When you leave Canada and become a non-resident for tax purposes, you might be subject to the departure tax. This is essentially a capital gains tax on the deemed disposition (forced sale) of your worldwide assets.
What is the Departure Tax?
The departure tax is triggered when you cease to be a resident of Canada. The Canada Revenue Agency (CRA) considers that you have disposed of certain types of property at fair market value immediately before leaving the country. You are then required to pay tax on any capital gains resulting from this deemed disposition.
Assets Subject to Departure Tax
The types of property subject to departure tax include:
- Shares in Canadian and foreign corporations;
- Interests in non-resident trusts; and
- Personal property with a fair market value over $10,000.
Certain assets are exempt from the departure tax, such as:
- Canadian real estate;
- Pension plans; and
- Registered accounts (e.g., RRSPs, TFSAs).
Calculating the Departure Tax
To calculate the departure tax, follow these steps:
- Determine Fair Market Value: Assess the fair market value of your assets on the date you cease to be a Canadian resident;
- Calculate Capital Gains: Subtract the adjusted cost base (ACB) of the assets from their fair market value to determine the capital gains; and
- Apply Tax Rates: Apply the appropriate capital gains tax rates to calculate the amount of departure tax owed.
Deferring the Departure Tax
In some cases, you can elect to defer the departure tax by providing security to the CRA. This option is beneficial if you do not have the liquidity to pay the tax immediately.
Filing Requirements
When filing your final tax return, include Form T1243 (Deemed Disposition of Property by an Emigrant of Canada) and Form T1161 (List of Properties by an Emigrant of Canada) to report the deemed disposition and any resulting capital gains.
Conclusion
Leaving Canada for tax purposes or becoming a non-resident of Canada for tax purposes involves careful planning and a thorough understanding of tax laws and regulations. Consulting with a tax lawyer can provide the necessary guidance to ensure compliance and optimize your tax situation. Whether you’re looking to minimize your tax liability or simply ensure a smooth transition, a tax lawyer’s expertise can be invaluable.
By understanding the implications of the departure tax and planning accordingly, you can make your move from Canada with confidence and peace of mind.
If you need any assistance, call us today.
Jeff Kirshen, BA, JD(US), JD(CDN)
Partner & Tax Lawyer
Disclaimer
Each article/blog post is only meant to provide general information. It is posted on a specific date. Laws and rules change. Please know that it may be out of date. It is not meant to provide legal advice, and it does not provide legal advice. It cannot be relied on. Every tax situation is unique, and that may mean situations differ from this article/blog. If you have legal questions, please consult a lawyer.