The year I left Canada, I expected a long list of things to sort out, from forwarding my mail, selling my car, deciding which friends were worth one last dinner. What I hadn’t anticipated was how much attention leaving the country would demand, from forms to finances, before I could truly start my next chapter.
The biggest surprises — and the most costly errors — were financial. The tax year of your client’s departure splits neatly in two.
For the months lived in Canada, they remain a Canadian resident for tax purposes. That means reporting all income for that part of the year, no matter where the employer is based.
After the client leaves, the rules shift. They become a non-resident, and only their Canadian-source income follows them, such as rental income from a condo they kept or Canadian company dividends.
When your client leaves, the Canada Revenue Agency (CRA) calculates their deemed disposition. This is a tax on the gains your client accumulated while living in Canada — via non-registered investments for example. It doesn’t apply to property such as a principal residence, RRSP, TFSA, pension or car.
Say your client’s investment portfolio is worth $800,000, with an adjusted cost base of $650,000. On departure, CRA treats the $150,000 gain as taxable. That goes on their tax return in the year of departure, reported on form T1243.
The primary residence
The departure tax doesn’t apply to your client’s principal residence. However, they can elect a deemed disposition when they leave. That might make sense if your client is moving to the U.S.
If a home qualifies as a principal residence in Canada, the gain is generally exempt from Canadian tax. Canada’s principal residence exemption is unlimited. Once a Canadian moves to the U.S., the property falls under U.S. tax rules. The U.S. limits the exemption to $250,000 per person, and only if the homeowner has lived in the property for at least two of the last five years.
The Canada-U.S. tax treaty can allow the home’s value to be effectively locked in at the time of departure. When this applies, the U.S. measures capital gains from that departure-date value, meaning only the appreciation that occurs after the move may be subject to U.S. tax.
For example, suppose your client bought a home for $200,000. At the time they move to the U.S., it is worth $600,000. Under the treaty, the U.S. may treat the home as if it were purchased for $600,000. If it’s later sold for $700,000, the U.S. generally taxes only the $100,000 increase, rather than the $500,000 gain that accrued while your client was living in Canada.
It’s like a reset button that can significantly reduce future U.S. capital gains tax when your client eventually sells.
Used well, this combination can protect them on both sides of the border. If your client plans to sell their property while in the U.S., or rent it out, additional tax considerations would apply. Speak with a tax accountant to fully understand the tax implications and planning opportunities.
If the total fair market value of a client’s taxable property exceeds $25,000 at departure, they must file CRA Form T1161. It is due on the same date as their tax return, typically April 30 in the tax year following their departure from Canada.
It’s an asset list, not a tax bill. But the penalties for skipping it or late filing are real: $25 per day, up to $2,500.
If necessary, team up with a cross-border advisor who can open a U.S. investment account while still holding Canadian dollars and Canadian investments. This allows you to maintain your client’s positions for whatever period of time makes the most sense for them.
The value of the Canadian dollar is part of this calculation. Handling currency thoughtfully can save a lot of money.
Leaving Canada can be overwhelming. Helping your client meet their tax obligations properly means they get to start the next chapter cleanly — without a surprise letter from the CRA. That might be the most Canadian way to leave: responsibly, politely and neatly squared away.
