Leaving Canada Permanently? Here’s What You Need to Know About Departure Tax

As baby boomers begin to retire, many are choosing to live their golden years outside of Canada. There are a whole host of reasons that Canadians are moving abroad to retire. Two of the big ones are a reduced cost of living and the desire to live in a better climate.

There are many places where your retirement dollars will go a lot further than they will in Canada and that is very appealing, especially to those with limited retirement assets.

Currently, approximately 9.8 million Canadian baby boomers are approaching retirement. By 2020, the number of Canadians retiring each year will be 425,000.

The Broadbent Institute released a study in 2016 that showed that only a small minority (roughly 15 to 20%) of middle-income Canadians retiring without an employer pension plan have saved enough for retirement. The majority of these families with annual incomes of $50,000 or more will be hard pressed to save enough in their remaining period to retirement (less than 10 years) to avoid a significant fall in income at retirement. Additionally, for single people over 65 without pension income, their median income is under $20,000.

Many places around the world offer a cost of living of under $2,000 per month for a couple, and in many cases, a warmer climate to enjoy. Retirees are flocking to these destinations in order to live a better quality of life than they would be able to afford here in Canada. It’s not only those with low incomes that are retiring abroad, as many other retirees are simply seeking a higher standard of living for fewer dollars.

If you decide to leave Canada, it will be important to understand departure tax. When you leave Canada, you are considered to have sold certain types of property (even if you have not sold them) at their fair market value, and to have immediately reacquired them for the same amount. This is called a “deemed disposition,” and you may have to report a capital gain on your Canadian tax return.

Exceptions to Departure Tax

  1. Canadian real property (real estate) that was exclusively a principal residence will not give rise to tax as any gains will be offset by the principal residence exemption.
    However, if you decide to keep your principal residence and rent it out upon leaving Canada, “change of use” rules will cause capital gains and tax to accrue thereafter.
  2. Canadian business property (including inventory) if the business is carried on through a permanent establishment in Canada.
  3. Your registered accounts will not be subject to departure tax. This would include RRSPs, TFSAs, employer pension plans, etc. (see complete list).
  4. The other exception is for short term residents, whereby no departure tax is payable on property you owned when you last became a resident of Canada, or property you inherited after you last became a resident of Canada. This applies if you were a resident of Canada for 60 months or less during the 10-year period before you emigrated.

Assets Eligible for Departure Tax

The departure tax will apply to the following assets upon departure from Canada:

  • Real estate outside Canada
  • Unincorporated businesses outside of Canada
  • Private or public company shares in Canada or outside Canada
  • Mutual funds units in Canada or outside Canada
  • Partnership interests
  • Interests in non-resident inter vivos trusts
  • Other portfolio investments
  • Personal use property as well as listed personal property (such as works of art, jewelry, stamps, coins, and rare manuscripts)

Departure tax could potentially pose a challenge for an individual, where there is a deemed sale but no actual sale proceeds in connection with the assets subject to departure tax. You are able to elect to defer the payment of tax by providing security that is acceptable to the CRA, to defer payment of departure tax until the property is actually disposed of.

Departure tax is one of so many things to take into consideration when moving abroad. It is important to understand your personal tax implications when you leave Canada. In addition, it is prudent to consult an expert to help you to put a plan in place, to ensure that you are managing your assets in the most tax efficient manner possible, and understand the tax implications of your move. Departure tax is just one tax implication of leaving Canada permanently and other Canadian and international taxes need to be considered.

Written by Brenda Hiscock

Brenda is one Canada’s approximately 150 advice-only, fee-only Certified Financial Planners (CFPs). She does not sell any products or receive any referral fees. She has a particular interest in working with clients and their advisers and in financial education for employees but works with single people, seniors and families at all planning stages seeking to take control of their financial lives. Brenda is a Certified Financial Planner at Objective Financial Partners in Toronto and works via Skype with clients across Canada.

21 Responses to Leaving Canada Permanently? Here’s What You Need to Know About Departure Tax

    • Hi Lloyd – CPP benefits will continue until death. OAS benefits will continue if you have at least 20 years of residence in Canada after age 18, otherwise they stop once you’ve been absent for 6 months. GIS and Allowance will always stop once you’ve been absent for 6 months.

  1. We are Canadian citizens who left Canada on a visa about 1993 and subsequently received a permanent resident status however we are still
    Canadian citizens.We had paid into CPP and Old age security since the mid 1950’s over 30 years. We also paid the U.S.social security for the required min. of 40 quarters. Upon applying for our Canadian pensions we were advised our pensions would be greatly reduced because they could not verify how much we might get in U.S. pensions. Consequently we have been getting a total of less than $16,000 for many years. Upon visiting Canada recently we were advised tht if we returned to live in Canada we could receive about $1,000 a month more.Can you see any way we should be entitled to more now that we have no other source of income?

