Leaving Canada? Understanding Canada’s Departure Tax

Article | August 14, 2026

Authored by Your Firm LLC

Leaving Canada permanently can have significant Canadian tax consequences. This is

particularly important for individuals who own investment portfolios, shares of private

corporations, real estate or other valuable assets.

One of the most important issues to consider is Canada’s departure tax.

Departure tax can create a Canadian tax liability even though you have not actually sold your assets and have not received any proceeds from a sale. For individuals with significant unrealized gains, this can result in a substantial tax bill.

If you are considering moving permanently from Canada, departure-tax planning should

begin before you leave.

What is departure tax?

When an individual ceases to be a resident of Canada for income tax purposes, the Income

Tax Act generally deems the individual to have disposed of certain property at its fair market

value (FMV) immediately before departure and to have immediately reacquired that

property at the same FMV.

In practical terms, Canada can treat you as though you sold certain assets on the day you

leave. For example, assume you purchased shares of a private corporation for $200,000

and the shares are worth $2 million when you leave Canada. Even though you have not sold

the shares, the departure tax rules may deem you to have disposed of them for $2 million.

The resulting $1.8 million capital gain could create a significant Canadian tax liability.

The key issue is therefore that departure tax can apply to unrealized gains. You may owe tax

without having received cash from the underlying asset.

When do you become a non-resident?

Physically leaving Canada does not automatically make you a non-resident for Canadian

tax purposes.

Your residency status depends on your facts and circumstances, including the residential

ties you maintain in Canada.

Important ties can include:

• A home in Canada;

• A spouse or common-law partner in Canada;• Dependants in Canada;

• Canadian bank and investment accounts;

• Canadian employment or business interests;

• A Canadian driver's licence;

• Provincial health coverage;

• Canadian vehicle registration;

• Personal property in Canada; and

• Other social and economic connections to Canada.

The date of departure is therefore an important tax question. In some circumstances, an

individual may also be considered resident in both Canada and another country. Where a

tax treaty exists, the treaty's residency tie-breaker rules may become relevant.

As such, it is essential to establish when you actually ceased to be a Canadian tax resident.

What assets are subject to departure tax?

The deemed disposition rules can apply to many types of investment property, including:

• Shares of private corporations;

• Cryptocurrency;

• Publicly traded securities;

• Investments held in non-registered accounts;

• Real estate outside Canada;

• Partnership interests; and

• Other investment property.

However, certain property is generally excluded from the deemed disposition rules.

These exclusions can include:

• Real property situated in Canada;

• Property used in carrying on a business through a Canadian permanent

establishment;

• Certain registered plans and other excluded rights or interests; and• Certain property owned before an individual immigrated to Canada provided the

individual was a resident of Canada for less than 60 months during the 10 year

period.

Canadian real estate and the T2061A election

Canadian real estate is generally excluded from the normal departure-tax deemed

disposition.

However, an emigrating taxpayer may, in certain circumstances, elect to subject Canadian

real estate and property used in a business carried on in Canada to the deemed disposition

rules.

The prescribed form is Form T2061A, Election by an Emigrant to Report Deemed

Dispositions of Property and any Resulting Capital Gain or Loss.

There may be strategic reasons to make this election. For example, a taxpayer may wish to

recognize an accrued loss at the time of departure, particularly where the available capital

losses may reduce the resulting tax.

However, making the election can also trigger an immediate tax liability. The decision

should therefore be made as part of an overall departure-tax plan.

What happens to your Canadian home?

If you leave Canada while retaining your Canadian home, there are several issues to

consider.

Canadian real estate generally remains outside the normal departure-tax deemed

disposition. However, the principal residence exemption, future appreciation and the

eventual sale of the property must be considered.

In some circumstances, an individual may consider making the T2061A election to trigger a

deemed disposition.

For example, if a Canadian home has appreciated significantly while it qualified as the

individual's principal residence, there may be an opportunity to recognize the gain while the

principal residence exemption is available.

What happens to RRSPs, RRIFs and TFSAs?

Registered plans are generally treated differently from ordinary investment assets.An RRSP or RRIF is generally not subject to the departure-tax deemed disposition.

However, withdrawals after becoming a non-resident may be subject to Canadian

withholding tax, generally at 25%, subject to a lower rate under an applicable tax treaty.

A TFSA is also generally not subject to departure tax. However, leaving Canada does not

guarantee that the TFSA will remain tax-free in the new country.

For example, if you move to the United States, the TFSA is generally not treated as a tax-free

account for U.S. tax purposes. It can therefore create U.S. tax and reporting issues even

though it continues to receive tax-free treatment under Canadian law.

Registered accounts should therefore be reviewed from both the Canadian and foreign tax

perspectives before departure.

What happens if you own a Canadian corporation?

Departure tax is particularly important for Canadian business owners.

If you personally own shares of a Canadian corporation, those shares may be subject to the

deemed disposition rules when you become a non-resident.

Consider a business owner who invested $100,000 in a corporation and whose shares are

now worth $3 million. If those shares are subject to the departure tax rules, the owner

could have a substantial deemed capital gain even though the business has not been sold.

