The Tax Mistakes Canadians Make When Leaving Canada
Learn what to do—and what to avoid—when filing your final tax return, reporting assets, and managing your assets and departure tax.
Leaving Canada—whether permanently or for an extended period—is a major life transition. It often involves immigration decisions, job changes, family considerations, and financial planning. One area that is commonly overlooked or misunderstood is Canadian tax obligations when you leave the country.
Many individuals wrongly assume that once they leave Canada, their tax responsibilities automatically end. In reality, the Canada Revenue Agency (CRA) has specific rules for people who become non-residents or deemed non-residents, and your final tax return can be significantly different from a regular annual filing.
If you are leaving Canada in 2026—whether as a student returning home, a temporary worker completing a contract, a permanent resident moving abroad, or even a Canadian citizen relocating—this guide will help you understand:
How residency status affects your taxes
What a departure tax return is
What income must be reported
What happens to your TFSA, RRSP, and other assets
How departure tax and deemed disposition work
What benefits stop or continue
Common mistakes to avoid
Understanding these rules before you leave can save you from penalties, unexpected taxes, and CRA issues years later.
1. Understanding Canadian Tax Residency When Leaving Canada
Tax Residency vs Immigration Status
One of the most important concepts to understand is that tax residency is not the same as immigration status.
You can be a Canadian citizen or permanent resident and still be a non-resident for tax purposes.
Conversely, you can be a temporary resident and still be considered a tax resident.
CRA determines residency based on residential ties, not passports or visas.
Primary Residential Ties
CRA looks closely at whether you maintain:
A home in Canada
A spouse or common-law partner in Canada
Dependants in Canada
If you sever most or all of these ties, CRA may consider you a non-resident as of your departure date.
Secondary Residential Ties
Secondary ties include:
Canadian bank accounts
Credit cards
Driver’s licence
Health insurance
Personal property (car, furniture)
Memberships in Canadian organizations
Having a few secondary ties alone usually does not make you a resident, but combined with primary ties, they can affect your status.
2. When Are You Considered to Have “Left Canada” for Tax Purposes?
Your departure date is critical. This is generally the date when:
You physically leave Canada and
You significantly sever your residential ties
For example:
A student finishing studies in April and moving back permanently in June may have a departure date in June.
A worker moving abroad in August after selling their home and relocating their family may have an August departure date.
This date determines:
What income you report as a resident
Whether departure tax applies
When CRA benefits stop
3. What Is a Departure (Exit) Tax Return?
When you leave Canada, you must file a departure tax return, which is simply a T1 General return marked as a final return for the year you became a non-resident.
This return includes:
Income earned from January 1 to your departure date
Special disclosures for assets you owned at departure
Possible deemed disposition (departure tax)
You do not file a separate form called a “departure return.” It is your regular T1 with additional requirements.
4. Income Reporting on Your Final Canadian Tax Return
Income While You Were a Resident
You must report worldwide income earned from January 1 to your departure date, including:
Employment income (Canadian or foreign)
Self-employment income
Interest, dividends, capital gains
Rental income
Scholarships and bursaries (if taxable)
Income After You Leave Canada
After becoming a non-resident:
You generally do not report foreign income to CRA
You may still need to report Canadian-source income
Examples of Canadian-source income after departure include:
Rental income from Canadian property
Canadian pensions
RRSP withdrawals
CPP or OAS payments
This income is usually subject to Part XIII withholding tax.
5. Departure Tax (Deemed Disposition): The Most Overlooked Issue
What Is Deemed Disposition?
When you leave Canada, CRA assumes you sold certain assets at fair market value (FMV) on the day you left—even if you didn’t actually sell them.
This is called deemed disposition, and it can trigger capital gains tax.
Assets Subject to Deemed Disposition
Common assets include:
Non-registered investment accounts
Shares of private corporations
ETFs, stocks, mutual funds (outside RRSP/TFSA)
Cryptocurrency
Certain partnership interests
Assets Exempt from Deemed Disposition
These assets are not subject to departure tax:
Canadian real estate
RRSPs and RRIFs
TFSAs
Employer pension plans
Personal-use property under $10,000
6. How Departure Tax Is Calculated
CRA calculates capital gains as:
Fair Market Value at Departure – Adjusted Cost Base (ACB)
Only 50% of the gain is taxable, as per capital gains rules.