    • Hi Edwin and Patricia – I’m a little confused by your situation, because I can’t think of any reason that either of your Canadian pensions (CPP or OAS) would have been reduced at all, due to your U.S. pensions. In any case, neither your CPP or OAS would be increased if you return to Canada, but you could possibly become eligible for GIS if your combined taxable income (excluding OAS) is less than approx. $25,000. The amount of your GIS will depend on your combined income from other sources (CPP, U.S. pensions etc.) as well as what portion of partial OAS you’re each receiving (which is based on how many years of residence you had in Canada after age 18 and before your OAS started).

      • Doug,
        I am 64 Canadian Citizenship living from my RRSP saving and I withdraw 15,000 CAD on 2017 making my total income with my CPP less than 25000 CAD. So I wonder, if next year when I will be 65 year old, I could apply for OAS and /or GIS.

        • Hi Bernard – In order to answer your question, I need to know:
          – what country do you currently reside in;
          – how many years of residence do you have in Canada after age 18;
          – what is your marital status;
          – if married or C/L, what is your spouse’s age and income

          • Doug,
            I reside in Canada and I have more than 21 years living full time in Canada. My marital status is married (my wife is 64 at the present time and her income is 0.0 I support her)

          • Hi Bernard – Yes, you will be eligible for a partial OAS plus GIS. Depending on when your wife turns age 65 and how many years of Canadian residence she has, she might also be eligible either for the Allowance or OAS/GIS.

  2. Hi Brenda, Thanks for this concise article on departure from Canada.

    I help Canadians (and US) people retiring to Mexico (especially Lake Chapala area), and wanted to add one warning;

    Some Canadians in Mexico find it cheaper to be continue to be tax resident of Canada (i.e. non-resident withholding tax can exceed normal income tax).

    However, residence in Canada is a “matter of fact”. Many think that if they choose to keep Canadian tax residence that Canada won’t mind – since they are collecting tax! In fact, I know of several cases where CRA proactively determined someone was a non-resident and required the “refiling” of multiple years of income tax.

    Thanks!

  3. If one is a resident of Quebec are there specific Quebec Government forms to be filled if your are emigrating from Canada to another country?

  4. Is it not true that once you leave Canada that while you may still collect CPP and OAS that you are no longer eligible for any inflation adjustment increases ?

  5. As someone who is leaving Canada permanently (to Australia) over the next few years, I would suggest a more complete article may assist others. While departure tax is an issue, the timing of how one sells assets is critical – e.g., sell your principal residence too late (after becoming a non-resident) and you’re cooked. Understanding how the destination country taxes your registered accounts (which you need to withdraw AFTER becoming a non-resident to have only a 15% withholding) is also critical. In many countries, those proceeds are not considered income so your only tax will be 15% – a significantly lower rate than if one were a resident of Canada. I just think there is so much more to cover.

  6. Wow – so many thoughts and it looks like some conflicting advice like it is Mexico and not Canada :). I called and spoke with a CRA agent in Calgary as it too was my plan to rent out my primary residence but be living in Mexico and he told me that I would be fine. I’d pay the 25% withholding tax on the rental income of course but didn’t really have anything to say about them being arbitrary regarding deemed disposition. Am I safe as long as I file and remit the 25% reach year faithfully?

  7. Thanks for the information on tax issues when moving overseas. My wife and I are thinking of moving to Lake chapala when we retire.

  8. I’m 65 years old this year and planing to become a non resident Canadian and planning to live in Mexico. I have sold my home car ect. I have to give up my drivers license, health card and any bank accounts in Canada. My question to you is can I still receive my CPP and OAP? Also if I become a non resident Canada would I be exempt from departure tax?

  9. Please, be careful when you move to Mexico. It’s the water aquifers ! It seems the availability of stored water in several major Mexican aquifers, including Independcia, is declining rapidly principally due to industrial agriculture . When the water levels get low the rocks leach poisons like arsenic. Properly designed, functioning and maintained municipal water filtration systems will cure the problem but we’re talking about Mexico ! This is no Nanny state. You’re on your own. Get a top of the line household water filtration system to avoid slowly poisoning yourselves .Local bottled water ? I think not.

  10. Thank you so much for your comments, (and your timely responses Doug). This is an extensive topic, and top of mind for many people approaching retirement. I plan to write more articles to address some additional items.

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