Canada’s departure tax is a deemed disposition: the moment you cease to be a Canadian tax resident, the law treats you as having sold most of your worldwide property at fair market value, and the resulting capital gains go on your final Canadian return even though no actual sale occurred. Only 50% of the gain is included in taxable income. Canadian real estate, RRSPs, TFSAs, pensions, and several other categories are carved out, and you can elect to defer paying the bill until you actually sell.
How the Deemed Disposition Works
Section 128.1 of the Income Tax Act says that when you stop being a resident, you are deemed to have disposed of each property you own for proceeds equal to its fair market value immediately before departure.1Department of Justice. Income Tax Act – Section 128.1 – Emigration You are then treated as having reacquired the same property at the same value, which resets your cost base going forward.2Canada Revenue Agency. Leaving Canada (emigrants) The difference between your adjusted cost base and the fair market value on the departure date is a capital gain or loss reported on your final T1.
Half of that gain is added to your taxable income. A proposed increase to a two-thirds inclusion rate for individual gains above $250,000 was cancelled in March 2025, so the 50% rate remains in effect for 2026 departures.3Office of the Prime Minister. Prime Minister Carney cancels proposed capital gains tax increase
Which Assets Are Caught
Most property you hold worldwide falls within the deemed disposition. Shares in public and private corporations, mutual fund units, partnership interests, foreign real estate, cryptocurrencies, and investment portfolios are all in scope. Each holding is valued individually on the date you cease residency. Public securities are simple enough using closing prices, but private company shares and unique assets like art or collectibles usually need an independent appraisal that will hold up under a CRA audit.
You calculate the taxable amount by subtracting the adjusted cost base (generally what you originally paid, plus improvements or reinvested distributions) from the fair market value. Even without a sale, the unrealized appreciation is taxable in your departure year.
Property That’s Exempt
Section 128.1(1)(b) carves out three broad categories: taxable Canadian property, Canadian business inventory, and “excluded rights or interests.”1Department of Justice. Income Tax Act – Section 128.1 – Emigration
Canadian Real Estate
Real property in Canada, whether a principal residence, rental building, or vacant land, is taxable Canadian property and escapes the deemed disposition. Canada keeps the right to tax you when you actually sell it later, which is why no exit charge is needed now. That future sale carries its own compliance rules, covered below.
Registered Accounts and Pensions
The “excluded right or interest” definition in subsection 128.1(10) is wider than most people expect. It covers RRSPs, RRIFs, TFSAs, First Home Savings Accounts, RESPs, Registered Disability Savings Plans, deferred profit-sharing plans, pension plans, employee stock option rights, retiring allowances, and CPP/OAS entitlements.4Department of Justice. Income Tax Act – Section 128.1(10) – Excluded Right or Interest None of these are deemed disposed of when you leave. Withdrawals from them after you become a non-resident are generally subject to a 25% withholding tax, which a bilateral treaty may reduce.
Employee Stock Options
Unexercised employee stock options fall under the excluded-right definition in subsection 128.1(10)(c), so they are not deemed disposed of on departure. Canada taxes the employment benefit when you eventually exercise them. Shares of a Canadian-controlled private corporation acquired through an employee stock option plan get a separate exemption under subsection 7(1.6) that protects the shares themselves.
The Short-Term Resident Exemption
If you were resident in Canada for 60 months or fewer during the 120-month period ending on your departure date, an additional shelter kicks in. Any property you owned when you last became a Canadian resident, and anything you inherited after becoming resident, is excluded from the deemed disposition.5Department of Justice. Income Tax Act – Section 128.1(4)(b)(iv) The rule protects temporary workers and expatriates who brought existing wealth into Canada and leave within a few years. Only appreciation on assets acquired during your residency is caught.
The Forms You Need to File
Emigration triggers two departure-specific forms on top of your regular T1.
Form T1161: List of Properties
Form T1161 lists every property you own on the date you become a non-resident.6Canada Revenue Agency. Form T1161 – List of Properties by an Emigrant of Canada You must file it if the total fair market value of your property exceeds $25,000, even if every item on the list is exempt from the tax. For each property you record the description, acquisition date, and fair market value at departure.
Form T1243: Deemed Disposition Calculation
Form T1243 is where the actual gains and losses are worked out.7Canada Revenue Agency. T1243 Deemed Disposition of Property by an Emigrant of Canada For each non-exempt asset you report the adjusted cost base, fair market value at departure, and resulting gain or loss. The totals feed into Schedule 3 of your T1 for the departure year.
