What is Canada's Departure Tax?
Canada’s departure tax is based on deemed disposition, and can trigger capital gains tax on your assets, including real estate, investments and any businesses you own.
Even if you don’t sell any of your assets, the departure tax assesses capital gains on the day you leave the country. The sales price of your assets is based on what Canada interprets as fair market value on that date. And yes, Canada knows when you leave. They capture your exit data, whether you leave by air or on land. Canada and the United States share this data.
Who Has to Pay Canada Departure Tax?
Canada departure tax applies to you if you move away from Canada and sever your residential ties there. Canada may still consider you a tax resident of Canada if you continue to maintain a Canadian residence after you leave the country.
The United States uses a Substantial Presence Test to determine if you are a US resident for tax purposes. If the US determines you qualify for US tax residency based on the Substantial Presence Test, including the 183 day rule, you could also be taxed in the US and subject to double taxation.
Contact a licensed CPA experienced in cross-border tax services to help you complete the calculation you need to determine your tax residency and avoid double taxation if both the US and Canada claim you as a tax resident.
Which Assets Are Subject to Departure Tax?
Assets subject to capital gains taxes triggered by Canada departure tax include:
- Business assets, especially if you have a significant retained profit
- Investments, including securities, like mutual funds, stocks and ETFs
- Foreign real estate
- Cryptocurrency
- Jewelry, fine art and other personal valuables valued at more than $10,000
Assets that Are Not Deemed Disposed
Assets that the CRA does NOT deem disposed include:
- Canadian real estate, including your residence and any rental properties
- Your personal property valued at less than $10,000, including items like cars, clothing and furniture
- Registered accounts, including RRSP, RRIF, RESP, and TFSAs
Note: Despite RRSP and TFSAs being excluded from deemed disposition, TFSA and RRSP treatment changes when you leave Canada. You may not be able to contribute to your tax-free savings account if you become a nonresident of Canada.
The CRA can impose penalties of 1% each month if you make improper contributions to your TFSA after you leave Canada. You may also be liable for taxes on any withdrawals you make from your tax-free savings account while living in the US, since the IRS does not recognize the account’s tax-free status.
If you have Canadian RRSP (Registered Retirement Savings Plan) accounts, you can usually keep them when you move away from Canada. Like American traditional IRAs or 401(k) retirement plans, RRSPs allow you to defer paying taxes on your contributions.
However, unlike traditional American IRAs and 401(k) accounts, you don’t pay a penalty for early withdrawals from an RRSP.
How to Plan for Canada’s Departure Tax Before You Leave
Consult with a cross-border tax accountant at least three months before you leave to minimize your taxes due when you leave Canada. You may be able to sell assets prior to your departure under more favorable terms, or even defer paying departure tax in some cases.
Canada Departure Tax: Frequently Asked Questions
How can I reduce or defer Canada's departure tax?
You may be able to reduce or defer Canada’s departure tax by consulting a cross-border tax services accountant duly licensed in both Canada and the US. As soon as you decide to move, contact a cross-border CPA to determine whether you are eligible to defer paying Canada’s departure tax. They can also help you decide whether you should sell certain assets prior to your departure to minimize your tax liability.
Who has to pay departure tax?
You may have to pay departure tax if you move away from Canada and sever your residential ties there. If you maintain a residence in Canada, even after you leave the country, Canada may still consider you a tax resident of Canada. Contact a cross-border tax services consultant to avoid double taxation in this scenario.
Does the CRA know when you leave Canada?
The CRA does know when you leave Canada. The Canada Border Services Agency (CBSA) collects entry and exit data, whether you travel by air or on land.
What kinds of assets are subject to departure tax?
Assets subject to departure tax include: business assets, investments, including securities like mutual funds, stocks and exchange-traded funds (ETFs), foreign real estate, cryptocurrency and personal valuables, including jewelry and fine art valued at over $10,000.
Plan Your Exit with a Cross-Border CPA
Planning your exit from Canada can help you minimize your tax liability and make any necessary changes before you leave the country. This is the best way to avoid a large tax bill you never expected.
Request a FREE consultation to discuss cross-border tax services with Sr. Tax Manager Kelly Sheng.