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Moving from Canada Tax Guide 2026: CRA Departure Return, T1161 Deemed Disposition & Provincial Tax

Quick Answer: Canada has a deemed disposition rule on departure — all property (except Canadian real estate, Canadian business assets, and pension plans) is treated as sold at fair market value on the date you cease Canadian tax residency. This triggers capital gains tax on accrued gains in investment portfolios, foreign real estate, private company shares, and other assets. The departure return (T1) is filed for the period January 1 to departure date. Form T1161 lists all properties over C$25,000. CPP (Canada Pension Plan) and OAS (Old Age Security) are fully portable internationally. Provincial income tax applies to the period of provincial residency.
By Daniel, founder of CountryTaxCalc.com

Last Updated: April 2026

Key Facts

Canada's Deemed Disposition on Departure: Section 128.1 ITA
Section 128.1 of the Canadian Income Tax Act (ITA) provides that when an individual ceases to be a Canadian tax resident, they are deemed to have disposed of all property at fair market value (FMV) at the time of departure. This creates a deemed capital gain (or loss) on the accrued appreciation. Key exclusions from the deemed disposition: (1) Canadian real estate and timber resource property: not subject to deemed disposition — Canada retains taxing rights when these are actually sold (as non-resident property under Part XIII/XXIII of the ITA). (2) Canadian business assets: property used in a business carried on through a Canadian permanent establishment. (3) Pension plans and retirement accounts: CPP, OAS, RRSP, RRIF, DPSP, pension plans — exempt from deemed disposition. (4) Stock options: complex rules — certain options may be taxable on departure. (5) Cultural property donated to qualifying institutions: exempt. What IS subject to deemed disposition: worldwide portfolio investments (shares, bonds, mutual funds, ETFs), foreign real estate, private company shares (Canadian and foreign), rental properties outside Canada, cryptocurrency, life insurance policies (the CSV portion), and most personal-use property above $1,000 with gains. Capital gains inclusion rate: Canada increased the capital gains inclusion rate to 2/3 (66.67%) for gains exceeding C$250,000/year for individuals from June 25, 2024 — verify the current rate as this has been subject to political uncertainty. Federal capital gains tax: the inclusion rate × the individual's marginal federal rate (up to 33%).
Departure Return (T1), T1161, and Clearance Certificate
CRA Departure Return: file a T1 income tax return for the period January 1 to your departure date. Mark the return as a 'departure return' — enter your date of departure. Include all income earned as a Canadian resident plus the deemed disposition gains. Filing deadline: April 30 of the year following the departure year (or June 15 if self-employed — but any tax owing is still due April 30). T1161 (List of Properties): all Canadian residents who own property with FMV exceeding C$25,000 at the time of departure must file T1161 with their departure return. T1161 lists all non-excluded property — each asset with its description, acquisition cost, FMV at departure, and the resulting deemed gain/loss. T1244 (Election to Defer Payment of Departure Tax on Certain Properties): you can elect under Section 220(4.5) ITA to post security with CRA instead of paying the departure tax immediately — allowing you to defer payment on the deemed gain until the property is actually sold. Security can be: a bank letter of credit, mortgage over Canadian real estate, or government bonds. This is valuable when the deemed gain produces a large tax bill but no immediate cash (e.g., private company shares that are illiquid). CRA Certificate of Compliance (s.116 clearance): if selling Canadian taxable Canadian property after departure, obtain a clearance certificate. Form T2062: application filed with CRA before or within 10 days of completion of the sale.
RRSP, TFSA, CPP, and OAS on Departure
RRSP (Registered Retirement Savings Plan): exempt from the deemed disposition — the RRSP remains intact on departure. As a non-resident: contributions are no longer possible (you lose Canadian earned income). Withdrawals from RRSP as non-resident: subject to Part XIII non-resident withholding tax at 25% (or reduced under DTA — USA: 15% on periodic payments, 25% on lump sums; UK: 15%; Australia: 15%). RRSP is generally treated as a pension under most DTAs. RRSP conversion to RRIF: can occur while non-resident. TFSA (Tax-Free Savings Account): exempt from deemed disposition. However, as a non-resident, TFSA contribution room does not accrue. TFSA withdrawals as non-resident: tax-free in Canada (no Part XIII withholding on TFSA). TFSA investment returns while a non-resident: still tax-free within the account. However, some countries (notably the USA) do not recognise TFSA as a tax-exempt account — US residents pay US tax on TFSA investment income annually (mark-to-market or PFIC rules may apply). CPP (Canada Pension Plan): fully portable internationally. Payable from age 60 (reduced) or 65 (standard). Non-resident withholding on CPP payments: 25% (reduced under DTA — USA: 15%; most developed countries: 15%). Apply for CPP at Service Canada (canada.ca/service-canada) from anywhere in the world. OAS (Old Age Security): payable from age 65. Non-resident withholding at 25% (or reduced under DTA). OAS recovery tax (the 'clawback') — applies to high-income Canadians; once non-resident this is replaced by the 25%/DTA withholding rate. Life certificate required for OAS payments (annual proof of life).
Provincial Tax and Part XIII Non-Resident Withholding
Provincial income tax: Canadian income tax has two components — federal and provincial/territorial. Provincial tax applies to residents for the period of provincial residency (based on the province of residency on December 31 of the departure year, or the province of residency on the departure date if you ceased provincial residency mid-year). If you moved provinces during the year: this adds complexity — file using the province of residence at December 31. The province with the highest rates is impactful: Quebec (combined marginal rate ~53%), Ontario (~53.5%), BC (~53.5%), Alberta (~48%). Provincial tax on the deemed disposition gains is a significant component of the total departure tax bill. Part XIII non-resident withholding: once a non-resident, Canadian-source income is subject to Part XIII withholding tax at 25% (or DTA-reduced rate). Applies to: dividends from Canadian corporations (15% DTA rate for USA, UK, Australia), interest, rents, royalties, annuities, pension income. Section 216 election for rental income: non-residents can file a Section 216 return for Canadian rental income — pay net income tax on actual net rental income (rather than the 25% gross withholding). This usually results in less tax. File by June 30 of the year following the rental year. NR6 form: non-resident rental income — tenant/agent withholds on net rent basis if NR6 is filed and approved.
Canadian Property, Departure Planning, and the 5-Year Rule
Canadian real estate held on departure: NOT subject to deemed disposition — stays in Canada's tax net and will be taxed when actually sold (Part XIII withholding on gain). Non-residents selling Canadian real estate: the buyer must withhold 25% of the gross sale price and remit to CRA (under Section 116 ITA). File Form T2062 for a CRA clearance certificate before sale — CRA approves the withholding amount based on the actual expected gain, which is usually much less than 25% of gross. The 5-year rule (departure from Canada to a low-tax country): unlike Germany or France, Canada does not have a specific general 5-year anti-avoidance rule on departure. However, CRA has general anti-avoidance provisions (GAAR) — Canadian residents who manipulate their residency status to avoid Canadian tax may face reassessment. Residency determination: Canada uses a factual residency test (where is your home, family, social ties, financial accounts?). Moving to a DTA country: if Canada has a DTA with your new country, the DTA tie-breaker rules determine where you are resident if there is a dual-residency situation. Form NR73 (Determination of Residency Status): optional form submitted to CRA for a formal determination of whether you are a Canadian resident or non-resident from a specific date — provides certainty. See also provincial guides for Ontario, British Columbia, Alberta, Quebec, and other provinces for province-specific departure tax rates and credits.