Example:
You bought shares for $20,000
FMV on departure date is $50,000
Capital gain = $30,000
Taxable capital gain = $15,000
This tax becomes payable even if you did not sell the investment.
7. Can Departure Tax Be Deferred?
Yes. If departure tax creates a significant tax bill, you may apply to defer payment by filing Form T1244 and providing acceptable security (such as a letter of credit or bond).
Important points:
Deferral is not automatic
Interest may still apply
CRA approval is required
This option is often used by individuals with large investment portfolios or business interests.
8. Reporting Assets When Leaving Canada (Mandatory Forms)
When the total FMV of your assets exceeds $25,000, you must file:
Form T1161 – List of Properties by an Emigrant of Canada
Failure to file this form can result in penalties of up to $2,500.
This form does not calculate tax—it is strictly for disclosure.
9. What Happens to Your TFSA When You Leave Canada?
Your Tax-Free Savings Account (TFSA) requires special attention.
Key TFSA Rules for Non-Residents
You may keep your TFSA after leaving Canada
No new contribution room accumulates while you are a non-resident
Contributions made while non-resident are subject to a 1% per month penalty
Investment income may be taxable in your new country
TFSA earnings are tax-free in Canada—but not necessarily tax-free elsewhere.
10. RRSPs and Pension Plans After Leaving Canada
RRSPs
You can keep your RRSP after leaving Canada
Withdrawals are subject to non-resident withholding tax (usually 25%, or lower with a tax treaty)
You cannot make new contributions unless you have unused room and Canadian-source earned income
CPP and OAS
CPP may continue depending on treaties
OAS eligibility depends on years of residency
Payments to non-residents may be subject to withholding tax
11. Rental Property and Real Estate Considerations
If you own Canadian property after leaving:
Rental income must be reported
A 25% withholding tax applies unless you file Section 216 return
Selling Canadian property requires CRA clearance (Form T2062)
Failure to obtain clearance can result in 25% withholding on gross sale proceeds.
12. Benefits and Credits That Stop When You Leave Canada
Once you become a non-resident, most benefits stop, including:
GST/HST credit
Canada Child Benefit (CCB)
Provincial benefits
Climate Action Incentive
Failing to inform CRA of your departure may result in overpayments that must be repaid.
13. Provincial Departure Issues
Your province of residence is determined as of December 31.
If you leave Canada before year-end:
You may not be subject to provincial tax
Some provinces require special reporting
Health coverage usually ends after a grace period
14. Filing Deadlines for Departure Returns (2025)
For most individuals:
Filing deadline: April 30, 2026
Payment deadline: April 30, 2026
Self-employed individuals:
Filing deadline: June 15, 2026
Payment still due by April 30
Late filing penalties and interest apply if missed.
15. Common Mistakes People Make When Leaving Canada
Not filing a departure return
Ignoring deemed disposition rules
Continuing TFSA contributions as a non-resident
Forgetting to report departure date to CRA
Assuming citizenship determines tax residency
Missing asset disclosure forms
Failing to cancel benefits
Not planning for withholding taxes
These mistakes often surface years later, resulting in audits and penalties.
16. When Should You Seek Professional Help?
You should strongly consider professional tax advice if:
You own investments or crypto
You are a business owner
You hold foreign assets
You plan to return to Canada later
You are moving to a country without a tax treaty
You have rental or real estate holdings
Departure tax planning is often more complex than regular tax filing.
Finally
Leaving Canada in 2026 is not just a logistical or emotional transition—it is a tax event with long-term consequences if handled incorrectly.
Your final Canadian tax return may include:
Worldwide income reporting
Asset disclosures
Deemed disposition taxes
Benefit adjustments
Non-resident withholding obligations
Proper planning before you leave, accurate filing after you leave, and understanding CRA rules can help you exit Canada cleanly and confidently—without future tax surprises.
If done right, your departure tax filing becomes a one-time closure, not an ongoing CRA headache.