Leaving Canada: beware of the tax consequences

There it is. You have made the decision to leave Canada permanently. Since this is not without tax consequences, such a decision should not be taken lightly. Whatever your reason for emigrating from Canada, you will benefit from planning it well!

Deemed dispositions

If you emigrated from Canada and disposed of more than one property prior to your departure, you may be subject to the deemed disposition rule and be taxed on the resulting capital gain, commonly known as the departure tax. This presumed sale would thus be reported on your Canadian income tax return.

This deemed disposition must also appear on a form prescribed in the year of your departure, otherwise penalties may apply. If you did not meet your Canadian tax obligations the year you left, you may be eligible for the voluntary disclosure program.

Some exceptions

While most property falls under the deemed disposition, there are some exceptions:

  • property, real or immovable, situated in Canada;
  • property used in a Canadian business, if the business is carried on through a permanent establishment in Canada;
  • the excluded rights, interests or interests of the taxpayer, including registered plans and pension plans;
  • property you owned the last time you became resident in Canada or inherited after you last became resident in Canada, if you were resident in Canada for 60 months or less in the 10 years prior to emigration;
  • property you owned the last time you became resident in Canada or inherited after you last became resident in Canada, if you were resident in Canada for 60 months or less in the 10 years prior to emigration;

The first three exceptions are expressly excluded from the deemed disposition since the Canadian tax authorities retain their power to tax after departure (via declaration or withholding). Rather, the last two exceptions are short-term residents of Canada and residents who have returned to live in Canada.

Choices available

In certain situations, it could be advantageous to make the choice to dispose of the assets not covered by the departure tax in order to materialize an unrealized gain or loss. However, this choice is only allowed for the first two exceptions listed above and must be made on a specific form.

Payment deferral

Other relief measures are also available. For example, if you are unable to pay the income tax on the deemed disposition of property, you can choose to defer that payment regardless of the amount. You will then pay this tax later, without interest. To do this, you must complete form T1244.

Do not hesitate to make an appointment with one of our tax experts or to submit your documents on our virtual platform. It will be our pleasure to assist you when you leave Canada and to validate which form(s) may apply to your situation.

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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.