Section 128.1 of the Income Tax Act (Canada) deems a person who ceases to be a Canadian tax resident to have disposed of and immediately reacquired all taxable Canadian property at fair market value on the date of departure. This creates a capital gain on unrealised appreciation — calculated as the difference between FMV on departure day and the adjusted cost base. The 50% inclusion rate applies, and the resulting taxable capital gain is included in income for the final Canadian return at the taxpayer's marginal rate. On an investment portfolio worth $500,000 with an ACB of $200,000, the departure tax can exceed $75,000 — payable without any actual sale having occurred.
Step 1 of 7
Timing determines planning window. Already-departed focuses on compliance + deferral; pre-departure has full optimisation toolkit.
Countdown to 30 April 2027 — Canadian T1 return deadline
Deemed disposition
FMV on departure day
all taxable property; no actual sale required
Capital gains inclusion rate
50%
of deemed gain included in income
T1161 threshold
$25,000 aggregate FMV
above this, list all property on T1161
T1244 deferral option
Defer until actual sale
requires posting security with CRA
Departure tax decision logic
✓ Deemed disposition at FMV on date of ceasing Canadian residency (s128.1)
✓ Deemed gain = FMV minus adjusted cost base
✓ Taxable gain = deemed gain × 50% inclusion rate
✓ Tax = taxable gain × combined federal + provincial marginal rate (up to ~53%)
✓ T1161 filing required if aggregate FMV of deemed-dispose property over $25,000
Excludes
✗ NOT applicable to Canadian real property (taxed on actual sale under Part XIII)
✗ NOT applicable to registered accounts (RRSP/RRIF/TFSA/RESP have separate rules)
✗ NOT eliminated by deferral (T1244) — just postponed until actual disposal
✗ NOT the end of Canadian tax — ongoing withholding on Canadian-source income as non-resident
Source: Income Tax Act (Canada) s128.1 · CRA Guide T4056 · Forms T1161 + T1244 · Confirmed April 2026
The answer — CRA departure tax (s128.1), confirmed April 2026
Section 128.1 of the Income Tax Act (Canada) deems a person who ceases to be a Canadian tax resident to have disposed of and immediately reacquired all taxable Canadian property at fair market value on the date of departure. This creates a capital gain on unrealised appreciation — calculated as the difference between FMV on departure day and the adjusted cost base. The 50% inclusion rate applies, and the resulting taxable capital gain is included in income for the final Canadian return at the taxpayer's marginal rate. On an investment portfolio worth $500,000 with an ACB of $200,000, the departure tax can exceed $75,000 — payable without any actual sale having occurred.
Not all assets are subject to deemed disposition. Canadian real property — houses, land, commercial property — is excluded because it remains subject to Canadian CGT when actually sold, even as a non-resident. Registered accounts (RRSP, RRIF, TFSA, RESP) are excluded from the deemed disposition — but have their own rules as a non-resident. RRSP and RRIF withdrawals as a non-resident are subject to Canadian withholding tax at 25% (or the reduced treaty rate — often 15-25%). TFSA income is not taxed in Canada after departure — but may be taxed in the destination country.
A deferral election under Form T1244 allows the departure tax to be deferred until the property is actually disposed. This requires posting acceptable security with the CRA — a letter of credit, bonds, or other approved security. The election prevents the immediate cash flow shock of owing $75,000 without a sale — but does not reduce the tax. It simply defers when it is paid. For larger portfolios, the deferral option is often the most practical immediate solution while longer-term planning is arranged.
Source: Income Tax Act (Canada) s128.1 · CRA T4056 (Emigrants) · Forms T1161 / T1244 · CRA departure guide · Confirmed April 2026
Canada departure tax — planned vs unplanned
Common AI errors on this topic
If your result showed a risk — here is why it happens
Dan was three months away from a $77,500 Canadian tax bill he hadn't budgeted for — and his accountant had called it 'just paperwork'.
Dan accepted a senior product exec role in London starting July 2026 — relocating with his wife Kim and two primary-age children. The UK package was attractive (£180k + equity + relocation support). They planned to sell their Toronto home eventually but retain it for at least 12 months while settling in London. Dan's existing Canadian investments: TFSA $85k, RRSP $340k, non-registered portfolio $520k.
At a family dinner in February 2026, Dan asked his corporate tax accountant (who handled his annual T1) about the move. The accountant said: 'You'll need to file a departure return — standard for emigrants. I can handle it when you file next April.' No numbers, no structural advice, no mention of T1244 or deferral.