Canada is one of the most significant countries for tax on departure — the deemed disposition rule means departing Canadians must account for unrealised capital gains on a wide range of assets, creating a potential tax liability on assets that have not actually been sold. Understanding which assets are exempt (Canadian real estate, RRSPs, TFSAs) and which trigger the deemed disposition (worldwide investment portfolios, foreign property, private company shares) is critical for departure planning. For high-net-worth Canadians departing to lower-tax jurisdictions, this can be a multi-million dollar planning exercise.

Moving from Canada to the USA: Key Planning Points

Canada-to-USA migration (both temporary and permanent) is one of the world's most active bilateral corridors — TN visas, H-1B, and family-based immigration. Key CA-US planning points:

Canada-USA DTA (1980, with 5 protocols through 2007): The Canada-USA DTA is one of the most comprehensive bilateral agreements in the world. Key provisions: CPP/OAS: Article XVIII — Canada withholds 15% on periodic pension; USA taxes all CPP/OAS as income with credit for 15% Canadian withholding. RRSP/RRIF under the DTA: Article XXI — the USA generally defers tax on RRSP/RRIF income until withdrawn (elective deferral under Revenue Procedure 2014-55). Elect this deferral on your first US return after becoming a US resident. TFSA: NOT covered by the DTA — the USA taxes TFSA investment returns currently (PFIC rules may apply to Canadian mutual funds held in TFSA). Canadian deemed disposition and the DTA: the USA generally does not recognise Canada's deemed disposition for US tax purposes — the cost basis of assets carries over at their original acquisition cost in the USA (not the stepped-up FMV used for Canadian departure tax). This creates a future double-tax risk on the same gain. Consult a cross-border US-Canada tax specialist.

RRSP deferral election: File the RRSP deferral election on Form 8891 (now incorporated into Form 8833) on your first US Form 1040 as a US resident. Without this election, the RRSP grows are taxable annually in the USA.

Provincial guides: See individual provincial departure tax guides for Ontario, British Columbia, Alberta, and Quebec — provincial rates significantly affect the total tax on deemed dispositions.

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Frequently Asked Questions

Q: What assets are exempt from Canada's deemed disposition when I leave?

