Don't Get Taxed Twice: Your Financial Checklist for Exiting Canada

🗓️ Your Departure Date Splits Your Tax Year

The tax year of your departure splits neatly in two.

For the months you still lived in Canada, you remain a Canadian resident for tax purposes. That means reporting your worldwide income—the salary from your job in Vancouver, the freelance project from a client outside Canada, all of it.

After you leave, the rules shift. You become a non-resident, and only your Canadian-source income follows you, such as rental income from a condo you kept, or dividends from Canadian companies.

Either way, you still file a Canadian return for that year. Think of it as the last note you slip under CRA’s door before you turn the page.

🎭 The "Deemed Disposition": Canada's Exit Tax

When you leave, the CRA does something rather theatrical: it pretends you sold most of your taxable assets the day you set foot out of the country. This is the “deemed disposition.”

Why the drama? Because Canada wants to tax the gains you accumulated while living here before those assets disappear into a new jurisdiction.

This applies to things like non-registered investments. It doesn’t apply to Canadian real property such as your principal residence, your RRSP, TFSA, pension, or even your well-loved (and modestly valued) car.

A simple example:

London’s investment portfolio is worth $800,000 with an adjusted cost base of $650,000. On departure, Canada assumes London sold the portfolio for $800,000. The $150,000 gain becomes taxable on London’s tax return in the year of departure. No actual sale required—just the tax. The taxable gain is reported on CRA Form T1243.

🏠 Your Primary Residence: The U.S. vs. Canadian Exemption

Your principal residence isn’t hit with departure tax. But here’s where things get interesting: you can elect to “pretend sell” it when you leave.

Why would anyone do that? Because Canada’s principal residence exemption is unlimited, and the U.S. equivalent isn’t.

If you're moving to the United States, the timing matters:

• Canada lets you exempt the full gain on your home.
• The U.S. only allows $250,000 per person—and only if you’ve lived in it for two of the last five years.

There’s also a treaty provision that can step up your U.S. cost base to the home’s fair market value on the day you moved. Think of it as a reset button that can significantly reduce future U.S. capital gains tax when you eventually sell.

Used well, this combination can protect you on both sides of the border. If you plan to sell your property while you are in the U.S. or rent it out, additional tax considerations would apply. Speak with your tax accountant in order to fully understand the tax implications as well as planning opportunities.

💼 Case Studies: How the Rules Apply to Dylan & Jenny

Dylan, leaving for Florida, owns a home worth $420,000, originally purchased for $250,000. He can elect to lock in his tax-free gain in Canada, benefit from the U.S. step-up, and ultimately pay no tax in either country. Or he can skip the election and still come out ahead, a reminder that sometimes, the rules do work in your favour.

Jenny, moving south for work, owns a non-registered portfolio with a $50,000 unrealized gain, plus RRSPs, a car worth $6,000, and a home. Her departure tax applies only to the gain in her investments. The home is exempt. The RRSP waits untouched. And the car is too modest to attract attention from anyone, CRA included. Note that some U.S. states such as California do tax RRSPs at the state level so it’s important to consider the tax implications for the particular state which you are moving to.

🚨 Form T1161: The $25,000 Asset List You Must File

If the total fair market value of your taxable property exceeds $25,000 when you leave, you must file Form T1161.The form is due on the same date of your tax return, typically on April 30^th in the tax year following your departure from Canada.

It’s an asset list, not a tax bill, but the penalties for skipping it or late filing are real: $25 per day, up to $2,500. A quiet but firm reminder that departures require paperwork.

💸 Foreign Exchange: Don't Let the CAD/USD Rate Cost You

As of November 2025, the Canadian dollar trades around $0.71 USD. That means if you convert your non-registered investments directly into U.S. dollars now, you’re losing nearly 30 cents on every Canadian dollar.

The smart move is to team up with a cross-border advisor—someone like us—who can open a U.S. investment account while still holding Canadian dollars and Canadian investments. This allows you to maintain your positions and wait for a more favourable exchange rate. In other words, you don’t have to sell at a loss just because of currency fluctuations.

Handling currency thoughtfully can save a lot of money, depending on the size of your portfolio. For anyone moving to the U.S., it’s a step you don’t want to overlook.

✅ Final Checklist Before Your Flight

A few things are worth doing before your final flight:

• Know which assets are subject to departure tax.
• File on time, especially that T1161.
• Get advice if your situation spans borders (it often does).

Leaving Canada is exciting, overwhelming, and sometimes bittersweet. But closing out your tax life properly means you get to start the next chapter cleanly—without a surprise letter from the CRA interrupting your first weekend in a new country. That might be the most Canadian way to leave: responsibly, politely, and neatly squared away.