Canadians rarely think about exit taxes when they plan a move abroad. They probably should: the moment you cease to be a Canadian tax resident, Section 128.1 of the Income Tax Act treats most of your worldwide property as sold at fair market value, and the resulting accrued gain is taxable on your departure-year T1.
What the rule actually says
Paragraph 128.1(4)(b) deems an individual who ceases to be resident in Canada to have disposed of each "property" (with statutory exclusions discussed below) immediately before residency ends, and to have reacquired it immediately after at the same fair market value. The deemed disposition produces a capital gain (or loss) under the regular rules of the Income Tax Act, and the resulting tax is owed with the year-of-departure return.
What's caught — and what's not
The deemed disposition catches most categories of capital property: publicly-traded shares, private-company shares, partnership interests, foreign real estate, art and collectibles, jewellery, cryptocurrency. The major exclusions under subsection 128.1(4) are:
- Taxable Canadian property (TCP) — primarily Canadian real estate and shares of certain private corporations whose value is more than 50% Canadian real estate over a 60-month look-back. TCP retains its original cost base and is taxed when actually sold, with Section 116 clearance applying to that future disposition.
- RRSPs, RRIFs, and other registered plans — sheltered from the deemed disposition. Distributions remain taxable in Canada when received (subject to treaty rate reductions).
- Employer stock options on Canadian employment.
- Property used in a business carried on through a permanent establishment in Canada.
Form T1244 — deferral with security
The cash impact of the departure tax can be substantial. If your largest asset is private-company shares with an accrued gain of $5 million, the departure tax at top Ontario marginal rates is roughly $1.3 million — payable with the T1 even though you haven't sold anything. Subsection 220(4.5) lets you elect to defer payment of all or part of the departure tax until you actually dispose of the property, in exchange for posting adequate security with the CRA. Adequate security is usually a charge on real estate, a letter of credit, or pledged marketable securities.
The election is made on Form T1244, filed with the departure-year T1. There's no interest charge on the deferred amount, but the deferred tax becomes payable when the property is actually sold (or earlier on certain trigger events).
Planning levers BEFORE you leave
The planning window closes the day you cease residency. Common moves done in the 6–12 months before departure include:
- Step-up the cost base of pre-appreciated property — using a Section 85 rollover into a corporation, the property is sold to the corporation at a price between cost and FMV, locking in a partial gain at today's rates while leaving room for further deferral.
- Realize losses against accrued gains — if you hold property with an accrued loss, selling it before departure crystallizes the loss to offset deemed-disposition gain on other property.
- Dividend strip from a holdco — extracting retained earnings as eligible dividends (taxed at lower rates than capital gains) reduces the corporate value subject to the deemed disposition.
- Family-trust restructuring — for high-net-worth families, properly-constituted trusts can hold appreciated assets outside the future emigrant's name, removing them from the Section 128.1 calculation entirely (subject to attribution and Section 94 considerations).
If you come back
Subsection 128.1(6) lets a returning Canadian-resident "unwind" the departure tax if the deemed-disposed property is still owned at the time residency resumes. The election effectively pretends the departure tax never happened, restoring the original cost base — but it only works for property continuously owned across the absence. This is why round-trip migrants should think carefully about selling departure-year-assessed property while abroad.
The bottom line
Departure tax is a one-time event with consequences that lock in for decades. The planning value is concentrated in the months before residency ends, not after. For Canadians considering a move to the United States, the analysis pairs with US pre-immigration cost-base planning (covered on our Pre-Immigration page) so the same gain isn't taxed twice.