Canadian Departure Tax: What You Need to Know Before Moving to the U.S.

Thinking of moving to the U.S.? Don’t forget about Canada’s departure tax – it can cost you thousands if you don’t plan ahead.

When you become a non-resident of Canada for tax purposes, the Canada Revenue Agency (CRA) treats most of your worldwide assets as if you sold them at fair market value (FMV) on the day you leave. That “deemed disposition” can trigger taxable capital gains even though you didn’t actually sell anything.

This guide explains how departure tax works, who it applies to, which assets are affected, how to calculate and file, and proven strategies to reduce or defer the tax. We’ll also cover U.S. tax coordination and the most common (and costly) mistakes to avoid—so your move is smooth, compliant, and tax-efficient.

1) What Is the Canadian Departure Tax?

Canada’s departure tax is a capital gains tax on unrealized gains that accrued while you were a resident. On the date you emigrate:

• You’re deemed to have disposed of most properties at FMV and immediately reacquired them at the same amount.
• This rule applies to worldwide assets, with specific exceptions (below).
• The policy intent is to prevent tax deferral—i.e., leaving Canada, then selling assets abroad without paying Canadian tax on gains that built up while resident.

2) Who Has to Pay Departure Tax?

Anyone who ceases Canadian tax residency. The CRA examines your residential ties to determine when you’ve emigrated:

• Primary ties: a home in Canada; spouse/partner; dependents.
• Secondary ties: health card, driver’s licence, bank accounts, memberships, social ties, personal property, etc.
• You generally become a non-resident on the latest of: the day you leave Canada, the day your immediate family leaves, or the day you become resident elsewhere.

Examples

• A professional relocating permanently to the U.S. for employment, selling the Canadian home and moving family and ties.
• A long-time snowbird who eventually spends most of the year in the U.S., severs Canadian ties, and establishes U.S. residency.

Tip: If you keep significant ties, you might be a factual resident or a deemed non-resident (under a tax treaty). Get a residency determination early to avoid surprises.

3) Which Assets Are Subject to Departure Tax?

4) How to Calculate Departure Tax (Step-by-Step)

1. Determine FMV on departure date for each relevant asset.
2. Compute gains: FMV − Adjusted Cost Base (ACB).
3. Apply the capital gains inclusion rate (currently 50%).
4. Report the resulting taxable capital gain on your final (emigrant) T1 return.

Illustration

• Portfolio FMV on departure: $500,000
• ACB: $300,000
• Gain: $200,000 → Taxable = $200,000 × 50% = $100,000 (taxed at your marginal rate)

5) Filing Requirements (What to File, and When)

• T1 Final Return: File as an “emigrant” for the year you leave. Enter your date of departure on page 1 and report worldwide income for the resident part of the year only.
• Schedule 3: Report deemed dispositions and gains/losses.
• Form T1243 – Deemed Disposition of Property by an Emigrant of Canada: calculates and supports your departure-day gains and losses.
• Form T1161 – List of Properties by an Emigrant of Canada: required if total FMV of your worldwide property exceeds $25,000 on departure. Penalty: $25/day late, min $100, max $2,500.
• T1135 – Foreign Income Verification Statement: if you held specified foreign property > $100,000 at any time during the resident part of the year, you still file T1135 for that year.

6) How to Reduce or Defer Departure Tax (Legally)

1. A) Principal Residence Exemption (PRE)
   Designate your Canadian home as your principal residence up to your departure date to reduce/eliminate the gain accrued while resident.
2. B) Harvest Capital Losses
   Before leaving, consider selling “loser” positions to offset accrued gains.
3. C) Elect to Defer the Tax (T1244)
   You can defer payment of the departure tax until you actually dispose of the property by filing Form T1244 by April 30 of the year after emigration. If the tax owing is significant, CRA requires security (e.g., bank letter of credit).
4. D) Business Owners: Estate Freeze / Reorg
   Before departure, consider an estate freeze or reorganization of private company shares to “lock in” current FMV and shift future growth to new shares.
5. E) Charitable Giving / Gifting
   Gifts before departure can themselves be dispositions. Plan carefully—don’t assume gifting avoids tax.

