How does departure tax work when a client leaves Canada?
Departure tax in Canada is the tax on a deemed disposition under subsection 128.1(4): when your client stops being resident, most property is treated as sold at fair market value, and 50% of the gain is taxed on the departure year return. Canadian real estate, RRSPs and TFSAs are excluded, and Form T1244 defers payment.
Which property is deemed sold when your client leaves?
Almost everything your client owns is deemed sold at fair market value when residency ends, then reacquired at that same value laws-lois.justice.gc.ca. The exclusions are listed in paragraph 128.1(4)(b), and the CRA's emigrant page sorts them into the same groups
canada.ca.
| Property | Deemed disposed? | Listed on T1161? |
|---|---|---|
| Shares, ETFs and funds in a nonregistered account | Yes | Yes |
| Shares of a private corporation held personally | Yes | Yes |
| Foreign real estate, including a cottage abroad | Yes | Yes |
| Canadian real estate (home, rental, land) | No, 128.1(4)(b)(i) | Yes |
| Business property used through a Canadian permanent establishment | No, 128.1(4)(b)(ii) | Yes |
| RRSP, RRIF, TFSA, RESP, RDSP, pension plans | No, excluded right or interest | No |
| Cash and deposits in Canadian dollars | No gain arises | No |
| Personal use property worth under $10,000 | Yes | No |
| Property a short term resident brought to Canada | No, 128.1(4)(b)(iv) | Only if taxable Canadian property |
The short term resident rule covers property your client owned on arriving in Canada, or inherited afterward, if they were resident for no more than 60 months in the 120 months before leaving laws-lois.justice.gc.ca. Anything they bought while living here is still caught.
How much tax does the deemed disposition create?
The deemed proceeds are fair market value, so the gain is FMV minus adjusted cost base, and half of it is a taxable capital gain under paragraph 38(a) laws-lois.justice.gc.ca. That half is taxed at your client's marginal rate on the return for the year they left. The inclusion rate is 50% for 2026; the proposed increase was cancelled, see capital gains inclusion rate 2026.
Worked example. Your client emigrates in July 2026. She holds a nonregistered portfolio with an ACB of $200,000 and an FMV of $380,000 on the day she leaves, a Toronto condo worth $900,000, and an RRSP worth $150,000. Assume her other 2026 income already puts her above $258,482, so the 33% federal rate applies to every extra dollar canada.ca.
| Step | Amount |
|---|---|
| Deemed proceeds of the portfolio | $380,000 |
| Less ACB | $200,000 |
| Capital gain | $180,000 |
| Taxable capital gain (50%) | $90,000 |
| Federal tax at 33% | $29,700 |
| Federal tax the Act treats as already secured | $16,500 |
| Federal tax that needs security to defer | $13,200 |
The condo and the RRSP add nothing to the departure tax. Provincial tax comes on top of the $29,700, and the province can ask for its own security as well.
Which forms go with the departure year return?
| Form | What it does | When |
|---|---|---|
| T1243 | Calculates the gain or loss on each deemed disposition | With the departure year return |
| Schedule 3 | Carries the T1243 gains and losses into income | With the departure year return |
| T1161 | Lists reportable property when the total FMV is over $25,000 | By the filing due date, even if no return is required |
| T1244 | Elects under 220(4.5) to defer the tax | By April 30 of the year after leaving |
| T2061A | Elects to report a deemed disposition of Canadian real estate or business property | Only if your client makes that election |
The CRA's emigrant page sets out each of these and says all T1161 amounts are in Canadian dollars canada.ca. The forms themselves are T1243
canada.ca, T1161
canada.ca and T1244
canada.ca.
The T1161 trap: it is not limited to property that was deemed sold. Canadian real estate and Canadian business property are reportable, and only cash, registered plans, short term resident property that isn't taxable Canadian property and personal use property under $10,000 stay off it laws-lois.justice.gc.ca. A late T1161 costs $25 a day, with a $100 minimum and a $2,500 maximum
canada.ca.
How does the T1244 deferral and the $16,500 security work?
Your client can defer the departure tax on any amount by filing Form T1244 by April 30 of the year after leaving. The deferred tax is paid later, without interest, when the property is actually sold, and the CRA lists the payment as due April 30 of the year after that sale canada.ca. The election does not cover employee benefit plans.
Security is needed when the federal tax on the deemed disposition is more than $16,500, or more than $13,777.50 for a former Quebec resident canada.ca. The $16,500 comes from subsection 220(4.51): the CRA is deemed to hold security equal to the tax a trust would pay on $50,000 of taxable income, and $50,000 at the 33% top federal rate is $16,500
laws-lois.justice.gc.ca. For a client already in the top bracket, that's $100,000 of capital gains at the 50% inclusion rate.
Contact the CRA before April 30 to arrange the security, and remember the province or territory may require its own canada.ca. Both the election and the security are due by the balance due day for the departure year under subsection 220(4.5)
laws-lois.justice.gc.ca.
Edge cases accountants hit on emigration files
The departure date. Residency usually ends on the latest of the day your client leaves, the day a spouse or dependants leave, and the day they become resident in the new country canada.ca. Settle the date before valuing anything; residency itself is covered in Canadian tax residency.
Home Buyers' Plan balances. If your client already bought the home, they repay the balance by the earlier of filing the departure year return and 60 days after becoming nonresident, or it's RRSP income on line 12900 canada.ca.
TFSAs. Your client keeps the account, but earns no room for a full year of nonresidence, and any contribution made after leaving is taxed at 1% for each month it stays in canada.ca.
Income after leaving. Rent, dividends, pensions and RRSP payments from Canada usually face 25% Part XIII tax unless a treaty lowers it, while arm's length interest is generally exempt canada.ca. The retained Canadian condo is taxable Canadian property, so its later sale needs a section 116 certificate, and rent from it can be reported under section 216.
Coming back. A client who left after October 1, 1996 and becomes resident again can elect to unwind the deemed disposition on property still owned, by writing to the CRA by the filing due date for the year they return canada.ca. Subsection 128.1(6) is the rule, and 128.1(8) moves a later loss on taxable Canadian property back against the departure gain
laws-lois.justice.gc.ca.
Sources
Is a client who was only here a few years subject to departure tax?
Only on property acquired while resident, if they lived in Canada for 60 months or less in the 120 months before leaving. Property they brought with them or inherited after arriving is excluded under 128.1(4)(b)(iv) laws-lois.justice.gc.ca.
Does my client have to sell anything to pay departure tax?
No. Filing Form T1244 by April 30 of the year after leaving defers the tax, without interest, until the property is actually sold, as long as federal tax above $16,500 is secured canada.ca.
Is the RRSP collapsed on departure?
Can a client report a capital loss on departure?
Yes. T1243 calculates gains and losses on every deemed disposition, and both flow to Schedule 3 on the departure year return canada.ca.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.