You have accepted a job offer abroad, and your visa is approved. Before completing your move, consider a financial obligation that many Canadians overlook until it’s too late.
Once you stop being a Canadian tax resident, the Canada Revenue Agency will assume that you have disposed of all your foreign investments at their fair market value on your day of departure. This process, known as deemed disposition, may result in capital gains tax even if you didn’t sell any assets in your portfolio.
More than 106,000 Canadians moved to other countries in 2024, and many of them were not prepared for this obligation.
This article will explain exactly how the Departure Tax works, what types of assets are subject to the tax, and why obtaining an independent, fair market valuation of your assets before leaving is crucial.
What Is Canada’s Departure Tax?
Canada’s departure tax is not a separate levy, it is the acceleration of capital gains tax, triggered by your change in residency status. Under Section 128.1(4) of the Income Tax Act, the CRA deems you to have disposed of most of your assets at fair market value the day you leave and immediately reacquired them at that same value.
Any unrealized gains in your investments, stocks, or other properties will be taxed in one year alone. This will significantly boost your tax bill when holding such properties over the course of many years, as there will be no leeway when you change residence status.
A Clear Breakdown Of Assets Affected By Departure Tax
When the fair market value of your real estate holdings upon leaving Canada surpasses $25,000, you have to file Form T1161, which is a comprehensive property listing. Private company stocks and interests in foreign businesses need an official evaluation. An approximate value is not enough for the Canada Revenue Agency’s needs, as erroneous values can result in fines and additional costs.
| Taxable on Departure | Exempt from Departure Tax |
|---|---|
| Non-registered stocks, ETFs, mutual funds | Canadian real estate (taxed on actual sale) |
| Private company shares and stock options | RRSP, TFSA, and RESP registered accounts |
| Foreign real estate or business interests | Cash and foreign currency |
| Valuable collectibles above CRA thresholds | CPP, OAS, and private pensions |
How Fair Market Valuation Determines Your Departure Tax Bill
Your entire departure tax bill rests on one number: the FMV of your assets on the exact date you leave Canada. The formula is straightforward:
Capital Gain = FMV on Departure Date − Adjusted Cost Base (ACB)
However, the problem lies mainly in the proper use of fair value. In publicly listed companies, the FMV will be the price at the end of the trading day, which is quite easy. When dealing with stocks of private companies or even stock options and foreign businesses, the market price will not provide any help. The FMV assessor will have to utilize valuation approaches like DCF and comparable ratios.
An FMV that is unsupported, inconsistent, or underdocumented is the single biggest trigger for CRA audits on departure returns. Once you’ve left the country, gathering the documentation needed to reconstruct that valuation becomes significantly harder. The valuation must reflect your departure date, not the date you get around to filing.
How Departure Tax Scales With Asset Value
Table 1 shows an example of the calculation of departure tax liability from various asset amounts, illustrated in Table 1 using Ontario’s highest marginal tax rate of around 53.53%, with 50% of gain included.
A Step-by-Step FMV Valuation Timeline Before You Depart
If the immigrants plan ahead at least nine to twelve months before leaving, then there will be less difficulty. If they delay planning, then they have very little time, limited choices, and a rushed plan.
Deferring Departure Tax – What CRA Allows
If one is departing with huge departure taxes to pay, the CRA offers a deferral process, but one must be proactive and apply for this prior to leaving Canada. Should the amount due in federal departure tax exceed $16,500, one can provide an equivalent guarantee of payment by posting security like a bank guarantee or lien on Canadian assets.
Your choice has to be done using your departure return, and the security has to be acceptable by the Canada Revenue Agency prior to April 30 of the next year. This process facilitates cash flow, but there will still be no decrease in tax liability.
A Pre-Departure Valuation Checklist for Canadian Emigrants
Run through this before you file or finalize your move:
- Have you listed all non-registered investments and their adjusted cost base?
- Do you hold private company shares, warrants, or stock options?
- Do you own foreign real estate or have interests in a foreign business?
- Has a professional valuator formally assessed your holdings?
- Have you planned for Form T1161 and Form T1243 filings?
Note: If you checked fewer than 3 boxes, a professional FMV valuation should be your next step.
Get Your FMV Valuation Done Right With Eqvista
An ill-prepared departure tax return can result in a reassessment, fines, and possible audit risks that will end up costing you more than having done it properly initially. The deemed disposition guidelines and deadlines are stringent, so there is no better time to ensure compliance than when you are still within Canada.
Eqvista focuses on fair market valuation for Canadian expatriates with the aim of ensuring that you fulfill all the CRA requirements prior to your departure date. The departure tax in Canada applies to any person who has private stock holdings, foreign property, or significant investments.
Get Your FMV Valuation with Eqvista.
