Giving up Canadian residence

In general, if you cease to be a resident of Canada, you’ll be deemed to have disposed of and reacquired your capital property at its FMV on that date. You’ll be subject to tax on any taxable capital gain resulting from this deemed disposition.

These deemed disposition rules apply to all capital property unless specifically excluded. Such excluded property includes Canadian real estate, Canadian business property and certain other exclusions, such as retirement savings in RRSPs, stock options and interest in some trusts. Shares in a private company are not exempt from these rules. Therefore, if you own such shares, you must report a deemed disposition at FMV. Professional assistance will likely be required to obtain this value.

Tax implications

You can either pay the tax on the deemed disposition when you file your tax return for the year of emigration or you can opt to post security in lieu of paying tax for any particular property. The security will remain in place until the property is actually disposed of or until the taxpayer returns to Canada and “unwinds” the deemed disposition. As a relieving measure, security is not required with respect to the tax on the first $100,000 of capital gains that arise as a result of the deemed disposition rule.

If you subsequently dispose of property that has been excluded from the deemed disposition rules, you’re generally required to file a Canadian income tax return and pay tax on any resulting gain. In some cases, a return is not required, but the proceeds of disposition will be subject to non-resident withholding tax (see topic 123). Other filings may also be required. There are also special rules if you leave Canada for only a few years to work or study. The rules in this area are complex, and professional tax assistance is required. Review the tax implications with your tax adviser prior to departure.

Reporting requirement

If you emigrate from Canada, you’re required to report your property holdings to the CRA if you own “reportable property” with a total value of more than $25,000 at the date of departure from Canada. Exceptions will be provided for personal-use property with a value of less than $10,000. Other exceptions include cash (including bank deposits) and the value of pension plans, annuities, RRSPs, RRIFs, retirement compensation arrangements, employee benefit plans and deferred benefit plans.

Form T1161 must be filed regardless of whether you’re subject to the departure tax discussed above. The requirement is also independent of the tax return requirement—you must file Form T1161 regardless of whether you’re otherwise required to file a return for the year of emigration. To avoid late-filing penalties, this form must be filed on or before your filing due date for the year of emigration from Canada.

Tax tip: The capital gains deduction is not available to a non- resident of Canada. If you have shares of a corporation that is a “qualified small business corporation” (QSBC) (see topic 136) or an interest in a farming or fishing operation (see topics 137 and 138), there may be opportunities to utilize the $824,176 QSBC or $1 million qualified farming or qualified fishing33 capital gains deduction. Review this with your tax advisor, as extensive planning is required.

33 $800,000 in 2014 but indexed for inflation after 2014.