Leaving Canada? The departure tax planning steps to take a year before you move

On the day you stop being a Canadian resident, the Income Tax Act treats you as having sold most of your property at fair market value and bought it back a moment later. The gain lands on your final Canadian return even though nothing was sold and no cash arrived. Canadian real estate, registered plans and unexercised employee options are left out; your non-registered portfolio, private company shares, crypto and foreign property are in.

Almost every lever that reduces the bill has to be pulled before the departure date, so we ask clients to start twelve months out. This is the sequence.

Twelve months out: inventory every asset and pin down its cost

The deemed disposition is calculated asset by asset, so the first job is a complete list with two figures against each line: adjusted cost base and likely value on the departure date. For a brokerage account that means book cost per holding, adjusted for reinvested distributions and return of capital, the two items brokers most often get wrong. For private company shares it means a valuation, and for crypto a wallet-by-wallet reconstruction.

The list becomes Form T1161, required whenever the total value of your property on departure exceeds $25,000 and penalized at $25 a day to a maximum of $2,500 if late, and Form T1243, which reports the deemed dispositions themselves. Our guide to departure tax in Canada lists what is included and excluded, and what departure tax is gives the short version.

Nine months out: use losses, deductions and the exemption

Harvest losses against the deemed gains

Because every non-registered holding is deemed sold on the same day, gains and losses within the portfolio net against each other automatically. The planning is in what sits outside that net. An accrued loss on Canadian rental real estate, which is otherwise excluded, can be brought into the final return by electing to treat that property as disposed too, worth doing when the property is under water and the portfolio is not.

Net capital losses from earlier years carry forward against the deemed gains. If you sell anything before leaving, remember the superficial loss rule: buy it back within 30 days and the loss is denied.

Make the final RRSP contribution

Foreign employment income earns no RRSP room, so the room you hold when you leave is the last you will get. A contribution in the departure year, deducted against the deemed gains, is usually the cheapest saving on the list. Check your latest notice of assessment for the room and contribute before you leave.

Claim the capital gains exemption if your shares qualify

A deemed disposition of qualified small business corporation shares is a disposition for the lifetime capital gains exemption, currently $1.25 million. If your shares are close to qualifying, purify the company before departure, because the exemption is not available to a non-resident. See how to qualify for the exemption.

Six months out: the TFSA and RRSP decisions

Neither plan is deemed disposed; the question is what to do with each afterwards, which depends on where you are going.

• TFSA. Canada leaves it alone: no departure tax, no tax on growth, and you may keep it, but contributions made while non-resident are penalized at 1% a month and no new room accrues. If you are moving to the US, the account is fully taxable there each year and may carry foreign trust reporting, so the growth is no longer tax-free. Our usual advice for a US-bound client is to collapse it before the move. See can I keep my TFSA if I move to the US.
• RRSP. Keep it. Withdrawals as a non-resident face a flat 25% Canadian withholding, reduced to 15% under the US treaty for periodic RRIF payments within the annual limits, and the US recognizes the deferral automatically. A low-income year abroad can be the moment to draw funds and elect under section 217 to be taxed as though resident if that produces less than the withholding. Have the US side modelled before any lump sum; the US taxable portion differs from Canada's.
• RESP and FHSA. Both keep their tax status but stop working as designed for a non-resident, so decide on each before you go.

Our answer on what happens to your RRSP and TFSA when you leave Canada goes deeper.

Six months out: your home, your corporation and your options

The home and the section 45(2) election

Your principal residence is Canadian real property, so it is excluded from the deemed disposition. Selling while resident lets the principal residence exemption cover the whole gain. Renting it out converts it to an income property, which triggers a deemed disposition of its own under the change-in-use rules unless you file a section 45(2) election with your departure-year return. The election defers that deemed sale, but non-resident years do not count toward the exemption, so the gain accruing while you are away is taxed when you eventually sell, prorated by years.

