Planning to Leave Canada? Don’t Forget About Filing Your Departure Tax

If you’re planning to emigrate and leave Canada, there’s one thing you should know: the departure tax. Many Canadians don’t realize that when you become a non-resident, the Canada Revenue Agency (CRA) may require you to pay tax on certain assets before you leave, even if you haven’t sold them. So, before you pack your bags and move to the Caribbean, it’s important to understand your tax obligations before embarking on this exciting new chapter.

What is the Departure Tax in Canada?

When a resident of Canada decides to relocate to another country as their primary residence, they may be required to pay a departure tax. This is known as the disposition of assets, where your assets are sold at fair market value (FMV), even if you did not sell them. The purpose is to record any capital losses and the collection of capital gains to the CRA before leaving Canada.

Understanding Disposition of Assets

As mentioned, the disposition of assets is a process for CRA to collect tax when you exit Canada. It follows the standard 50% capital gains tax; however, on June 25, 2024, the rate was increased to 66.67% after the first $250,000.

Departure Tax Real Estate Example

Scenario: Let’s say Sarah is a Canadian citizen who owns a condo in Vancouver. She purchased this property for $700,000 in 2015 and is now worth $1,000,000. In 2025, Sarah wanted to change her lifestyle and moved permanently to Portugal, becoming a non-resident of Canada. Sarah had concerns about avoiding double taxation, what to file on her tax return, and how moving impacts her overall tax obligations.

In this scenario, Sarah’s property is deemed a disposition of an asset and is assessed at fair market value, triggering the capital gains tax rule. Because this home was her primary residence, she is exempt from paying capital gains on this property, but must file Form T1161 as the property is worth more than $25,000. However, the conditions change if she decides to rent her property, thus generating income as a non-resident of Canada. Sarah would be subject to remit 25% of non-residential tax on rental income. If Sarah decides to sell her property while living in Portugal, she would be required to pay a capital gains tax.

What is the Principal Residence and its Implications for Departure Tax?

Your principal residence is your primary home and can include a house, condo, or cottage. For departure tax purposes, your principal residence is not subject to the deemed disposition rules when you leave Canada. This means you won’t pay a departure tax on your home at the time of departure. However, any capital gains accrued after you leave will be taxable when the property is eventually sold.

Exempt Assets for Departure Tax

Most types of property are subject to departure tax when you leave Canada, but there are important exceptions to be aware of:

• Tax-Deferred Accounts: Registered accounts such as Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) are exempt from departure tax. You won’t be taxed on these assets at the time of departure; instead, taxes will apply when you withdraw funds in the future.
• Canadian Real Estate: Owned property in Canada, including your principal residence, is not subject to departure tax. However, any capital gains realized when the property is eventually sold will be taxable at that time.
• Other Assets: This includes non-registered investment accounts, shares of private corporations, and personal property such as vehicles, artwork, or jewelry, which are subject to the deemed disposition rules. This means you’ll be considered to have sold these assets at fair market value upon departure, resulting in capital gains tax liability.

When Do You Pay the Emigration Tax?

To be considered an emigrant for tax purposes, you must sever your primary residential ties with Canada. This generally means:

• You sell your home in Canada and establish a permanent home in another country.
• Your spouse, common-law partner, or dependents also leave Canada.
• You dispose of personal property and social ties in Canada and move them abroad.

If you leave Canada but maintain significant residential ties like keeping a home, a spouse, or dependents in Canada, you’re considered a factual resident, not an emigrant. In this case, it’s as if you never left: you’re still required to report and pay Canadian income tax on your worldwide income.

The Canada Revenue Agency (CRA) looks at two types of ties to determine your residency:

Significant Residential Ties:

• Owning a home in Canada
• Having a spouse or common-law partner in Canada
• Having dependents in Canada

Even if you cut major residential ties, the CRA may still consider you a factual resident based on your secondary ties. If you’re unsure about your status, you can file Form NR73 – Determination of Residency Status to request clarification. It’s always recommended to consult a tax professional to navigate this process and avoid headaches from the CRA in the future.

For more information on severing residential ties, visit the Government of Canada website for emigrants.

Deadline For Departure Tax

Your departure tax is due by April 30 of the year following the year you leave Canada. This is also the deadline to file your departure tax return. If you or your spouse/common-law partner is self-employed, you have until June 15 to file the return, but the tax payment itself is still due by April 30.

If you’re unable to pay the full amount right away, you may be able to defer payment. However, the Canada Revenue Agency (CRA) requires you to provide acceptable security, such as property or other financial assets, to qualify for this deferral.

Deferring Your Departure Tax

If you’re leaving Canada and owe departure tax, you may be able to delay the payment. The CRA allows you to defer paying this tax until you actually sell the asset in the future, and the good news is, no interest will be charged while the tax is deferred.

That said, there are a few conditions. If your federal departure tax owing is more than $16,500, you must offer the CRA some form of security to qualify. This could be the asset itself or a letter of credit from your bank. The CRA will check in each year to make sure the security still covers the amount you owe.

How Advanced Tax Helps With Departure Tax

If you’re preparing to move abroad, it’s essential to understand how departure tax works and how it might impact your finances. That’s where our expertise can make this transition easier, so you can enjoy your new home without worrying about any surprise letters from the CRA. Get in touch with one of our CPA accountants..