7) U.S. Tax Considerations (Avoid Double Tax)

The Canada-U.S. Tax Treaty allows you to coordinate your Canadian departure with U.S. entry to avoid double tax:

• The FMV used for Canadian departure tax becomes your U.S. cost basis.
• Timing is key: Coordinate your Canadian departure date with your U.S. residency start to align bases and avoid mismatches.
• Watch for U.S. state tax differences.
• Holding Canadian mutual funds/ETFs can trigger PFIC issues in the U.S.—plan ahead.
• RRSP/RRIF withdrawals face Canadian non-resident withholding tax (25% default, reduced by treaty to 15% in many cases).

8) Common Mistakes to Avoid

1. Skipping T1161 when your total FMV exceeds $25,000.
2. Ignoring private company shares—they often hold the largest embedded gains.
3. Selling your Canadian home after departure without proper principal residence designation.
4. Not electing to defer when liquidity is tight.
5. Missing T1135 for the part-year you were resident.
6. Assuming inclusion rate rules without checking the latest.

9) Planning Timeline & Emigration Checklist

6–12 months before departure

• Review residency ties and sever gradually.
• Prepare valuations for private shares or unique property.
• Explore estate freeze or restructuring if you own a business.
• Coordinate with U.S. CPA on entry date and basis planning.

90–30 days before departure

• Trigger capital losses to offset gains.
• Finalize charitable giving and plan withdrawals.
• Collect all FMV statements and exchange rates.

Departure week

• Record final FMVs across all assets.
• Update address with CRA and financial institutions.

After arrival in the U.S.

• File your emigrant T1 with supporting forms.
• Consider deferral election if needed.
• File U.S. Form 8833 for treaty elections.

10) Valuation & Documentation: Getting FMV Right

• Public securities: Broker statements on the departure date.
• Private company shares: Obtain a professional valuation.
• Real estate abroad: Independent appraisals and comps.
• Personal-use property: Only list items over $10,000 FMV.

11) Special Cases & Traps

• Short-Term Residents (≤60 months in prior 10 years)

You may not pay departure tax on property owned before you came to Canada.

• Returning to Canada

If you return, you may unwind the deemed disposition election.

• Section 116 Certificates

Selling Canadian real estate as a non-resident? You’ll need clearance to avoid large withholdings.

• Registered Plans

RRSP/RRIF withdrawals are taxable to non-residents via withholding.

12) After You Leave: Non-Resident Taxes You’ll Still Encounter

• Withholding on Canadian-source income (25% default, reduced by treaty).
• Section 217 election can sometimes recover withholding tax.
• Section 116 certificate needed to sell Canadian property.

13) FAQs

●    Do I have to pay tax when I leave Canada?

Yes. You’re deemed to dispose of most assets at FMV when you emigrate.

●    What assets are subject to Canada’s departure tax?

Most investments, including stocks, private shares, and foreign property. Canadian real estate and registered plans are exempt.

●    Can I defer Canadian departure tax?

Yes, by filing Form T1244 and providing security if required.

●    How does the U.S. treat my Canadian departure tax?

Your U.S. cost basis usually steps up to FMV, preventing double tax.

●    What’s the current capital gains inclusion rate?

50% (as of 2025). Always confirm before filing.

14) Conclusion & Call-to-Action

The Canadian departure tax is one of the most consequential tax events in a cross-border move. With the right planning – principal residence designation, loss harvesting, deferral elections, valuation support, and smart U.S. treaty elections – you can protect your wealth, reduce cash-flow strain, and avoid penalties or double taxation.

Thinking about moving to the U.S.? Madan CPA’s cross-border team can model your exposure, prepare the required filings, and coordinate with a U.S. CPA to align treaty elections and basis – before you go.

Book a Canada departure tax consultation to map your dates, run the numbers, and build a step-by-step exit plan.