Deadlines and Penalties
Both forms are filed with your T1 for the year you left. The deadline is April 30 of the following year, or June 15 if you or your spouse had self-employment income.8Canada Revenue Agency. What you need to know for the 2026 tax-filing season Any balance owing is still due April 30 regardless. Late-filed information returns attract a penalty of $25 per day, capped at $2,500 per form.9Canada Revenue Agency. Table of penalties
Deferring the Tax Bill
You do not have to pay the departure tax up front. Filing Form T1244 lets you defer payment until you actually sell the property, and no interest accrues on the deferred balance while the election is in good standing.10Canada Revenue Agency. Dispositions of property for emigrants of Canada
If the federal tax on the deemed disposition exceeds $16,500, you must post security acceptable to the CRA. A bank letter of credit, a mortgage on real property, or other approved collateral will do. If the federal tax is $16,500 or less, no security is required, but you still owe the tax when you eventually sell. Failing to post required security can push the CRA to collect the full balance immediately.
If You Move Back
Re-establishing Canadian residency lets you reverse some or all of the deemed dispositions from your original departure, provided you still own the property.10Canada Revenue Agency. Dispositions of property for emigrants of Canada You submit a written request by the filing deadline for the year you return, listing each property and its fair market value on the date you re-entered Canada.
The election reduces the gain originally reported. For property other than taxable Canadian property, the reduction is capped at the lesser of the original gain and the property’s fair market value on the return date, so a drop in value while you were away means you recover only part of the tax. Leaving and returning within a few years with the same portfolio can largely undo the exit charge.
Canadian Property After You Leave
Canadian real estate and business assets skip the departure tax but come with continuing obligations once you are a non-resident.
Selling as a Non-Resident
When a non-resident sells taxable Canadian property, the buyer must withhold 25% of the sale price (50% for certain property types like resource property or depreciable property) and remit it to the CRA unless you first obtain a Certificate of Compliance.11Department of Justice. Income Tax Act – Section 116 Getting the certificate requires notifying the CRA and either paying or posting security for the estimated tax. The notification deadline is 10 days after the property changes hands, and missing it triggers the same $25-per-day penalty up to $2,500.12Canada Revenue Agency. Disposing of or acquiring certain Canadian property If a sale is on the near horizon, coordinate timing so the buyer isn’t forced to hold back a quarter of the price.
Rental Income
Keep a rental property and your tenant or property manager must withhold 25% of the gross rent for the CRA. A Section 216 election lets you pay tax on net rental income instead, deducting expenses like mortgage interest, property taxes, and maintenance.13Canada Revenue Agency. Income Tax Guide for Electing Under Section 216 The election is generally due within two years of the end of the tax year the rent was paid. With an approved Form NR6 in place, the deadline tightens to June 30 of the following year but the withholding rate during the year drops.
If You Also File U.S. Taxes
U.S. citizens, green card holders, and others subject to U.S. tax face a mismatch: Canada taxes the deemed gain at departure, but U.S. law recognizes no gain without an actual sale. Left alone, you can end up taxed twice on the same appreciation.
Article XIII, paragraph 7 of the Canada-U.S. treaty lets you elect to be treated for U.S. purposes as if you sold and repurchased the property at fair market value on the Canadian departure date.14Internal Revenue Service. United States – Canada Income Tax Convention For property the U.S. can tax (such as U.S. real estate), you report the deemed gain on your U.S. return and claim a foreign tax credit for the Canadian tax on the same gain. For property the U.S. cannot currently tax (Canadian or third-country stocks, for instance), the election steps your U.S. basis up to the Canadian fair market value, so a later actual sale generates U.S. gain only on further appreciation.
The election is made by attaching Form 8833 to your timely filed U.S. return for the first tax year ending after your change of residence.15Internal Revenue Service. Revenue Procedure 2010-19 You need documentation of the fair market values under Canada’s rules and confirmation that the gain was reported to Canada. The election covers all deemed-disposed property collectively and is irrevocable without IRS consent. Missing this window is one of the costliest errors in cross-border planning.
Fixing a Missed Departure Return
People who left Canada years ago without filing a departure return are not unusual. The Voluntary Disclosures Program is the route back to compliance with reduced consequences. As of October 2025, the program distinguishes between unprompted and prompted applications. Come forward before any CRA enforcement action and you may qualify for 100% relief from penalties and 75% relief from accumulated interest. If the CRA has already contacted you, relief can still reach 100% of penalties but drops to 25% of interest.16Canada Revenue Agency. Voluntary Disclosures Program – Our review and decision An accepted disclosure also protects you from criminal prosecution and gross negligence penalties.
Preparation Before Departure Day
Start pulling documentation early. You need the adjusted cost base for every non-exempt asset, which means original purchase records, reinvested dividend histories, and receipts for capital improvements. Commission private company valuations well before year-end. For public securities, capture closing prices for the exact date residency ends, not an approximation from that week.
Think about whether to realize losses on underperformers before departure to offset gains elsewhere. The deemed disposition marks your entire portfolio to market at once and does not let you pick which assets to “sell,” so unrealized losses will automatically net against unrealized gains on your return. If you have been deferring losses in a taxable account while sitting on large unrealized gains, an actual sale before departure day may still make sense to crystallize those losses on your own timing.