What Is Canadian Departure Tax and Who Has to Pay It? 

Last updated: Dec 15,  2025

When individuals leave Canada and become non-residents for tax purposes, many are surprised to learn that Canada may still tax them on certain assets, even if nothing has been sold. This is known as Canadian departure tax, and it is one of the most misunderstood areas of Canadian tax law.

Departure tax can result in a significant tax bill if not planned for properly. Understanding how it works, who it applies to, and which assets are affected is critical for anyone emigrating from Canada.

What Is Canadian Departure Tax?

Canadian departure tax is a tax imposed when an individual ceases to be a Canadian tax resident. At the time of departure, Canada generally treats the individual as if they had sold certain assets at fair market value, even though no actual sale has occurred. This “deemed disposition” can trigger capital gains tax.

The purpose of departure tax is to ensure Canada taxes gains that accrued while the individual was a resident, before taxing rights shift to another country.

Who Is Considered to Have Left Canada for Tax Purposes?

Departure tax applies when an individual becomes a non-resident of Canada. Residency for tax purposes is based on facts and ties, not citizenship. You may be considered a non-resident if you significantly reduce or sever residential ties such as:

• A primary home in Canada
  
  

• A spouse or dependents remaining in Canada
  
  

• Canadian employment or business operations
  
  

• Social, economic, and personal ties
  
  

The CRA looks at the overall picture. In some cases, individuals may believe they have “left Canada” but are still considered residents for tax purposes, delaying or complicating departure tax exposure.

What Assets Are Subject to Departure Tax?

Departure tax generally applies to capital property worldwide, not just Canadian assets. Common examples include:

• Non-registered investment portfolios
  
  

• Shares of private corporations
  
  

• Interests in foreign companies or partnerships
  
  

• Foreign real estate
  
  

• Certain collectibles or other capital property
  
  

The tax applies to the unrealized gain, the difference between the asset’s adjusted cost base and its fair market value at the date of departure.

What Assets Are Exempt From Departure Tax?

Not all assets are subject to departure tax. Key exemptions include:

• Canadian real estate (taxed when actually sold)
  
  

• Registered plans such as RRSPs, RRIFs, TFSAs, and pensions
  
  

• Certain employee stock options (subject to specific rules)
  
  

• Property used in carrying on a business through a permanent establishment in Canada
  
  

Although registered plans are excluded from the departure tax calculation, they often create future non-resident withholding and reporting issues, which should be planned for separately.

How Is Departure Tax Calculated?

For each taxable asset, Canada calculates a deemed capital gain as of the date you become a non-resident. Capital gains are taxed at the applicable inclusion rate in effect for the year of departure, using your marginal tax rates.

This calculation is reported on your final Canadian tax return, often referred to as the “departure return.” Additional reporting forms may also be required to disclose property held at departure.

Can You Defer Canadian Departure Tax? 

Yes. In many cases, the CRA allows individuals to defer payment of departure tax until the asset is actually sold. This is done by filing an election and, in some cases, providing acceptable security to the CRA.

Deferral can improve cash flow, but it does not eliminate the tax. Interest may accrue, and compliance requirements continue until the asset is disposed of.

What Forms Are Required When Leaving Canada? 

Departure tax filings typically involve more than just a T1 return. Common forms include:

• A final Canadian T1 return reporting the deemed dispositions
  
  

• A listing of property owned at departure
  
  

• Elections to defer payment, if applicable
  
  

Missing or incorrect filings can lead to penalties and delays, particularly if assets are later sold or transferred.

How Do Tax Treaties Affect Departure Tax? 

Canada’s tax treaties, including the Canada–U.S. tax treaty, can affect how departure tax interacts with taxation in your new country of residence. While treaties generally do not eliminate Canada’s right to impose departure tax, they are critical for avoiding double taxation when assets are eventually sold.

Proper coordination between Canadian departure tax and foreign tax systems is essential, especially for individuals moving to the United States or Europe.

Common Mistakes When Leaving Canada

Some of the most frequent errors include:

• Assuming departure tax only applies to Canadian assets
  
  

• Failing to properly establish non-resident status
  
  

• Not valuing assets accurately at departure
  
  

• Missing deferral elections or filing deadlines
  
  

• Ignoring how departure tax interacts with foreign tax rules
  
  

These mistakes can be costly and difficult to correct after the fact.

Final Thoughts

Canadian departure tax is not a penalty; it is a mechanism designed to tax gains accrued while an individual was a Canadian resident. However, without proper planning, it can create unexpected tax exposure at an already complex life transition.

For individuals leaving Canada with investment assets, private company shares, or foreign holdings, early planning and professional advice are critical. Addressing departure tax before residency changes occur allows for better valuation, potential deferral, and coordination with foreign tax systems.

Frequently Asked Questions (FAQs) 

What is Canadian departure tax in simple terms? 

Canadian departure tax is a tax that may apply when you leave Canada and become a non-resident. Canada treats certain assets as if they were sold at fair market value on the date you leave, which can trigger capital gains tax even though no actual sale occurs

Who has to pay departure tax when leaving Canada?

Departure tax applies to individuals who cease to be Canadian tax residents and own assets subject to deemed disposition rules. It is based on residency status, not citizenship. Canadian citizens, permanent residents, and temporary residents can all be subject to departure tax if they become non-residents.

What assets are subject to Canadian departure tax?

Departure tax generally applies to worldwide capital property, such as non-registered investments, private company shares, and foreign real estate. It does not apply to Canadian real estate or registered plans like RRSPs and TFSAs, though those assets may be taxed later under different rules.

Do I pay departure tax if I move to the United States?

Yes, potentially. Moving to the U.S. does not automatically exempt you from Canadian departure tax. While the Canada–U.S. tax treaty can help prevent double taxation when assets are eventually sold, it does not eliminate Canada’s right to impose departure tax at the time you leave.

When do I have to report Canadian departure tax?

Departure tax is reported on your final Canadian tax return for the year you become a non-resident. Additional disclosure forms may be required to report assets owned at the time of departure and to make any deferral elections.

Can Canadian departure tax be deferred? 

In many cases, yes. The CRA allows individuals to defer payment of departure tax until the affected assets are actually sold, subject to filing the appropriate election and, in some cases, providing acceptable security. Deferral delays payment but does not eliminate the tax.

Does departure tax apply to RRSPs or TFSAs? 

No. Registered plans such as RRSPs, RRIFs, TFSAs, and pensions are generally excluded from departure tax. However, withdrawals from these plans after becoming a non-resident are usually subject to non-resident withholding tax, which should be planned for separately. 

What happens if I don’t report departure tax properly?

Failure to report departure tax or disclose assets when leaving Canada can result in penalties, interest, and complications when assets are later sold. Errors can be difficult to correct after residency has changed, making proper filing critical.

Should I get professional advice before leaving Canada?

Yes. Departure tax often involves asset valuation, residency analysis, deferral elections, and coordination with foreign tax systems. Professional advice before leaving Canada can significantly reduce tax risk and prevent costly mistakes.