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

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.

Comments

  1. Lloyd

    What about continuation of benefits-CPP & OAS ?

    • Doug Runchey

      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.

  2. Edwin & Patricia Bell

    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?

    • Doug Runchey

      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).

      • Bernard Varga

        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.

        • Doug Runchey

          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

          • Bernard Varga

            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)

          • Doug Runchey

            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.

  3. Michael Nuschke CFP

    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!

    • Brenda Hiscock

      Thank you for sharing your comment Michael.

  4. John Bonar

    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?

  5. Stephen

    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 ?

    • Doug Runchey

      Hi Stephen – Totally untrue!

  6. maggie brady

    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.

  7. Rob

    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?

    • Brenda Hiscock

      It is always best to consult a cross border accountant to be certain that you are filing correctly.

  8. Mike

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

  9. Charles La Pointe

    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?

    • Doug Runchey

      Hi Charles – This question was already asked and answered. See the first comment above.

  10. Stephen

    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.

  11. Brenda Hiscock

    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.

  12. Ingo Laatsch

    Hi Brenda, please explain the departure tax in regards of Real estate outside Canada a bit more. I have a primary residence in Canada that I will sell before I move to Mexico, I also Have a condo In Mexico that is fully paid for. Would that property not become my primary residence when I start living there? Also is the tax calculated on the capital gain of the property mines purchase price and expenses? also what about the agreement Mexico and Canada has not to double Tax? because if I would have to pay Capital gains Tax on the property when I exit I would have pay the Mexican government Capital gain tax If and when I sell it. And what exactly means exit? If I move to Mexico and start out living there on a temporary Visa (4 Years renewable )and have my CPP and OAS send to me yet still file a Canadian tax return would that still apply?

    • Ingo Laatsch

      Another question how long or short can you live outside Canada before you are considered a non residence for tax purposes?

    • Michael Nuschke

      It’s relatively easy to avoid capital gain tax on a home you sell in Mexico – assuming you have either Temporary or Permanent Residence in Mexico.

  13. Dana Rezl

    I file a non resident return and file under sec. 217 of the ITA
    Last year, due to the laggardnes of the CRA i got the forms including the NR5 in June. Therefore I filed 2 weeks late. RCA disallowed sec 217 and advised that i will not as a result get any refund. Is that correct?? Can there be any exception to this silly rule?
    Dana Rezl,
    Brno. CR

  14. dan

    I’m a permanent resident from 2016 and planning to leave Canada or request citizenship and then become non-resident. I don’t own canadian assets only foreign property and I have some questions about the departure tax and disposition of property.

    1) please explain this “property you owned when you last became a resident of Canada, or property you inherited after you last became a resident of Canada, if you were a resident of Canada for 60 months or less during the 10-year period before you emigrated”.
    As I was on work permit(temporary resident)from 2012-2013, 2013-2015, 2015-2016, and 2016 – present became Permanent Resident (PR), do I qualify for this rule since the last time I became resident was 2016, or my residency will be counted from 2012 ???
    2) If i sell all my foreign property before the date of leaving do I still have to pay departure tax???
    3) If I will ask for my PR status to be revoked and then asked by CIC to leave do I still have to file with CRA and pay departue tax?
    4) what forms do i exactly need to file ? T1 and T1161 plus applicabable shedules? and can I file them before departure even if the year has not ended?

    Your advice would be very helpfull in taking a decision on my options and still be entiteled on my CPP contributions.
    Thank you

  15. Alex

    Hi there,

    I have a question regarding OAS and CPP if you leave Canada after 65 and are not in a country that supports direct deposit to a bank there.

    Given you have to give up any bank accounts here in Canada, what are the options for your OAS and CPP deposits?

    Thanks,
    Alex

    • jim

      I kept my Canadian bank account, but I wonder how smart that is. Somewhere I read sever all ties with Canada, I worry about departure tax, guess you do not need to.

  16. Jim Kim

    I moved out of Canada in 2017, sold my Canadian house in 2018, (in less than 12 months) I had transferred my stocks (about one million dollars worth from the bank in Canada to a broker in the US in 2017. I received a non-resident tax notice for tax year 2107, they (CRA) want about $5000. A Toronto CPA has suggested pay the $5000 and hope that will be all CRA asks for. I will pay that but I am sure worried about Departure tax.

  17. Ma

    Is the 60 months or less rule during the 10 year period still apply now in 2019. I am told by CRA that this rule not working anymore today Mar 26,2019??
    I appreciate it very much if you can reply promptly for in next month my 5 years rule will expire!

  18. Sue Rider

    Jim Kim, When you said you transferred your stocks to a US broker, did you have to pay departure tax on that? We were told by our (useless) financial advisor that we could put investment portfolio held in a numbered company in a registered plan, and therefore it would not fall into the deemed disposition rule. Now he says no, not possible, two months before our move. Now I’m trying to figure out how to not have to pay departure tax on the investments (over a million). I can put some in RRSP but won’t make much of a difference.