Key exemptions from the deemed disposition under Section 128.1 ITA: (1) Canadian real property (land and buildings): exempt — taxed when actually sold. (2) Canadian business property used in a permanent establishment: exempt. (3) RRSP, RRIF, DPSP, and registered pension plans: fully exempt — RRSP/RRIF balances are not deemed disposed on departure. (4) TFSA: exempt from deemed disposition. (5) Cultural property donated to institutions: exempt. (6) Certain insurance policies and annuities: complex exemption rules apply. What IS caught: worldwide stock portfolios (Canadian and foreign shares, ETFs, mutual funds), foreign real estate, private company shares (Canadian or foreign), partnership interests, options, cryptocurrency, and most capital property. Planning point before departure: consider realising Canadian capital losses to offset the deemed gains. Also consider whether the Section 1244 election (deferral by posting security) is appropriate for illiquid assets. Timing: the deemed disposition occurs on the last day you are a Canadian tax resident — ensuring your residency cessation date is as precise as possible is important. Changing province: if you move from a high-tax province (Quebec, Ontario) to a low-tax province and then depart Canada shortly after, CRA may question the provincial residency — do not artificially change province of residency to manipulate the effective rate.

Q: How does the Canadian departure return work and when must I file it?

The departure return (T1 with departure notation) covers: January 1 of the departure year to the departure date — worldwide income for the period of Canadian residency. From the departure date to December 31: only Canadian-source income (reported via Part XIII withholding — no further Canadian return needed for passive income). Filing deadline: April 30 of the following year (June 15 for self-employed, but tax due April 30). The return includes: employment and investment income for the residency period; the deemed disposition gains (reported on Schedule 3 Capital Gains and Form T1243 Deemed Disposition of Property by an Emigrant of Canada); T1161 (list of properties); any provincial income for the period. Potential departure tax instalment: if the departure tax liability (from deemed dispositions) is large, CRA may require an immediate payment on assessment. The Section 220(4.5) deferral (posting security) can defer this payment. Refunds: if you overpaid tax (through employer withholding) for the year, you will receive a refund. Post-departure income: dividends, rental income, pension (after departure): subject to Part XIII withholding — no further filing required unless you elect Section 216 for rental income. File via CRA's NETFILE (while still a Canadian resident you have a NETFILE login) or mail to the appropriate International Tax Services Office.

Q: What happens to my RRSP when I move to the USA?

RRSP on departure to the USA: (1) The RRSP is exempt from Canada's deemed disposition — no Canadian tax event on departure. (2) US recognition: under the Canada-USA DTA Article XXI, the USA recognises the RRSP as a deferred pension plan. To get this US deferral: you must make an election on your first US income tax return (Form 1040) — the election is filed on Form 8833 (Treaty-Based Return Position Disclosure) or as part of your return. If you do NOT make the election: the IRS taxes the inside buildup of the RRSP annually (investment income and gains accumulate as if there is no deferral). (3) RRSP contributions as a US resident: you cannot make new RRSP contributions (you have no Canadian earned income to generate contribution room). (4) RRSP withdrawals as a US resident: Canadian Part XIII withholding of 15% (periodic payments) under the DTA; US taxes the full withdrawal as ordinary income; FTC for the 15% Canadian withholding reduces the US liability. (5) RRSP conversion to RRIF: can occur while non-resident. Annual minimum withdrawals from RRIF must be made; each withdrawal subject to 15% Canadian withholding. (6) Do not collapse the RRSP in a lump sum as a US resident unless you have calculated the total tax — Canadian withholding is 25% for lump sums (reduced to 25% even under DTA for lump sums), and the US taxes the full amount as ordinary income. A cross-border financial planner can model the optimal RRSP/RRIF withdrawal strategy.

Q: I own Canadian rental properties — what are my obligations after leaving Canada?

Canadian rental property as a non-resident: (1) Part XIII withholding: your Canadian tenant (or their property manager) is legally required to withhold 25% of gross rent and remit to CRA monthly. This is the default. (2) NR6 election: file Form NR6 (Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real Property or Receiving a Timber Royalty) before January 1 of the rental year. If approved, withholding is on net rent (gross rent minus expenses) at 25% — significantly reduces the withholding burden. (3) Section 216 return: file annually by June 30. Elect to be taxed on your actual net rental income at regular Canadian tax rates (which are usually more favourable than 25% of gross). CRA refunds any excess withholding. The Section 216 return is separate from any other Canadian filing. (4) Provincial non-resident tax: Quebec and BC charge non-resident surtaxes on Canadian rental income — factor into analysis. (5) Eventual sale: buyer must withhold 25% of gross sale proceeds (Section 116). File T2062 in advance to reduce the withholding to the actual tax on the gain. The gain is taxed at Canadian rates with the inclusion rate applied. (6) Property management: appoint a Canadian property manager who understands the NR6/Part XIII obligations — they must withhold correctly or become personally liable to CRA.

Disclaimer: This guide provides general tax information for educational purposes only. Canadian deemed disposition rules, Part XIII withholding rates, RRSP/TFSA regulations, and CRA departure procedures change with federal budgets and Income Tax Act amendments. Nothing in this guide constitutes tax or legal advice. Consult a Canadian chartered professional accountant (CPA Canada) before departing Canada — particularly for the T1161 deemed disposition calculation and Section 220(4.5) deferral strategy.

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