Deferring the departure tax: guarantees required

When leaving Canada, tax consequences may arise if the property you owned immediately prior to your departure is subject to the deemed disposition. Although this fictitious disposition must be reported on your Canadian income tax return in the year you leave, you could, if you wish, request to defer payment of income tax relating to the deemed disposition of the property by making the election provided for in the Income Tax Act.

To do this, you will need to provide sufficient security to cover the amount of federal tax. In addition, you may need to provide security to cover provincial or territorial tax payable, as applicable. Depending on the capital gain that arises from the deemed disposition, the type of security will vary.

Guarantee required

In order for the election to be valid, Form T1244 must be completed and attached to your Canadian income tax return, specifying the amount of tax to be carried forward. If the capital gain exceeds $50,000, you will need to provide adequate security. For example, you can pledge shares you own as security. If these are shares of a private company, additional details will need to be provided. Otherwise, if the gain does not exceed $50,000, your guarantee will be deemed sufficient and you will not have to provide anything.

Finally, the departure tax must be paid when you have actually disposed of the property or if the guarantee ceases to be sufficient. At this time, interest and penalties may apply on any unpaid balance due.

If you would like to know more about the departure tax and the options available, do not hesitate to make an appointment with one of our tax experts; we have the expertise to assist you.

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About the author

Olivier Custeau, tax expert, B.A.A., M. Fisc., EA

Holder of a bachelor's degree in business administration (B.B.A) from Université Laval and a master's degree in taxation (M. Fisc.) from the Université de Sherbrooke, Olivier has developed expertise in American and international taxation by working in a renowned firm. Over the years, he has developed a keen interest in US taxation. In fact, he was awarded Enrolled Agent status in 2019, the highest level a professional can attain to represent clients to the Internal Revenue Service (IRS). Recognized for his rigorous, dynamic and human approach, Olivier is an asset to the team.