{"id":7369,"date":"2026-04-30T09:18:05","date_gmt":"2026-04-30T16:18:05","guid":{"rendered":"https:\/\/www.thor.ca\/blog\/?p=7369"},"modified":"2026-04-30T09:20:15","modified_gmt":"2026-04-30T16:20:15","slug":"consequences-of-ceasing-canadian-tax-residency","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2026\/04\/consequences-of-ceasing-canadian-tax-residency\/","title":{"rendered":"Consequences of Ceasing Canadian Tax Residency"},"content":{"rendered":"

Following our previous discussion of Canadian tax residency<\/a>, this post explores the next question: what happens when a taxpayer becomes a non-resident of Canada under the Income Tax Act <\/em>(Canada) (the \u201cITA<\/strong>\u201d)?<\/p>\n

Whether a taxpayer\u2019s \u201cexit\u201d is tax motivated or not, the ITA imposes potentially onerous taxation and reporting requirements in the year of exit and beyond. As such, the tax consequences of ceasing Canadian tax residency must<\/em> be considered. Common \u201cexit\u201d considerations are summarized below, beginning with those applicable to natural persons, followed by key differences for corporations and trusts.<\/p>\n

I.\u00a0 \u00a0 Natural Persons<\/strong><\/p>\n

The most significant Canadian tax consequence of emigration is the notorious \u201cdeparture\u201d or \u201cexit\u201d tax. Immediately before an individual ceases to be a resident of Canada, the ITA deems them to dispose of, and reacquire, all of their property at fair market value (\u201cFMV<\/strong>\u201d), with some exceptions. This deemed disposition requires the recognition of capital gains that accrued while the emigrating individual was resident in Canada, ensuring that the associated tax is paid in respect of their year of departure.<\/p>\n

The \u201csuperficial loss\u201d rules, which generally deny losses on property disposed of and reacquired by the taxpayer or an affiliated person within 30 days, do not generally apply on exit. That is, losses from the deemed disposition on emigration are excluded from the definition of \u201csuperficial loss\u201d in section 54.<\/p>\n

As noted, certain assets are exempt from the deemed disposition on exit. Generally, these are assets that will still be subject to Canadian income tax when disposed of after emigration, as well as assets of certain short term or returning residents. The exceptions are as follows:<\/p>\n

1. Real or Immovable Property Located in Canada:<\/em> Canadian real estate, Canadian resource property, and timber resource property, unless the individual elects out of this exception;<\/p>\n

2. Canadian Business Assets:<\/em> certain property associated with the departing taxpayer\u2019s business carried on through a \u201cpermanent establishment\u201d[1]<\/a> in Canada (capital property, class 14.1 property, and inventory), unless the individual elects out of this exception;<\/p>\n

3. Excluded Rights or Interests:<\/em> this basket of exceptions includes RRSPs, RESPs, TFSAs, CPP and OAS benefits, interests in certain trusts, and interests in certain insurance policies;<\/p>\n

4. Property of Short-Term Residents: <\/em>where the taxpayer was not resident in Canada for more than 5 of the last 10 years before departure, property owned continuously from the time that the taxpayer last became a Canadian resident, and property inherited after that time, to the time of departure from Canada; and<\/p>\n

5. Certain Property of Returning Residents:<\/em> if an individual leaves Canada after October 1, 1996, and later returns, the individual can elect to unwind the deemed disposition of taxable Canadian property (\u201cTCP<\/strong>\u201d)[2]<\/a> owned since the individual\u2019s exit.<\/p>\n

TCP includes Canadian real estate and resource property, as well as certain interests in certain corporations, partnerships, or trusts deriving a significant portion of their value from such Canadian assets. Where TCP is deemed to be disposed of on exit at a gain but is actually sold at a loss after the owner becomes non-resident, that loss can be carried back to reduce the departure tax paid,[3]<\/a> subject to any applicable \u201cstop-loss\u201d rules.<\/p>\n