For qualifying shares of a Canadian private corporation, the Lifetime Capital Gains

Exemption (LCGE) may potentially reduce the capital gain if the shares meet the

requirements for qualified small business corporation (QSBC) shares.

Business owners should therefore review their corporate structure, assets and activities

well before departure.

Becoming a non-resident can also have implications for a corporation the individual

controls. The corporation's status as a Canadian-controlled private corporation (CCPC)

and the withholding-tax consequences of future payments to the non-resident shareholder

should be reviewed. Particularly, CCPC pays a low federal tax rate of 9% on the first

$500,000 of active business income via the Small Business Deduction (SBD). A non-CCPC

does not qualify for the SBD and pays the general federal rate of 15% on all active business

income, plus applicable provincial taxes.

When is departure tax payable?

Generally, taxes arising from the departure tax rules are payable by April 30 of the year

following the year of departure, subject to the applicable rules.Because departure tax can be substantial, taxpayers should estimate the liability before

leaving Canada rather than waiting until the departure-year return is prepared.

Can departure tax be deferred?

A major concern is that the taxpayer may have a large tax liability but no cash proceeds.

For example, an individual may own private company shares worth $5 million but have no

intention of selling the business.

In certain circumstances, an individual can elect to defer payment of the departure tax

until the relevant property is disposed of.

The election is generally made using Form T1244, Election to Defer the Payment of Tax on

Income Relating to the Deemed Disposition of Property, by the applicable deadline,

generally April 30 of the year following emigration.

Security may be required depending on the amount of tax involved. Potential forms of

security can include:

• A bank guarantee;

• A letter of credit; or

• A mortgage or other security over real property.

The costs and requirements associated with providing security should be considered

before deciding whether a deferral is appropriate.

What tax forms are required?

The departure-year tax return can be more complicated than an ordinary personal income

tax return.

Depending on the circumstances, an emigrating individual may need to file several

additional forms.

Form T1243

Form T1243 — Deemed Disposition of Property by an Emigrant of Canada is used to

disclose property subject to the deemed disposition rules and calculate the resulting

capital gains or losses.

Form T1161If the FMV of the taxpayer's reportable properties at departure exceeds $25,000, the

taxpayer may be required to file Form T1161 — List of Properties by an Emigrant of Canada,

subject to the applicable exclusions.

Form T2061A

This form may be relevant where an individual elects to subject certain otherwise excluded

property (e.g., real estate), including Canadian real property, to the deemed disposition

rules.

Form T1244

This form is used to make the election to defer payment of tax arising from the deemed

disposition, where the applicable requirements are satisfied.

These forms should be prepared carefully because the values reported can directly affect

the taxpayer's Canadian tax liability.

What happens to Canadian rental income?

Becoming a non-resident does not mean that Canada stops taxing Canadian-source

income.

If you continue to own Canadian rental property after becoming a non-resident, you may

generally be subject to 25% Canadian withholding tax on rental income, subject to a

potentially lower rate under an applicable tax treaty.

There is also an election that may allow the withholding tax to be calculated on net rental

income rather than gross rental income.

This can generally be done by filing Form T1159, Income Tax Return for Electing under

Section 216.

Anyone planning to retain Canadian rental property after departure should therefore

address the rental-income rules as part of the departure plan.

What happens when a non-resident sells Canadian real estate?

Canadian real estate remains taxable in Canada after an individual becomes a non-

resident.

A non-resident selling Canadian real estate generally must notify the CRA and address the

certificate-of-compliance process.The applicable form is generally Form T2062 — Request by a Non-Resident of Canada for a

Certificate of Compliance Related to the Disposition of Taxable Canadian Property. Form

T2062A may also be relevant for certain depreciable property.

The CRA generally must be notified before the sale or within 10 days after the disposition.

If the required process is not followed, significant withholding can apply. Generally, the

withholding can be 25% of the proceeds of disposition of real property, with different rules

potentially applying to depreciable property and real property inventory.

Once the CRA reviews the application and issues a certificate of compliance, the

withholding may generally be reduced to the tax on capital gains only.

Because the certificate process can take time, non-resident sellers should address these

requirements before closing.

Looking Ahead

Leaving Canada can be much more complicated from a tax perspective than simply filing a

final Canadian tax return.

For many emigrating Canadians, the most significant issue is the departure tax on

unrealized gains. For business owners, the deemed disposition of private-company shares

can create a particularly large liability. For investors, substantial gains in investment

portfolios may also trigger significant tax.

At the same time, becoming a non-resident does not end Canada's taxing rights. Canadian

rental income and Canadian real estate can continue to generate Canadian tax obligations

after departure.

Therefore, a proper departure-tax review should be conducted to determine residency,

worldwide assets, valuations, private corporations, registered plans, Canadian real estate,

available tax exemptions and losses, potential deferral options and the tax rules of your

new country.

This article is intended for general informational purposes only and does not constitute

legal or tax advice. Canada's departure-tax rules are complex and depend on the

individual's particular circumstances. Professional advice should be obtained before

implementing any tax planning strategy.