Departure tax applies the moment someone stops being a Canadian tax resident, treating most capital property as sold and immediately reacquired at fair market value. Tohme Accounting, led by Samer Tohme, CPA, guides Ottawa and Toronto clients relocating abroad through which assets are affected, the forms required, and the deferral options available before that departure date arrives.
What triggers departure tax when you leave Canada
On the date someone ceases to be a Canadian tax resident, CRA treats them as having sold most capital property at fair market value and immediately reacquired it at that same value. No actual sale takes place, but any resulting gain becomes taxable in the year of departure. This is commonly called departure tax, though technically it’s a deemed disposition of property triggered the moment Canadian tax residency ends, not by the physical act of leaving the country itself.
Which assets are subject to deemed disposition
Deemed disposition generally applies to non-registered investment accounts, shares of private corporations, real estate located outside Canada, partnership interests, and cryptocurrency holdings. These are the asset categories most likely to trigger a taxable gain the day Canadian tax residency ends. Losses from deemed disposition can generally only be used to offset gains from similar types of property, not gains or income more broadly, which makes reviewing the full portfolio together important before the departure date is set.
Assets exempt from deemed disposition: RRSPs, TFSAs, and Canadian real estate
Registered accounts, including RRSPs, RRIFs, TFSAs, RESPs, and company pension plans, are excluded from deemed disposition entirely. Canadian real estate is also excluded from the deemed disposition itself, though it remains classified as taxable Canadian property. That means any gain on Canadian real estate is still taxed when the property is eventually sold, regardless of the owner’s residency status at the time of that sale, so the exemption applies to the departure event, not to the property’s tax status forever.
The 60-month rule for recent residents
Individuals who were Canadian tax residents for less than 60 months are only subject to departure tax on assets they acquired during that Canadian residency period. Property owned before becoming a resident generally falls outside the scope of deemed disposition under this rule. This matters most for recent immigrants or short term residents planning a departure, since it can significantly narrow which assets actually need to be reported and valued as of the departure date.
How the taxable gain is calculated and included in income
The net gain from deemed disposition is included in income at the applicable inclusion rate and taxed at the individual’s marginal rates for the year of departure. That calculation happens on top of any other income earned in the same year, which can push the total into a higher bracket. The exact inclusion rate applicable to a given departure year should be confirmed directly, since this figure can change and directly affects the final tax owing on any deemed gain.
Filing Form T1243 to report deemed dispositions
Departing taxpayers must file Form T1243, listing the properties subject to deemed disposition along with the resulting income inclusion for the year. This form gets filed alongside the final Canadian return for the year of departure, not as a separate standalone filing sent at a different time. Getting the property list and valuations right on Form T1243 matters, since it directly feeds into how much of the deemed gain actually shows up as taxable income that year.
Reporting Form T1161 and the penalty for missing it
Property owned at departure with an aggregate value over $25,000 must be disclosed on Form T1161, separate from Form T1243 and its own income calculation. Missing this disclosure filing can trigger a penalty of up to $2,500 per form, even though the form itself is purely informational and does not calculate any additional tax owing. Because the penalty applies regardless of whether tax is owing, Form T1161 is easy to overlook precisely when a departure involves no taxable gain at all.
How Tohme Accounting supports clients through departure tax planning
Tohme Accounting, led by Samer Tohme, CPA, works with Ottawa and Toronto clients on cross border tax matters, including residency determination and departure tax filings. For someone planning a move abroad, figuring out which forms and elections apply to a specific mix of investments, real estate, and business interests can be difficult to sort out alone. Working through personal tax services with Samer Tohme helps map out exactly what a departure year filing needs to include before the move happens.
Electing to defer payment of departure tax (Form T1244)
A departing taxpayer may elect, using Form T1244 under subsection 220(4.5) of the Income Tax Act, to defer payment of tax on the deemed disposition until the property is actually sold or the individual returns to Canada, whichever comes first. This election doesn’t reduce the amount owing, it simply postpones when payment is due. Acceptable security may be required if the deferred federal tax exceeds a set threshold, so this option needs to be planned for ahead of the departure date.
