Departure Tax Canada 2026 — Section 128.1 Deemed Disposition When You Leave Canada

Reviewed by Bader A. Chowdry, CPA, CA, LPA on June 5, 2026

Quick answer: When an individual ceases to be a Canadian tax resident, Section 128.1 of the Income Tax Act deems every piece of capital property to have been disposed of at fair market value on the date of departure — triggering capital gains tax on all unrealized appreciation, even though nothing was actually sold. Certain exclusions apply (Canadian real estate, RRSPs, pensions), and a Form T1244 election under Section 220(4.5) can defer payment — without interest — until the property is actually sold. This guide to departure tax Canada 2026 rules covers who is caught, what is taxed, and the pre-departure planning that can materially reduce the bill.

What is departure tax and when does it apply?

Departure tax is the informal name for the consequence of Section 128.1(4)(b) of the Income Tax Act: on the date you cease to be a Canadian tax resident, the Act deems you to have disposed of all of your capital property — with specific exclusions — at fair market value, and to have reacquired it at that same value. The result is immediate Canadian tax on unrealized gains you never actually realized in cash.

This deemed disposition crystallizes all unrealized capital gains in your investment portfolio, private corporation shares, partnership interests, foreign property, personal-use property with significant appreciation, and certain trust interests. The CRA’s guidance on dispositions of property for emigrants confirms the scope.

Who this affects:

• Individuals moving permanently to another country (US, UK, Australia, UAE, Ireland, etc.)
• Dual citizens changing their residency centre
• Non-permanent residents (temporary foreign workers, international students) who accumulated investments while in Canada and are now leaving
• Canadian citizens retiring abroad
• Business founders with shares in a private corporation moving to a lower-tax jurisdiction

How do you actually cease to be a Canadian tax resident?

The deemed disposition triggers only when you cease to be a Canadian tax resident as a question of fact — physically leaving is not enough. The CRA weighs residential ties: a dwelling available in Canada, a spouse or dependants remaining, and secondary ties like bank accounts, a driver’s licence, and provincial health coverage. Treaty tie-breaker rules can override the domestic analysis where you are resident in two countries at once.

Key factors the CRA considers:

• Dwelling available in Canada (owned or leased)
• Spouse or common-law partner remaining in Canada
• Dependants in Canadian schools
• Canadian bank accounts, driver’s licence, provincial health card
• Social ties — professional memberships, clubs, community involvement

The “sojourner” rule (more than 183 days in Canada in a year) and the deemed-resident rules can keep you resident even after you have physically left. Tax treaty tie-breakers: the Canada-US Tax Treaty and other bilateral treaties determine which country has primary residence rights where both domestic laws claim you — typically the country of your permanent home in the treaty’s language.

What property is deemed disposed of — and what is excluded?

Section 128.1(4)(b) deems a disposition of all capital property held on the departure date, except for listed exclusions. Marketable securities, private corporation shares, partnership interests, and foreign property are all caught. Canadian real estate, registered accounts (RRSP, RRIF, TFSA, RPP), Canadian resource property, and most Canada-resident employee stock options are excluded — their tax consequences are deferred or handled under separate regimes.

Included property (taxed on departure):

• Marketable securities (stocks, bonds, ETFs) in non-registered accounts
• Shares of private corporations (Canadian or foreign)
• Partnership interests and mutual fund units
• Foreign investment property
• Personal-use property and collectibles with significant appreciation (artwork, precious metals)
• Options, warrants, and certain trust interests

Excluded from the deemed disposition:

• Canadian real property — land and buildings in Canada are excluded; the gain is preserved until actual sale, at which point Section 116 non-resident withholding procedures apply
• Canadian resource property and timber resource property
• Registered accounts — RRSP, RRIF, TFSA, DPSP, RPP are not deemed disposed of (though RRSP/RRIF distributions after departure attract Part XIII withholding)
• Employee stock options — typically excluded where the corporation is resident in Canada and the option relates to employment duties performed in Canada (complex rules apply)
• Business property used in a permanent establishment remaining in Canada

How much departure tax will you pay in 2026?

For each included property, the deemed gain equals fair market value on the departure date minus adjusted cost base. The gain enters the departure-year T1 at the 50% inclusion rate — the proposed 66.67% increase was cancelled in March 2025 — so an Ontario resident at the top 53.53% marginal rate pays an effective 26.77% on each dollar of deemed gain. The full mechanics mirror an ordinary disposition under our capital gains tax Canada 2026 guide.

Gain = Fair Market Value on Departure Date − Adjusted Cost Base

Example: An engineer leaving Canada holds $800,000 in a non-registered investment account (ACB $200,000). Unrealized gain = $600,000. Taxable gain at 50% inclusion = $300,000. At Ontario’s top rate, departure tax ≈ $160,600.

The statutory text is at Section 128.1 of the Income Tax Act (Justice Laws) and in the consolidated Act on CanLII.

Can you defer the departure tax instead of paying it now?

Yes. Under Section 220(4.5) of the Income Tax Act, you can elect on Form T1244 to defer payment of the departure tax — regardless of amount — until the property is actually sold or otherwise disposed of. When the election is made and adequate security is provided, no interest accrues on the deferred amount. The election is due by April 30 of the year after emigration.

The security requirement: security is only required where the federal tax attributable to the deemed disposition exceeds $16,500 ($13,777.50 for former Quebec residents) — in practice, roughly the first $100,000 of deemed capital gains requires no security at all. Above that threshold, the CRA generally accepts a letter of guarantee or letter of credit from a Canadian financial institution, shares of the Canadian private company that gave rise to the departure tax, or a mortgage on Canadian real property.

This is a genuine deferral, not an installment plan: the tax simply waits, interest-free when secured, until an actual disposition occurs. For illiquid holdings such as private company shares, the election routinely converts an unmanageable departure-year bill into a deferred liability that is funded by the eventual sale proceeds.