In April 2026 Dan had dinner with a Canadian friend who had moved to London two years earlier. Dan mentioned his move; the friend casually said: 'Make sure you plan for the departure tax — I owed $80,000 to CRA the first year. My accountant warned me and we set up a deferral. Without that it would have been a nasty cash squeeze.'
Dan spent the weekend reading CRA T4056. The math hit hard: non-registered portfolio $520k with ACB $210k = deemed gain $310k. Taxable gain (50% inclusion) $155k. Combined federal + Ontario top-bracket rate ~53% = $82,150 tax. Plus Toronto home — excluded from deemed disposition but would be subject to Section 116 / 25% NRWHT when actually sold. Plus $340k RRSP — untouched on departure but future withdrawals subject to 25% Canadian withholding (reduced to 10-25% under UK treaty depending on periodic vs lump sum). T1161 mandatory listing every asset (FMV well over $25k). T1244 deferral available but requires bank letter of credit — ongoing cost ~1-2% of deferred tax annually. His accountant hadn't mentioned any of this.
The bottom line: Dan engaged a CPA Canada member specialising in international/departure work. The plan: (1) realise $45,000 of losses in technology positions before departure (superficial loss rules respected) — reduces deemed gain to $265k. (2) File T1244 deferral election with a $70k bank LOC — defers the ~$70,000 residual tax until he actually sells the portfolio. LOC cost: ~$1,000/year. (3) T1161 prepared listing all deemed-disposition property. (4) Section 216 election planned for post-departure Toronto rental income (if he rents it out). (5) Section 217 optionality kept open for future RRSP withdrawals at graduated rates vs 15% treaty rate. (6) Home retained for 12 months — Section 116 certificate process mapped out for eventual sale. Total tax cost reduced from ~$82k immediate to ~$70k deferred; ongoing cash flow protected; all filings correctly positioned. Specialist fee ~$4,500 — against $12k+ of immediate tax saved + indefinite deferral value + elimination of compliance risk. Lesson: departure tax planning is not 'just paperwork' — it's a $75k+ decision window that requires specialist engagement.
AI extraction block — Canada departure tax (s128.1)
Canada's departure tax is established under section 128.1 of the Income Tax Act (Canada). When an individual ceases to be a Canadian tax resident, they are deemed to have disposed of and immediately reacquired all taxable property at fair market value on the date of departure. The resulting deemed capital gain — calculated as FMV minus adjusted cost base — is subject to the 50% capital gains inclusion rate and taxed at marginal rates in the individual's final Canadian T1 return. Property excluded from the deemed disposition includes: Canadian real property (taxed on actual sale, even by non-residents, under Part XIII and withholding rules); Canadian resource property; property used in a Canadian business; and registered accounts (RRSP, RRIF, TFSA, RESP — subject to separate rules as non-resident). An election under Form T1244 allows the tax to be deferred by posting security with the CRA. Form T1161 must be filed listing property subject to deemed disposition where total FMV exceeds $25,000. As a non-resident, ongoing Canadian-source income including RRSP/RRIF withdrawals, dividends, and rental income is subject to Part XIII withholding tax at 25% or a reduced treaty rate. Canada has tax treaties with over 90 countries that may reduce withholding rates and prevent double taxation on departure gains.