Recall that the taxpayer is deemed to reacquire any assets subject to the deemed disposition at a cost equal to their proceeds of disposition (i.e., the FMV at the time of the deemed disposition). This effectively \u201csteps up\u201d the taxpayer\u2019s adjusted cost base (\u201cACB<\/strong>\u201d) in each asset to its FMV at the time of exit. Despite this step up, the ACB to the taxpayer of certain assets may be recomputed for certain purposes of the ITA (e.g., certain partnership interests for the purposes of the debt forgiveness rules). Unlike Canada, many countries do not step up a property\u2019s tax cost to its FMV when the owner becomes resident in that country. Accordingly, foreign tax credits may provide partial or full relief for gains taxed by Canada on exit and again by the destination country when the property is actually sold.<\/p>\n

As the deemed disposition on exit requires recognition of accrued gains without an actual sale of the assets, liquidity issues may arise. Given this potential hardship, a person may defer payment of the departure tax on an interest-free basis by providing collateral that is acceptable to the Minister of Finance. The deferral lasts until the earliest of the taxpayer\u2019s death, the taxpayer\u2019s return to Canada, or the sale of the property subject to the deemed disposition, the last of which presumably gives the taxpayer the necessary liquidity to pay the related departure tax. Deferral requires an election using Form T1244 on or before the balance-due date for the emigration year and provision of adequate security. Adequate security is deemed accepted up to the amount of departure tax that would be payable on $50,000 of income taxed at the highest marginal rate. If, at any time, security provided beyond this deemed amount is determined to be inadequate, the CRA must provide 90 days\u2019 written notice to provide adequate security. Letters of credit from a recognized bank or Canadian real estate in which the departing taxpayer has significant equity are among the CRA\u2019s preferred types of security, though others may be accepted.<\/p>\n

As the deemed disposition on exit may inflate their income in the departure year, the taxpayer may be subject to alternative minimum tax (\u201cAMT<\/strong>\u201d). AMT is an alternate tax calculation setting a floor on an individual\u2019s tax liability which might otherwise be reduced further using tax exemptions, credits, or deductions. AMT is generally recoverable over the following seven years to the extent that the individual\u2019s Canadian Part I tax liability exceeds their minimum amount for AMT purposes in those years; however, since an individual may not have any Part I tax following their year of departure, the related AMT on exit may never<\/em> be recoverable. So, while it is designed to target high-income individuals benefitting from preferential tax treatment, AMT can be a surprise on departure. However, the CRA will allow individuals to defer payment of AMT as discussed above, to the extent that the AMT exceeds the amount of tax the individual would have owed in that year if they had not emigrated.[4]<\/a><\/p>\n

An individual\u2019s tax year is generally the calendar year, and unless the individual is deemed resident throughout the year, the individual\u2019s taxation year is effectively split into two parts on emigration: the part of the year that the individual was resident in Canada and the part that the individual was not. This is reported on a single Canadian income tax return for the full calendar year, despite the individual\u2019s change in residency during the year.<\/p>\n

If the departing individual operates a business, other than through a permanent establishment in Canada, that business has a deemed tax year end immediately before the individual\u2019s exit. This ensures that all business income up to the date that the individual departs is included in the individual\u2019s final Canadian tax return, and that the business\u2019s year end aligns with the individual\u2019s change of residency. The taxpayer can then choose a new fiscal period for the business going forward.<\/p>\n

To support the enforcement of departure tax on and after exit, the ITA requires certain prescribed forms to be filed with the CRA. Failure to file these forms will result in a penalty.<\/p>\n

The departing taxpayer must file a prescribed form (Form T1243) listing the properties subject to the deemed disposition, along with the resulting income inclusion and departure tax.<\/p>\n

