposition?
Under ITA §128.1(4)(b), the following property is deemed disposed at fair market value on the departure date. Excluded property is taxed only on actual disposition.
| Asset Type | Treatment on Departure | Excluded? |
|---|---|---|
| Publicly traded securities | Deemed disposed at FMV on departure date | Deemed Disposed |
| Private company shares | Deemed disposed at FMV on departure date | Deemed Disposed |
| Investment real estate (non-Canadian) | Deemed disposed at FMV on departure date | Deemed Disposed |
| Mutual funds and ETFs | Deemed disposed at FMV on departure date | Deemed Disposed |
| Canadian real property | Excluded — taxed only on actual disposition | Excluded |
| Business property used in Canada | Excluded — taxed only on actual disposition | Excluded |
| RRSP / RRIF | Excluded — taxed only on withdrawal | Excluded |
| Pension interests | Excluded — taxed only on receipt | Excluded |
| Stock options (vested) | Deemed disposed at FMV on departure date | Deemed Disposed |
| Cryptocurrency | Deemed disposed at FMV on departure date | Deemed Disposed |
Source: Income Tax Act §128.1(4)(b). This table is a general summary; specific asset treatment depends on individual facts. Consult a qualified CPA for guidance on your specific assets.
How TYM Manages Your Departure
TYM reviews your asset portfolio, identifies all property subject to deemed disposition, and models the departure tax liability under different scenarios. Where possible, TYM recommends strategies to reduce the deemed disposition gain — including timing of actual dispositions before departure, crystallizing losses, and electing to defer departure tax by posting security with the CRA.
The date on which you cease to be a Canadian resident is the deemed disposition date. TYM advises on the factors that determine residency cessation — including the date of departure, the disposition of residential ties, and the CRA's administrative position on dual-resident periods.
TYM prepares the T1 departure return, which covers two periods: the resident period (January 1 to departure date) and the non-resident period (departure date to December 31). The departure return includes Schedule T1161 (list of property subject to deemed disposition) and the departure tax calculation.
Moving to the US creates US tax residency from the date of arrival. TYM coordinates the US arrival filing — including the dual-status return (Form 1040 with dual-status statement), the establishment of US cost basis for assets acquired at departure, and the initial FBAR and FATCA filings for Canadian financial accounts.
Scope Boundaries
Included
- Pre-departure tax planning and deemed disposition modeling
- T1 departure return preparation (resident and non-resident periods)
- Schedule T1161 (list of property subject to deemed disposition)
- Departure tax deferral election analysis and security posting
- US arrival filing coordination (dual-status Form 1040)
- US cost basis establishment for assets acquired at departure
- Initial FBAR and FATCA filings for Canadian accounts
- RRSP treaty election (Form 8833) for US arrival year
Not Included
- Ongoing annual US and Canadian tax returns (available separately)
- Canadian real estate sale or transfer (available separately)
- US estate planning or trust structuring
- Investment management or financial planning
- Legal services or immigration advice
FAQ: Canadian Departure Tax
What is departure tax in Canada?
When you cease to be a Canadian resident, the Income Tax Act deems you to have disposed of most of your property at fair market value on the date of departure (ITA §128.1(4)(b)). This creates a taxable capital gain on any unrealized appreciation in your assets — even though you have not actually sold anything. The departure tax is reported on the T1 departure return and is due by April 30 of the following year.
What property is excluded from deemed disposition?
Certain property is excluded from the deemed disposition on departure: Canadian real property (taxed only on actual sale under the non-resident withholding rules); property used in a Canadian business; RRSPs and RRIFs (taxed only on withdrawal); pension interests; and certain other property. Excluded property remains subject to Canadian tax when actually disposed of, even after you have left Canada.
Can departure tax be deferred?
Yes. Under ITA §220(4.5), you can elect to defer payment of departure tax by posting acceptable security with the CRA. The security must cover the amount of departure tax attributable to the deferred property. Acceptable security includes a letter of credit, a bank guarantee, or a mortgage on Canadian real estate. The deferral is available only for property that is not excluded from deemed disposition.
What is Form T1161?
Schedule T1161 (List of Properties by an Emigrant of Canada) must be filed with the T1 departure return if the total FMV of all property subject to deemed disposition exceeds $25,000. The schedule lists each property, its cost, and its FMV on the departure date. Failure to file T1161 when required can result in a penalty of $25 per day, up to $2,500.
How does leaving Canada affect my RRSP?
RRSPs are excluded from the deemed disposition on departure — they are not subject to departure tax. However, once you are a non-resident, RRSP withdrawals are subject to a 25% non-resident withholding tax (reduced to 15% for periodic payments under the US-Canada Tax Treaty). For US residents, RRSP withdrawals are also taxable in the US, but the Foreign Tax Credit for the Canadian withholding tax typically reduces or eliminates the US tax owed. TYM advises on the optimal timing and structure of RRSP withdrawals after departure.
What US tax obligations arise when I move to the US from Canada?
Moving to the US creates US tax residency from the date of arrival (assuming you meet the Substantial Presence Test or obtain a green card). From that date, you are subject to US tax on worldwide income. You must file Form 1040 (or a dual-status return for the year of arrival), report Canadian financial accounts on FBAR and FATCA Form 8938, and make the RRSP treaty election on Form 8833. TYM coordinates the Canadian departure filing and the US arrival filing to ensure continuity and avoid gaps.
Plan Your Departure Before You Leave
Departure tax is one of the most significant and least anticipated tax events for Canadians moving abroad. The deemed disposition is irreversible once it occurs. Contact TYM at least 6 months before your planned departure date to maximize planning opportunities.
The content on this page is for informational purposes only and does not constitute professional tax advice. Departure tax obligations depend on individual facts and circumstances, including the nature and value of assets held at the time of departure. Consult a qualified CPA licensed in both Canada and the United States before making any decisions related to Canadian tax residency.