As a non-resident landlord you then face 25% withholding on gross rent unless an NR6 is approved for net-rent withholding, a section 216 return each year, and a section 116 clearance certificate when you sell. For US-bound clients there is a further step worth asking about: electing a deemed disposition of the home on departure, sheltered by the exemption in Canada, then electing under the treaty to step up its US cost basis to the same value so the US does not tax gain Canada exempted. Our answers on whether departure tax applies to your principal residence and what a section 216 return is cover the landlord side.

Corporation shares and the holdco problem

Shares of a private corporation are deemed disposed at fair market value, and for an owner-manager this is usually the largest number on the T1243. The valuation should be defensible, because the CRA can challenge it; the exemption above and the T1244 deferral below both exist for this kind of illiquid gain. What happens to the company after you go matters as much: if you were its only director, its central management may move with you and drag the corporation into non-residence, and once it is controlled by a non-resident it stops being a Canadian-controlled private corporation, losing the small business deduction and future exemption eligibility.

A holding company full of investments owned by a new US resident becomes a controlled foreign corporation with passive income, which brings punitive US anti-deferral and PFIC rules. Restructuring, winding up or paying out the holdco before departure is frequently cheaper than owning it from abroad. Our post on holding company pros and cons covers the structure.

Stock options

Unexercised employee stock options are not deemed disposed, but shares from earlier exercises are. Exercise after leaving and the benefit for the period you worked in Canada stays taxable here, apportioned under the treaty by where you worked between grant and exercise. Exercising before departure crystallizes the benefit at Canadian rates and resets the shares' cost, so only later growth is deemed disposed; waiting defers the benefit but leaves a Canadian tax tail for years. The right answer depends on the spread, the company's prospects and the destination's rates, so model it rather than guess.

Departure month: the T1244 election and severing ties

The tax on the deemed disposition is due April 30 of the following year. Form T1244 lets you elect to defer paying it, interest-free, until the property is actually sold. The CRA does not require security for the first $16,500 of federal tax arising from the deemed disposition, roughly the tax on $100,000 of gains; above that it asks for acceptable security, which can include the shares themselves. It is filed with the departure-year return and is what makes departure tax survivable for private company owners.

Alongside the election, sever the ties that define residence. Primary ties first: give up the home or lease it on arm's-length terms, and move your spouse and dependants with you. Then the secondary ones: convert bank and investment accounts to non-resident status so payers withhold correctly, cancel provincial health coverage, swap the driver's licence when the new one arrives, end memberships, and sell or export vehicles.

Tell every Canadian payer, including your RRSP custodian, your corporation and your tenant, that you are non-resident from the date so Part XIII withholding starts. We do not usually recommend filing Form NR73 to ask the CRA to rule on your status; the facts speak for themselves and the questionnaire rarely helps. Our answer on how to become a non-resident of Canada lists the ties in detail.

Arrival: the US-side steps that only work if you prepared

If the destination is the United States, three things should already be arranged. First, the treaty election that steps up the US cost basis of property Canada deemed disposed, so pre-move growth is not taxed twice; it is disclosed on Form 8833 with the first US return and relies on your departure-date valuations. Second, the sale of Canadian mutual funds and ETFs before US residency begins, because Canada has deemed them sold anyway and holding them as a US resident invites the PFIC regime. Third, a decision on your US residency start date, which sets the boundary of the dual-status first-year return and should line up with your Canadian departure date.

Be wary of anyone selling a pre-immigration trust: the US generally treats a foreign trust funded within five years before you become resident as yours, and Canada taxes the transfer into it as a disposition. Our answers on dual-status tax years and whether Canadian funds are PFICs cover two of the three; if your move runs the other way, our guide to moving to Canada from the US is the mirror image of this post.

The timeline in one table

Our cross-border tax services run this sequence as one engagement, from asset inventory to the final Canadian return and the first US one.

Sources: CRA — Leaving Canada (emigrants) · CRA — Form T1161 · CRA — Form T1244.