Pre-departure planning — six moves to consider

1. Crystallize losses before departure. Unrealized capital losses can be triggered before the departure date to offset deemed gains on other positions. Superficial-loss rules apply within the 30-day window before and after each sale — care is needed.

2. Maximize RRSP contributions. RRSP room not used by the departure date is effectively lost for post-departure planning. The RRSP itself is excluded from the deemed disposition.

3. Review private corporation shares. QSBC shares may qualify for the Lifetime Capital Gains Exemption — $1,275,000 (2026). If you hold qualifying QSBC shares and have unused LCGE room, the deemed disposition may be partially or entirely sheltered. This is time-sensitive: purification of the corporation (removing excess passive assets) may be needed well before departure.

4. Consider a spousal rollover. If your spouse or common-law partner remains a Canadian tax resident, capital property can be transferred to them at adjusted cost base under subsection 73(1) before departure, deferring that gain until they actually dispose of the property. Attribution rules need to be managed.

5. Review your TFSA. The TFSA is excluded from the deemed disposition, but contribution room stops accruing once you are non-resident, and any contribution made while non-resident attracts a penalty tax of 1% per month until withdrawn. Most emigrants should stop contributing on departure and weigh whether the account is worth keeping given the destination country’s treatment (the US, for example, does not recognize the TFSA’s tax-free status).

6. File Form T1161 — List of Properties. Departing residents whose capital property exceeds $25,000 FMV (excluding certain personal-use and listed property) must file Form T1161 with the departure-year T1. The late-filing penalty is $100 per day to a maximum of $2,500.

The departure return — filing mechanics

The departure-year T1 return splits the year in two:

• Part 1: income from January 1 to the departure date — taxed as a resident at progressive rates; the departure tax on deemed gains falls here
• Part 2: income from the departure date to December 31 — taxed as a non-resident, generally through Part XIII withholding only

The departure return is due April 30 of the following year (June 15 where the individual had self-employment income during the resident period). Form T1243 (Deemed Disposition of Property) computes the deemed gains; Form T1161 lists the property; Form T1244 makes the deferral election.

Case study — Toronto software architect departs to Dublin: $276,000 exposure cut to $84,300 — and deferred

Composite illustration; client details anonymized.

A Toronto-based software architect accepted a senior engineering role in Dublin, Ireland. At departure she held:

• Non-registered investment portfolio: $680,000 FMV / $120,000 ACB (accrued gain $560,000)
• Shares in a CCPC (software consulting company): $480,000 FMV / $10,000 ACB (accrued gain $470,000)

Unplanned, the Section 128.1 deemed disposition would have taxed both gains in the departure year — roughly $276,000 of combined departure tax at Ontario’s top effective capital gains rate.

Planning by Bader A. Chowdry, CPA, CA, LPA:

1. The CCPC shares qualified as QSBC shares. The architect had $1,275,000 of unused LCGE — the $470,000 gain on the CCPC shares was fully sheltered. Departure tax on the shares: $0.
2. Unrealized losses of $95,000 in two ETF positions were crystallized before departure, reducing the portfolio gain from $560,000 to $465,000.
3. A pre-departure spousal transfer of REIT units at adjusted cost base under subsection 73(1) moved approximately $150,000 of accrued gain to her spouse, who remained a Canadian resident — deferring that portion until he actually disposes.
4. The remaining portfolio gain of approximately $315,000 produced departure tax of roughly $84,300 — deferred interest-free under a Form T1244 / s.220(4.5) election with security posted against the deferred balance.

Result: cash tax due in the departure year — nil. Total exposure reduced by more than $190,000, with the remainder deferred until actual sale.

Frequently asked questions

Q: I am a Canadian citizen living abroad temporarily — does departure tax apply to me?
A: Only if you cease to be a Canadian tax resident. Simply living abroad does not necessarily change your tax residency. If you maintain significant residential ties in Canada (spouse, home, dependants), you may remain a Canadian tax resident despite living abroad — in which case no deemed disposition occurs.

Q: Does the departure tax apply if I move to the United States?
A: Yes — the Canada-US Tax Treaty does not exempt you from departure tax. The treaty’s tie-breaker provisions determine treaty residency, but the deemed disposition is a Canadian domestic rule that applies when you cease Canadian residency regardless of where you land.

Q: My RRSP has $400,000 in it. Is that taxed when I leave?
A: No. RRSPs are excluded from the deemed disposition. However, once you are a non-resident, RRSP withdrawals are subject to 25% Part XIII withholding tax — reducible by treaty (15% for periodic payments under the Canada-US Treaty, for example).

Q: What is Form T1161 and is it mandatory?
A: Form T1161 lists the capital property you held on the departure date. It is required for any departing resident whose reportable property exceeds $25,000 FMV. Failure to file triggers a $100 penalty per day, up to $2,500 — even where no tax is owing.

Q: Can I avoid departure tax by simply not selling my investments?
A: No. The tax is triggered by the deemed disposition — an event that occurs by operation of law on the date you cease residency, regardless of actual sales. You can, however, defer payment with the Form T1244 election under s.220(4.5).

Q: If I return to Canada, can I unwind the departure tax?
A: Yes, potentially. If you return and re-establish Canadian residency while still holding the property, subsection 128.1(6) lets you elect to treat the property as if no deemed disposition had occurred — effectively unwinding the departure and generating a refund of departure tax paid.

Q: Do I still owe Canadian tax on Canadian rental income after I leave?
A: Yes. Canadian-source income — rent, gains on Canadian real property, employment income for services in Canada — remains taxable in Canada. Rental income is subject to 25% Part XIII withholding, or net-basis taxation under a Section 216 election.