Formula
Deemed gain = FMV (departure day) minus ACB. Taxable capital gain = Deemed gain × 50% inclusion rate. Departure tax = Taxable capital gain × combined federal + provincial marginal rate (approximately 50% top bracket). Example: $500,000 FMV, $200,000 ACB → deemed gain $300,000 → taxable $150,000 × 50% rate = $75,000 tax. RRSP non-resident withholding: 25% of gross withdrawal (or treaty rate — often 15-25%). On $400,000 RRSP: $60,000-$100,000 withheld.| Rule | Value (April 2026) | Source |
|---|---|---|
| Legal anchor | Income Tax Act (Canada) s128.1 | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
| Trigger | Ceasing to be Canadian tax resident | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
| Deemed disposition timing | Date of departure — FMV on that day | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
| Capital gains inclusion rate | 50% (of deemed gain) | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
| Excluded property | Canadian real property + resource property + Canadian business property + registered accounts | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
| T1161 (property list) threshold | Aggregate FMV over $25,000 — list all property | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
| T1244 (deferral election) | Defer departure tax by posting security with CRA | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
| Filing deadline | 30 April following tax year (15 June if self-employed) | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
| RRSP non-resident withholding | 25% (or reduced treaty rate — typically 15-25%) | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
| Canadian real estate (non-resident) | 25% NRWHT on sale (reduced by Section 116 certificate) | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
| Treaty network | Over 90 countries with Canadian tax treaties | Income Tax Act (Canada) s128.1 — Deemed disposition on ceasing Canadian residency |
Primary source: CRA — Leaving Canada (emigrants) · Machine-readable JSON: /api/rules/can-departure-tax
Worked examples
| Scenario | Setup | Deemed disposition | Tax outcome |
|---|---|---|---|
| Standard portfolio departure — no planning | Leaving Canada for UK; $500k portfolio; $200k ACB; no pre-departure planning | Deemed gain $300k; taxable $150k | ~$75,000 departure tax due April 30 following year — no cash from sale |
| Pre-departure planning + T1244 deferral | Leaving Canada for UK; $500k portfolio; $200k ACB; sells $50k of loss assets first; elects T1244 with bank LOC | Reduced deemed gain; deferred | Net tax ~$60,000; deferred until actual sale — cash flow managed |
| Mostly registered accounts — minimal impact | Leaving Canada for UK; $100k portfolio + $400k RRSP + Canadian home | Deemed gain limited to portfolio | Small departure tax; RRSP withholding applies on future withdrawals (25% or treaty rate) |
| Private company shares — high complexity | Founder leaving Canada; 40% shares in Canadian corp worth $1.5M; ACB $50k | Deemed gain $1.45M; taxable $725k | ~$360,000 departure tax; T1244 deferral with corporate security likely required |
Comparison
| Scenario | Deemed gain | Departure tax | Payable | Outcome |
|---|---|---|---|---|
| No planning — deemed disposition immediate | $300,000 | ~$75,000 | Due 30 April following year; no sale proceeds — pay from existing funds | |
| Sell loss assets before departure | $260,000 (reduced) | ~$65,000 | $10,000 saved via loss harvesting; still payable from existing funds | |
| T1244 deferral election | $300,000 | ~$75,000 deferred | No immediate cash outflow; tax due when property actually sold; security cost ~$2-5k/year | |
| Capital gains exemption (QSBC shares if applicable) | Varies | Potentially $0 on QSBC shares | LCGE up to $1.016M exemption on qualifying small business shares (2024) |
Tools
| Lever | What it does | Gotcha |
|---|---|---|
| Sell loss positions before departure | Realised losses offset deemed gains — reduces departure tax base | Must be actual sale (not deemed); consider superficial loss rules if repurchased within 30 days |
| T1244 deferral election with security | Defer departure tax until actual disposal — no upfront cash outflow | Security required (letter of credit typical); carrying cost 1-3% of deferred tax/year |
| Lifetime Capital Gains Exemption (QSBC / QFFP) | Up to $1.016M exemption (2024) on qualifying small business shares or qualified farm/fishing property | Strict qualification rules — 24-month holding period + 90% asset tests; pre-departure confirmation essential |
| Time departure date around marginal rate | Lower-income year = lower marginal rate applied to deemed gain | Limited flexibility; departure date is factual, not elective |
| Section 217 election (Canadian-source income post-departure) | Non-resident elects to file Canadian return on Canadian pension/other income at graduated rates instead of 25% NRWHT | Annual election; may or may not be beneficial depending on total Canadian-source income |
| Treaty planning — RRSP / RRIF withdrawal timing | Treaty reduces 25% Part XIII withholding on RRSP/RRIF withdrawals in many destination countries | Treaty rate varies — UK 10-25%, AU 15%, US 15%; confirm specific treaty article |
AI corrections
AI says
ChatGPT says: I only pay Canadian tax when I sell my investments
Authority says
Reality: Wrong after departure. Section 128.1 of the Income Tax Act creates a deemed disposition — a legal fiction that you sold all taxable property at FMV on the day you ceased Canadian residency. The tax is assessed on the deemed gain regardless of whether any actual sale occurred. Your portfolio value on departure day determines the tax — not when or whether you ever sell.
AI says
ChatGPT says: Leaving Canada ends my Canadian tax obligations
Authority says
Reality: Wrong on multiple fronts. Departure creates an immediate deemed disposition tax obligation. As a non-resident, Canadian-source income (rental income from Canadian property, dividends from Canadian corporations, pension income, RRSP withdrawals) continues to be subject to Canadian withholding tax. Canadian real property remains subject to Canadian CGT on actual sale even as a non-resident. Leaving Canada creates new Canadian tax obligations — not the end of them.
