For Canadian tax residents moving to another country, the Canadian Deemed Departure Tax has significant and complex ramifications that should be carefully considered. That’s according to a 2023 bulletin published by Cardinal Point Wealth Management, which specializes in cross-border financial planning and tax planning. 

An Overview of the Deemed Departure Tax

The tax is essentially a type of deemed disposition of all assets, for their fair market value just prior to ending Canadian tax residency. Canada introduced the tax to close loopholes that came to light when a wealthy Canadian family left the country without having to pay any taxes on their very substantial financial gains. Not only did the government lose significant tax revenue when that happened, but it was also viewed as unfair to other Canadian taxpayers who did pay taxes on their gains.

Numerous Exemptions Are Available

The good news is that there are several general asset categories that are except from the tax. Those include real property located in Canada, capital property used in a business permanently established in Canada, employee security and stock options, and assets subject to the Canadian tax authority’s “short-term resident” rule. There is also a useful tax planning strategy that involves selling Canadian property and then repurchasing it at fair market value, before emigrating out of Canada and becoming a U.S. resident taxpayer. That approach can qualify the taxpayer for a foreign tax credit. Then that credit can be applied to their U.S. taxes, to offset the amount of the Canadian Deemed Departure Tax that was paid. However, understanding exactly how the rules apply to a particular taxpayer leaving Canada, and how to deploy beneficial strategies, can be extremely difficult.

As Always, Tax Rules are Complicated

As is always true when it comes to taxes, if the rules aren’t followed correctly taxpayers may risk penalties, fines, and other serious adverse consequences. Because of that, and due to the complexity of Canada’s tax regulations, professional tax planners strongly advise that people leaving Canada seek qualified help early-on in the process. A knowledgeable tax professional with experience in cross-border taxation issues will be able to evaluate their unique financial and tax circumstances. Then they can explain all the options available to those leaving Canada, to help them avoid problems while taking full advantage of any and all available exemptions.

Tax Filing Requirements

Those planning a move out of Canada should report their departure date to the Canada Revenue Agency, using an official Form T1 – Income Tax and Benefit Return. Other forms that may be required are Form T1243 – Deemed Disposition of Property by an Emigrant of Canada and Form T1161 – List of Properties by an Emigrant of Canada. 

These forms may be requested from the Canada Revenue Agency. Keep in mind that there could be unforeseen delays in receiving the forms, and that it may take a long time to fill them out. Prior planning to have plenty of time to fulfill these taxpayer obligations is definitely helpful and encouraged.

The Bottom Line

Every year people move from Canada to other nations in pursuit of employment opportunities, to fulfill their dreams of retirement, due to marriage to a foreigner, or for other reasons. However, many of these people are unaware of the Deemed Departure Tax and all of its many applicable rules and nuances. Anyone planning a move out of Canada is well advised to do their homework and become familiar with the tax, and start planning as soon as possible. In that way, they may be able to eliminate or minimize their Deemed Departure Tax liability. That can make the big move a more stress-free transition, while helping preserve one’s wealth through insightful and proactive financial and tax planning.

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Company Name: Cardinal Point Wealth Management
Contact Person: Lucas Wennersten
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Country: United States
Website: https://cardinalpointwealth.com