Non-resident withholding tax on Canadian income after you leave
Once someone becomes a non-resident, Canadian source income such as interest, dividends, or rental income is generally subject to a 25 percent non-resident withholding tax collected at source. That rate may be reduced under an applicable Canada tax treaty, depending on the country of new residence and the type of income involved. This is a separate, ongoing obligation from departure tax itself, continuing well past the departure year, worth reviewing alongside cross-border and US tax filing services for anyone relocating to the United States.
What happens to capital losses triggered by departure
If deemed disposition results in a loss rather than a gain, that loss can generally only be used to offset gains from the disposition of similar types of property within the same return, not applied broadly against other income. This limits how useful a departure year loss actually is outside its own asset category. Reviewing the full portfolio before departure, sometimes alongside estate and asset planning services, makes it easier to manage gains and losses together rather than discovering the restriction after the fact.
Conclusion
Departure tax means most capital property is treated as sold and reacquired at fair market value the day Canadian tax residency ends, while registered accounts and Canadian real estate are treated differently. Forms T1243 and T1161 carry separate filing obligations and penalties, so both need attention. For anyone planning a move and unsure what applies to their specific asset mix, Samer Tohme, CPA, can help sort out the details. Schedule a Free Consultation before finalizing departure plans.
Frequently Asked Questions
What is departure tax in Canada?
Departure tax refers to the deemed disposition of most capital property at fair market value on the day an individual ceases to be a Canadian tax resident. No actual sale happens, but CRA treats the property as sold and reacquired at that value, and any resulting gain is included in income for that year. This gain gets reported and taxed on the final Canadian return covering the year of departure, alongside the individual’s other income for that same period.
How much is Canada’s departure tax?
There’s no flat departure tax rate to quote. The amount depends on the fair market value of affected assets at departure, the resulting capital gain on each, and the applicable inclusion rate at the taxpayer’s marginal tax rate for that year. Two people leaving Canada with different asset mixes and income levels can end up with very different departure tax bills, which is exactly why an individual asset review matters more than any general estimate someone might quote.
Which assets are exempt from departure tax?
Registered accounts such as RRSPs, RRIFs, TFSAs, RESPs, and company pension plans are excluded from deemed disposition entirely. Canadian real estate is also excluded from the deemed disposition itself, though it remains classified as taxable Canadian property. That means any gain on Canadian real estate is still taxed in Canada whenever it’s eventually sold, regardless of where the owner is living or their residency status at that later point in time. This exemption covers only the departure event.
Do I have to file Form T1161 when I leave Canada?
Yes, if the aggregate value of property owned at the time of departure exceeds $25,000 in total. Form T1161 is a disclosure filing, separate from Form T1243, listing that property rather than calculating any additional tax on it directly. Missing this filing can trigger a penalty of up to $2,500 per form, even when there’s no additional tax owing at all, which makes it one of the more commonly overlooked pieces of a departure year filing.
Can I defer paying departure tax?
Yes, by electing under subsection 220(4.5) of the Income Tax Act using Form T1244. This defers payment until the property is actually sold or the individual returns to Canada, whichever happens first, rather than requiring immediate payment in the departure year itself. Depending on the amount of federal tax being deferred, CRA may require acceptable security to be posted, so this option is worth planning for ahead of the actual departure date rather than after.
Does departure tax apply to Canadian real estate?
No, Canadian real estate is not deemed disposed of on departure the way most other capital property is. It continues to be classified as taxable Canadian property regardless of where the owner lives afterward. Any gain is taxed when the property is eventually sold, and that tax applies based on the sale itself, not based on the owner’s residency status at the time of the original departure from Canada, which is why real estate often gets planned separately from the rest of a departure filing.