    • Jim Kim

      I did another reply, it is somewhere. One alternative to the tax is to pay the largest penalty, 2500 dollars Departure tax is really difficult to understand, WE paid a tax account 4G. For poor advice. There is a book about departure tax, a good investment

      • Marcus Haecker

        Hi Jim Kim, what’s the name of the book?

  19. Jim kim

    I plan to sell Canadian stock now held in a US brokerage. I am sure there will be a taxable gain, apparently you can defer paying departure tax, I think the gain tax is just like departure tax. The maximum fine is an option. We paid 4G for an accountant that was not even finished. Wait, don’t panic.

  20. Jeanette McKellar

    I moved to Canada in 1977 from England and left in 1996, am I entitled to my CPP and how do I apply for it. My husband a Canadian passed away in 1998 and have never received a widows pension. Can anyone please advise me what to do.

    • Doug Runchey

      Hi Jeannette – First, assuming that your husband had enough years of CPP contributions (generally at least 10 years), you should immediately apply for a CPP survivor’s pension. Here is a weblink with more information on that: https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-survivor-pension.html.
      Unfortunately you have missed out on 20 years of benefits, because the maximum retroactivity is 12 months.
      Next, if you’re at least age 60 you are eligible for your own CPP retirement pension. Depending on your age however, you may or may not want to apply immediately due to the rules regarding combined retirement/survivor’s benefits. Read this article to better understand this issue: https://retirehappy.ca/cpp-survivor-benefits/
      If you want me to calculate your options for you (for a fee of $90), email me at [email protected]

  21. cintia lewis

    hi im 36 years old and i need to come back to my origin country
    and i wonder if i can take out my cpp now so i can start over ?
    is that posible?
    thanks

    • Doug Runchey

      Hi Cintia – No, you can’t get any of your CPP money back until you qualify for either disability, retirement or survivor benefits.

  22. John

    Hello
    I am a pensioner from Canada. I am living in Colombia on a 3 year temporary visa which expires in 2020. I have a Canadian bank account where my cpp and oas are deposited to each month. I use my sisters address in Canada as my mailing address for the bank and the CRA. My bank is asking me for an update on my address status. Can my bank close or freeze my accounts as I am really on non resident of either country, however I am still a Canadian citizen. Now I am very concerned about my banking status

  23. Marcel Brown

    Hello,
    As a foreign national I have lived in Canada from 1979-2010 under the permanent residence status. In 2010 we moved to Switzerland. In 2011, CRA determined I didn’t qualify for the Canadian resident status anymore. My wife and I are married.
    a) during 1979-2010 I paid into CPP & OAS for well over 20 years.
    b) We have decided to keep our property in BC, Canada. From 2007-our emigration in 2010 it was our principal residence. We are currently renting it out, paying annual municipal property taxes and annual CRA Income Taxes under Section 216. Upon our emigration in 2010 we provided CRA the FMV of our property (based on the provincial BC Assessment).
    c) My spouse and I hold RRSP & TFSA investments as well an RESP for our kids.
    Questions:
    a)on 2029 I’ll turn 65. Will I then (and my spouse 3 years later) be able to collect the full CPP pensions & OAS amounts due to us, less applicable CRA taxes deducted? If not, what other deductions are to be considered?
    b) given that we are renting out our BC/Canadian property, paid the annual taxes on the net rental income and then we sell that property in 2029:
    b.01)On what amount will we be paying the departure capital gains tax to CRA – the difference from the 2007 purchase price to the FMV upon emigration in 2010 or the gains from the 2007 purchase price to the selling price (less associated costs) in 2029?
    b.02)How is that departure capital gain tax calculated (in %?)?
    c) upon turning 65 each (assuming today’s CRA tax codes still apply then)and we then sell off our RRSP & TFSA investments:
    c.01)at what rates in % of total gains will each RRSP account be taxed? Is this in any way impacted by the fact that we’d no longer be residents in Canada?
    c.02)to my understanding, we already paid the tax on the TFSA. However is this in any way impacted by the fact that we’d no longer be residents in Canada – will CRA still want to deduct something?
    c.03) regarding our kids’ RESP, I understand this’ll be taxed on the gains when dissolving the RESP. However does it matter if the resulting net funds are applied to any educational institution outside of Canada? If so, why and what will be the impact?

  24. Amanda

    Hi,I am a Canadian Citizen and have lived in Canada for 20+ years. I married an American and will moving to New York permanently to live with him. I do not have any assets (house, car, no rent etc). Furthermore in the last tax year I was unemployed (store closure). I will be moving to New York permanently at the end of this year. I will be informing CRA that I am leaving—what, if any, departure taxes might I have to pay?

Leave a reply

Your email address will not be published. Required fields are marked*