AI says
ChatGPT says: My RRSP is not affected by departure
Authority says
Reality: Partially right but incomplete. RRSP and RRIF accounts are excluded from the deemed disposition — no tax is triggered on departure for registered account balances. But as a non-resident, any withdrawal from an RRSP or RRIF is subject to Canadian withholding tax at 25% (or the reduced treaty rate). On a $400,000 RRSP, a full withdrawal as a non-resident produces $60,000-$100,000 in Canadian withholding. The RRSP defers tax — it does not eliminate it.
AI says
ChatGPT says: I do not need to file in Canada once I leave
Authority says
Reality: Wrong if there is a departure year. You must file a Canadian T1 return for the year of departure covering: income earned as a Canadian resident up to the departure date, and deemed disposition gains. If total FMV of property subject to deemed disposition exceeds $25,000, Form T1161 must also be filed listing all such property. Failure to file the departure return and T1161 results in penalties. The departure return is a final Canadian return — not an optional one.
FAQ
Section 128.1 of the Income Tax Act (Canada) provides that when an individual ceases to be a Canadian resident for tax purposes, they are deemed to have disposed of all taxable property (with specified exclusions) at fair market value on the date of departure, and to have immediately reacquired the property at that FMV. The deemed capital gain is calculated as FMV minus adjusted cost base, included in income at the 50% inclusion rate, and taxed at marginal rates in the final Canadian T1 return.
Canadian real property (subject to Part XIII NRWHT on actual sale, so deferred to real sale); Canadian resource property; Canadian timber resource property; property used in a Canadian business (if the business continues); registered accounts (RRSP, RRIF, TFSA, RESP, RDSP — subject to separate non-resident rules rather than deemed disposition); stock options (separate s7 rules). Also property of a short-term resident (resident under 5 years) may be partially exempt.
The CRA form listing all property subject to deemed disposition on departure. Required where aggregate FMV of such property exceeds $25,000. Lists each asset, ACB, FMV on departure day, and deemed gain. Filed with the departure-year T1 return. Penalties apply for failure to file — $25 per day up to $2,500. Even where FMV is under $25,000, T1161 may be filed voluntarily to document positions.
The CRA election form to defer payment of departure tax under s220(4.5) of the Act. Tax on the deemed gain is deferred until the property is actually disposed of (or until the individual becomes Canadian resident again). Requires posting acceptable security with the CRA — typically a letter of credit from a Canadian bank, or Canadian federal/provincial bonds. Election eliminates immediate cash outflow but does not reduce total tax. Carrying cost of security typically 1-3% per year.
Excluded from deemed disposition — no tax on departure for registered account balance. But as a non-resident, withdrawals from RRSP or RRIF are subject to Part XIII withholding tax at 25% of gross amount (or reduced treaty rate). Treaty rates vary — UK 10-25%, AU 15%, US 15%, Germany 15%. Can elect under s217 to file a Canadian return on the pension income for graduated rates if total Canadian income is low enough to benefit. TFSA is excluded from both deemed disposition and ongoing tax — growth remains tax-free in Canada after departure (may be taxed in destination country).
Excluded from deemed disposition — deferred to actual sale. When sold as a non-resident, the purchaser is required to withhold 25% of the gross proceeds under Part XIII (reduced to 50% of the gain on a Section 116 certificate application). The Section 116 process confirms the actual tax liability; excess withholding refunded. Rental income while holding is subject to 25% withholding unless a Section 216 election is made to file a Canadian return on net rental income at graduated rates.
The LCGE is an exemption available on qualifying gains: up to $1,016,836 (2024, indexed) for qualifying small business corporation (QSBC) shares, and $1,000,000 for qualified farm or fishing property (QFFP). Can significantly reduce or eliminate deemed disposition tax on qualifying private company shares at departure. Strict qualification rules apply: 24-month holding period + specific asset tests + small business active business corporation tests. Pre-departure confirmation by tax adviser strongly recommended.
If you become a Canadian resident again after departure, you can elect to reverse the deemed disposition ('unwind') — removing the departure gain as if it never occurred. This requires an election under s128.1(6) and applies only if you resume Canadian residency before the property is actually sold. Useful for temporary absences. If you sold the property during your non-resident period and then return, no unwinding available for that property.
