Emigrants and Canadian Tax Residency

An individual who leaves Canada and ceases to be a resident must provide convincing evidence that they have permanently severed their residential ties with Canada.

Example: Rachael's Residency Status

Rachael relocated from Toronto to Paris, France on September 15th and does not plan to return to Canada. She is single and has no dependent children.

Before leaving Canada, Rachael earned employment income of $35,000 until September 15th. After moving to Paris, she earned an additional $9,500.

Question: What is Rachael's residency status for Canadian tax purposes, and what is her total taxable income for the year?

Answer

Rachael would be considered a part-year resident after she permanently severed her residential ties with Canada, including cancelling her bank account and OHIP coverage.

She would only be taxed in Canada on the income earned during the period she was a resident of Canada. Therefore, her Canadian taxable income would be $35,000.

Important Steps When Leaving Canada

When an individual becomes a non-resident of Canada, they should complete the following steps:

• Notify financial institutions that they are no longer a Canadian resident.
• Non-refundable tax credits will be prorated based on the number of days the individual was a resident of Canada during the year.
• Notify the CRA to cancel GST/HST credit payments.
• Investment income received by non-residents may be subject to withholding tax.
• Complete Form T1161 if the fair market value of specified properties is more than $25,000.

For more information: T1161 – List of Properties by an Emigrant of Canada (opens in a new tab)

Deemed Disposition on Departure

When an individual emigrates from Canada, the date of departure is generally considered the date when a deemed disposition of certain capital properties occurs.

As a result, the individual may be required to pay tax on any capital gains that arise from the deemed disposition.

However, taxpayers may request an exemption from the deemed disposition rules for certain properties.

Properties Exempt from Deemed Disposition Rules

The following properties may be exempt from deemed disposition rules upon departure:

• Canadian real estate.
• Capital property of a business permanently located in Canada.
• Rights to receive Canada Pension Plan (CPP) benefits.
• Stock option benefits.
• Rights to receive payments from superannuation plans, retiring allowances, RRSPs, DPSPs, and Employment Insurance (EI) benefits.
• Rights under Registered Retirement Savings Plans (RRSPs).
• Interest in Canadian life insurance policies.

Income or gains from these exempt properties will generally be taxed in Canada when they are disposed of in the future. However, the individual will be taxed as a non-resident rather than a Canadian resident.

Example (a): Principal Residence

Rachael owns a house in Canada that is her principal residence. The property has increased in value and has an accrued capital gain of $40,000.

Question: What are the tax consequences if Rachael sells the house after leaving Canada?

Answer: Since the property is her principal residence, the capital gain would not be taxable.

If Rachael keeps the property after becoming a non-resident, any future increase in value may be subject to capital gains tax.

Rachael should have the property appraised on the date of departure to establish the property's value at the time she became a non-resident.

Example (b): Rental Property After Leaving Canada

If Rachael's house was not her principal residence and she rented it after becoming a non-resident, different tax rules would apply.

Upon departure, the property would generally be subject to deemed disposition rules, and any resulting capital gains would be taxable.

The tax owing on the deemed disposition would not exceed $16,500, and CRA would not require security for this amount.

If Rachael rents the property, she or the property management company must withhold 25% non-resident tax from gross rental income and submit it to CRA.

Rachael may elect to file a Section 217 return if her tax payable after deducting rental expenses is lower than the amount withheld.

When she eventually sells the property after 10 years, she would be subject to capital gains tax on the increase in value that occurred during the period she was a non-resident.

Example (c): Canadian Corporation Shares

At the time of leaving Canada, Rachael also owns shares in a Canadian corporation. She purchased the shares in March 2010 for $15,000.

On September 15, 2025, the fair market value (FMV) of the shares was $27,000.

Answer

Since Rachael ceased to be a resident of Canada, she is considered to have disposed of the shares at their fair market value of $27,000 on September 15, 2025.

This results in a capital gain of:

$27,000 - $15,000 = $12,000 capital gain

When filing her 2025 tax return, Rachael must:

• Complete Form T1161 to list properties owned when leaving Canada.
• Report the deemed disposition and capital gain of $12,000 using Form T1243.
• Report the taxable capital gain of $6,000 (50% of $12,000) using Schedule 3.

Forms T1161, T1243, and Schedule 3 should be attached to her tax return.

Deferring Tax on Deemed Disposition

If Rachael chooses to defer the tax payable on the deemed disposition until the actual sale of the property, she may complete Form T1244.

Since the capital gain is less than $16,500, security is not required.

If tax is deferred, she should attach Forms T1161, T1243, and T1244 with her tax return. Schedule 3 is not required in this situation.

Important: Individuals leaving Canada should carefully review their residency status, property ownership, and tax obligations to ensure compliance with CRA requirements.

For More Information

For additional information about dispositions of property, visit the Canada Revenue Agency (CRA).