Leaving Canada: Tax Implications

When Do You Become a Non-Resident?

You become a non-resident when you:

• Leave Canada permanently
• Sever your residential ties
• Establish residency in another country

Severing Ties

To become a non-resident, you typically must:

• Sell or rent out your Canadian home
• Remove spouse and dependants from Canada (or they leave too)
• Cancel provincial health insurance
• Close Canadian bank accounts (or minimize)
• Cancel Canadian driver's license
• Cancel club memberships and social ties

Deemed Disposition at Departure

Upon becoming a non-resident, you're deemed to have disposed of most property at fair market value:

Property Subject to Deemed Disposition

• Stocks and investments
• Mutual funds and ETFs
• Shares in private corporations
• Foreign real estate
• Cryptocurrency
• Art and collectibles

Property Exempt from Deemed Disposition

• Canadian real estate: Including principal residence
• Canadian business property: Used in Canadian business
• RRSPs and RRIFs: Special rules apply
• Pension plans: RPPs and DPSPs
• Stock options: Special treatment

Tax Calculation Example

Sarah leaves Canada with these assets:

• Stock portfolio: Cost $50,000, FMV $150,000 → $100,000 gain
• Foreign property: Cost $200,000, FMV $300,000 → $100,000 gain
• Total capital gains: $200,000
• Taxable (50%): $100,000

This $100,000 is added to her income on her departure year return.

Security and Payment Options

If you can't pay the departure tax immediately:

Deferral with Security

• Post security with CRA (cash, letter of credit, etc.)
• Defer tax until property is actually sold
• Interest may accrue

Payment Plan

• Request payment arrangement
• Interest charges apply
• Security may be required

RRSPs and RRIFs

Keeping Your RRSP

• Can remain in Canada as non-resident
• Withdrawals subject to 25% withholding tax (may vary by treaty)
• No further contributions allowed
• Grows tax-free while in RRSP

Withdrawing Before Leaving

• Full amount taxed as income
• May push you into higher bracket
• Consider spreading withdrawals over years if possible

RRIF Payments

• Continue receiving payments as non-resident
• Subject to withholding tax (typically 15-25%)
• May be taxable in new country too—check treaty

TFSAs

• Can keep TFSA as non-resident
• No further contributions allowed
• No contribution room accumulates while non-resident
• May be taxable in new country of residence

Canadian Real Estate

Canadian real estate is NOT subject to deemed disposition but has special rules:

If You Keep the Property

• Rent income taxed in Canada
• Must file Section 216 return
• 25% withholding on gross rent (or elect for net)
• Principal residence exemption may be limited

If You Sell

• Section 116 certificate required
• Buyer must withhold 25% of sale price
• File Canadian return to report gain and recover excess withholding

Final Tax Return

Departure Return

• Report income from January 1 to departure date
• Include deemed disposition gains
• Claim credits prorated for period of residence
• Due April 30 of following year

Form T1161: List of Properties

If total FMV of property (other than excluded items) exceeds $25,000, file T1161 listing all property subject to deemed disposition.

Notifying CRA

• File departure return with emigration date
• Update address with CRA
• Notify of change in residency status
• Consider Form NR73 for official determination

Tax Treaties

Tax treaties can affect:

• Withholding rates on RRSP/RRIF withdrawals
• Taxation of Canadian pension income
• Which country taxes capital gains
• Residency tie-breaker rules

After Departure: Canadian Income

As a non-resident, you're still taxed on Canadian-source income:

• Employment performed in Canada
• Canadian rental income
• Canadian business income
• Certain pension income
• Gains on Canadian real estate (when sold)

Planning Strategies

Before Departure

• Harvest capital losses to offset departure gains
• Consider selling appreciated assets before leaving
• Maximize RRSP contributions (reduces income)
• Review principal residence designation
• Organize records and valuations

Timing

• Consider departure date impact on credits
• Early-year departure means less Canadian income
• Late-year departure means more credits prorated

Returning to Canada

If you return and become resident again:

• Assets receive new cost base at FMV on return
• TFSA room accumulates again
• RRSP contribution room based on Canadian income
• May need to report foreign assets (T1135)