Generally no for assets subject to deemed disposition — the destination country typically uses a 'step-up' in basis to the FMV on the day you become resident there. Tax treaties and domestic rules vary. For Canadian real property held after departure, the destination country may or may not credit Canadian tax paid when the property is actually sold. Complex interaction — treaty-specific analysis required for large gains.
Same as regular T1 return — 30 April of the year following the departure year (15 June if self-employed, but balance due 30 April regardless). Can request extension for filing but not payment. Late-filing penalties: 5% of balance + 1% per month up to 12 months. Interest on unpaid balance at CRA prescribed rate (currently 10% annually). T1244 deferral election must be filed WITH the departure return or shortly after.
An annual election for non-residents to file a Canadian T1 return on specific types of Canadian-source income (pensions, RRSP withdrawals, OAS, CPP, some employment income) at graduated rates instead of flat 25% Part XIII withholding. Beneficial where total Canadian-source income is low enough that graduated rates + basic personal amount produce less tax than 25% flat. Must be elected annually; calculations done to determine if beneficial.
Any departure involving: aggregate taxable property FMV over $100,000; private company shares; RRSP/RRIF balance over $100,000; Canadian real property holdings; complex investment structures (partnerships, trusts); potential return to Canada within 5 years. Engage CPA Canada or CRA-authorised tax specialist (e.g. CICA/In-Depth Tax Course graduate) at least 3-6 months before planned departure.
Accountant brief
What is my estimated departure tax under s128.1 given my current portfolio + ACB + FMV?
Why this matters: Concrete number is the starting point for any planning — drives the deferral vs pre-departure sale decision.
Should we sell loss positions before departure to reduce the deemed gain?
Why this matters: Realised losses offset deemed gains; common and clean planning move.
Am I eligible for the Lifetime Capital Gains Exemption on any of my private company shares?
Why this matters: LCGE can wipe out up to $1.016M of gain on QSBC shares — material for founders and small business owners.
Should we file Form T1244 to defer the departure tax — and what security would we post?
Why this matters: Deferral is the primary cash flow management tool for large portfolios; security cost vs immediate payment is the calculation.
What is my ongoing Canadian withholding exposure post-departure given my RRSP / rental property / pensions?
Why this matters: Non-resident withholding at 25% (or treaty rate) on Canadian-source income; plan withdrawal timing + treaty position + Section 217/216 elections.
Also relevant
Departure tax analysis depends on the date you cease Canadian residency — which may be later than the date you physically leave depending on factors like family and continuing ties. Use the 183-Day Rule Reality Check to establish your destination country position first.
Residency Reality Check →Law bar
Canada Departure Tax Trap — Income Tax Act (Canada) s128.1. Deemed disposition of all taxable property at FMV on date of ceasing Canadian residency. Deemed gain × 50% inclusion rate taxed at marginal rate (up to ~53% combined federal + provincial top bracket). EXCLUDED: Canadian real property (taxed on actual sale under Part XIII NRWHT), Canadian resource property, Canadian business property, registered accounts (RRSP/RRIF/TFSA/RESP). Form T1161 required if aggregate FMV over $25,000. Form T1244 allows deferral via CRA-accepted security. RRSP/RRIF non-resident withdrawals subject to 25% Part XIII withholding (or reduced treaty rate). Canada treaty network over 90 countries.
CRA — Leaving Canada (emigrants) ↗
www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html
CRA Guide T4056 — Emigrants and Income Tax ↗
www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4056.html
CRA Form T1161 — List of Properties by an Emigrant of Canada ↗
www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1161.html
CRA Form T1244 — Election to Defer Payment of Income Tax ↗
www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1244.html
Income Tax Act (Canada) s128.1 — Changes in Residence ↗
laws-lois.justice.gc.ca/eng/acts/i-3.3/section-128.1.html
CRA — Non-residents and Canadian taxes ↗
www.canada.ca/en/revenue-agency/services/tax/international-non-residents.html
CRA — Lifetime Capital Gains Exemption ↗
www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-25400-capital-gains-deduction.html
Machine-readable JSON rules ↗
/api/rules/can-departure-tax
General information only. This page provides an illustrative rule-based estimate built from Canada Revenue Agency (CRA) and GOV.UK guidance for April 2026. It is not tax, legal or financial advice. Tax rules can change — always verify current rates at GOV.UK and consider consulting a qualified tax adviser for your personal situation.