Leaving Canada — Departure Tax & Emigration

TaxKiln framework

Five-Stage Emigration Tax Lifecycle

TaxKiln's lifecycle framework for Canadian emigration tax: (1) pre-departure planning — asset reorganisation, CDA extraction, LCGE crystallisation, RRSP/TFSA timing, provincial residency strategy; (2) departure tax crystallisation — s.128.1(4) deemed disposition, T1243/T1161, T1244 security; (3) treaty positioning — Article IV tie-breaker, destination pension/RRSP treatment, withholding reduction; (4) post-departure compliance — Section 116 on TCP, Part XIII on passive income, provincial trailing tax; (5) return — s.128.1(7) basis reset, foreign retirement account elections, TFSA/RRSP room recalculation.

1. Departure tax foundations

Canadian tax residency ends when you sever significant residential ties (home, spouse/partner, dependants per ITA s. 250 and CRA Folio S5-F1-C1). Where a destination treaty applies, ITA s. 250(5) defers to the Article IV tie-breaker hierarchy (permanent home → centre of vital interests → habitual abode → nationality). Once non-resident, ITA s. 128.1(4) deems a disposition of most capital property at FMV — 50% inclusion under s. 38.

Property exempt from deemed disposition

• Canadian real property and resource property (still subject to Section 116 on later sale)
• RRSPs, RRIFs, TFSAs, RESPs, RDSPs, FHSAs
• Registered pension plan and DPSP interests
• Life insurance policies (other than segregated funds)
• Property held by a short-term resident (in Canada ≤60 of last 120 months — s. 128.1(4)(b)(iv))

Filing table

• T1 Emigration return — final return marking departure date; due April 30 (June 15 self-employed)
• T1161 — list of properties owned at emigration (mandatory if FMV > CAD $25,000 excluding cash and personal items)
• T1243 — deemed disposition of property
• T1244 — election to defer tax on deemed dispositions (security arrangement)
• T2061A — election to defer departure tax on listed personal property
• NR73 — voluntary residency determination request (optional, can be double-edged)

2. Post-departure Canadian-source income

After emigration, Part XIII of the ITA applies a default 25% withholding on most passive Canadian-source payments (dividends, interest, rent, royalties, RRSP/RRIF withdrawals). Treaty rates typically reduce this to 5%/10%/15%. On disposition of Taxable Canadian Property (TCP) — Canadian real estate, resource property, certain private company shares — the buyer must withhold 25% of gross proceeds (50% for depreciable property) under Section 116 unless the vendor obtains a T2062 Certificate of Compliance in advance.

3. Choose your corridor

4. Common mistakes

1. Treating immigration status (PR loss) as the residency-end date — CRA looks at facts, not paperwork.
2. Forgetting to file T1161 when total FMV exceeds $25,000 — $25/day penalty up to $2,500.
3. Selling TCP without a T2062 clearance — buyer's 25% withholding becomes a real cost.
4. Cashing out RRSP under non-resident 25% withholding when destination tax would be lower.
5. Keeping a TFSA while resident in a treaty country that doesn't recognise its tax-free status (notably the US).
6. Assuming the CDA balance survives emigration — it does, but extraction must precede departure to be tax-free.
7. Failing to crystallise the $1.25M LCGE before becoming non-resident.
8. Ignoring Quebec's separate trailing-tax exposure if departing from QC.
9. Posting no T1244 security but later receiving an assessment for instalment interest on deferred amounts.
10. Maintaining a dwelling available for personal use in Canada while claiming non-residence.
11. Forgetting CPP/OAS taxation rules in the destination treaty (varies wildly).

5. Related calculators & guides

• Income Tax Calculator
• Capital Gains Tax Calculator
• RRSP/TFSA/FHSA Planner
• Probate Fee Calculator
• Quebec tax system