Certain property owned immediately after emigration and having an aggregate value over $25,000 must be reported in Form T1161. \u201cReportable property\u201d includes most capital assets, such as shares, securities, and other investments; real estate outside Canada; investments in foreign trusts or partnerships; and personal property, like art or jewellery, valued at $10,000 or more. Registered plans, such as RRSPs and TFSAs; pensions and social security; employee benefits; insurance and funeral arrangements; and certain trust arrangements are not reportable.<\/p>\n

Note that a departing taxpayer may also file Form NR73. This is an optional<\/em> tax filing that outlines factors related to the individual\u2019s residential ties and permits the CRA to assess the individual\u2019s residency status. This form can be submitted either before or after departure. While filing this optional form may support the position taken on departure tax filings if the CRA challenges residency status in the future, there is a risk that the CRA may issue a negative determination. Further, the taxpayer may prefer not to highlight the taxpayer\u2019s facts through this optional form and instead disclose information only if reviewed or audited by the CRA. There is no legal obligation on the taxpayer to file Form NR73.<\/p>\n

After emigration, Canadian taxes still apply to Canadian-source income earned by the now-non-resident. With some exceptions, such as for actors and athletes, a 15% source deduction must be made by the payor from payments to non-residents for services rendered in Canada. Withholding tax of 25% (subject to reduction by treaty) must be deducted from several types of passive income paid to the non-resident, such as management fees, certain interest payments, estate or trust income, rents, dividends, registered accounts, like RRIFs and former TFSAs, and pension benefits.<\/p>\n

II.\u00a0 \u00a0 Corporations<\/strong><\/p>\n

A corporation ceases to be resident in Canada when its central mind and management is no longer exercised in Canada, and it is not deemed resident (e.g.<\/em>, as consequence of being incorporated in Canada). Like individuals, a corporation is deemed to dispose of each of its properties for FMV proceeds on exit; however, none of the exceptions from the deemed disposition that are available to individuals are available to corporations.<\/p>\n

The \u201csuspended loss\u201d rules, which generally deny losses on property disposed of and reacquired by a corporation, trust, or partnership or an affiliated person within 30 days, do not generally apply on exit. That is, losses previously \u201csuspended\u201d under subsections 40(3.3) \u2013 (3.4) are \u201creleased\u201d on exit, allowing the taxpayer to generally utilize these losses against any gains realized on exit.<\/p>\n

In addition to the departure tax, corporations are subject to a further 25% tax on the net value of their properties on exit, less the paid-up capital of the corporation\u2019s shares, outstanding debts, and certain adjustments for pre-1996 branch tax. This rule targets retained earnings that would otherwise escape Canada\u2019s jurisdiction before full taxation at the shareholder level, with the rate mirroring standard withholding tax payable on Canadian dividends received by non-residents. Where the exiting corporation becomes a foreign affiliate of another Canadian corporation, the foreign affiliate dumping rules deem the paid-up capital of the exiting corporation\u2019s shares to be nil in the above calculation.<\/p>\n

The following provisions discussed for emigrating individuals differ for corporations:<\/p>\n

1. corporations are deemed to have a tax year end immediately before emigration and do not have \u201csplit year\u201d taxation as both a resident and non-resident like certain individuals;<\/p>\n

2. corporations cannot provide security to defer the payment of departure tax;<\/p>\n

3. a credit where the stop-loss rule in subsection 40(3.7) applies is not available to corporations;<\/p>\n

4. AMT is not payable by corporations;<\/p>\n

5. a returning former resident corporation cannot elect to unwind the deemed disposition of TCP on its exit;<\/p>\n

6. losses on the post-emigration disposition of TCP cannot be carried back to offset any gain on departure; and<\/p>\n

7. corporations are not required to file lists of \u201creportable property.\u201d<\/p>\n

III.\u00a0 \u00a0 Trusts<\/strong><\/p>\n

Like a corporation, a trust ceases to be resident in Canada when its central mind and management (generally exercised by the trustee) is carried on outside Canada.[5]<\/a> On exit, trusts are deemed to dispose of each of their properties with the same exceptions applicable to individuals. However, unlike individuals, trusts cannot elect for certain excepted property to be included in the deemed disposition.<\/p>\n

Trusts are deemed to dispose of their property at various other times so that the trust structure cannot be used to avoid capital gains indefinitely. To prevent departure tax avoidance, even if the trust remains resident, emigration of a taxpayer who transferred certain property into the trust on a tax-deferred basis <\/em>will also trigger a deemed disposition of such trust property if it is reasonable to think that the transfer was made in anticipation of emigration.[6]<\/a><\/p>\n

As noted, most foreign countries do not step up the cost base of property on immigration, leading to potential double taxation of the gain realized on emigration and again on an actual sale. A similar issue arises when a Canadian-resident trust distributes property to a non-resident, which it is deemed to do at FMV.<\/p>\n

The following provisions applicable to emigrating individuals differ for trusts:<\/p>\n

1. like corporations, emigration triggers a deemed year end for trusts, which do not have split-year taxation;<\/p>\n

2. property of trusts resident in Canada for no more than 5 of the last 10 years before exit is not excluded from the deemed disposition on exit;<\/p>\n

3. trusts are not deemed to provide a minimum amount of accepted security for departure tax and must provide acceptable security to defer the full amount;<\/p>\n

4. a returning former resident trust cannot elect to unwind the deemed disposition TCP on its exit; and<\/p>\n

5. losses on the disposition of TCP cannot be carried back by trusts to offset any gain on departure.<\/p>\n

Conclusion<\/strong><\/p>\n

While the aim of this post is to provide an overview, the tax consequences of emigrating from Canada are both numerous and highly fact\u2011specific. Accordingly, a comprehensive review of the tax consequences of ceasing Canadian tax residency is beyond the scope of this post and depends on the type of exiting taxpayer; their assets, tax profile, and business; and the tax regime of their destination. Effective exit planning is highly individualized and receiving tailored Canadian and foreign tax advice is essential.<\/p>\n

If you are considering a departure, we welcome you to contact us to discuss your circumstances.<\/p>\n

[1]<\/a> \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 As defined in Income Tax Regulation<\/em> (Canada), section 8201.<\/p>\n

[2]<\/a> \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 As defined in subsection 248(1) of the ITA<\/p>\n

[3]<\/a> \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Subsection 128.1(8) of the ITA.<\/p>\n

[4]<\/a> \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 CRA Views, Conference, \u201c2025-1071591C6-T — APFF 2025 – Q.10 – Application of subsection 220(4.5) I.T.A. to the alternative minimum tax caused by the deemed disposition under paragraph 128.1(4)(b) I.T.A. (Unofficial Translation) (9 October 2025).<\/p>\n

[5]<\/a> \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 A factually non-resident trust may still be deemed resident in Canada; however, this deeming rule does not prevent the trust from ceasing to be resident under subsection 128.1(4) and, more specifically, the application of departure tax: paragraph 94(4)(e) of the ITA.<\/p>\n

[6]<\/a> \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Paragraph 104(4)(a.3) of the ITA<\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Following our previous discussion of Canadian tax residency<\/a>, this post explores the next question: what happens when a taxpayer becomes a non-resident of Canada under the Income Tax Act <\/em>(Canada) (the \u201cITA<\/strong>\u201d)?<\/p>\n

Whether a taxpayer\u2019s \u201cexit\u201d is tax motivated or…<\/p>\n","protected":false},"author":86,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9,41,13,26,22],"tags":[],"class_list":["post-7369","post","type-post","status-publish","format-standard","hentry","category-corporate-tax","category-income-tax-act-ita","category-personal-tax","category-tax-residencey","category-trusts"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/7369","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/users\/86"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/comments?post=7369"}],"version-history":[{"count":3,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/7369\/revisions"}],"predecessor-version":[{"id":7377,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/7369\/revisions\/7377"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=7369"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=7369"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=7369"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}