Exactly when does the deemed disposition happen — when I fly out, when I change my address, or when I file my last Canadian return?

The deemed disposition happens on the date you cease to be a Canadian resident for income tax purposes — not when you file your return. Residency cessation is determined by factual circumstances, not by a formal declaration. The key factors CRA considers: whether you have severed residential ties to Canada (sold your home or given up your lease, no longer maintaining a permanent place of residence available to you), whether your spouse and dependents have also left, and whether secondary ties (Canadian bank accounts, health cards, club memberships, driver's licence) have been severed. The date is often your physical departure date if that is when ties were severed, but it can be earlier or later depending on facts. CRA does not send you a notice telling you when your residency ended — you self-report on your departure-year T1. If you left Canada on September 15, 2026, your deemed disposition date is September 15, 2026, and the departure-year T1 covers January 1 to September 15. Income from Canadian sources after that date goes on a non-resident return.

I own a rental property in Canada. What happens to it when I emigrate?

Your Canadian rental property is not subject to deemed disposition when you leave — it stays in Canada, and CRA retains the right to tax the gain when you eventually sell it, regardless of where you live at that time. This is because Canadian real estate is 'taxable Canadian property' under the Income Tax Act, and gains on taxable Canadian property are always taxable in Canada for both residents and non-residents. From a cash flow standpoint, your rental income shifts from being reported on your full T1 return to being reported under Part XIII withholding for non-residents: your tenant (or property manager) is technically required to withhold 25% of the gross rent and remit it to CRA on your behalf unless you elect to file under section 216 of the ITA. The section 216 election allows you to file a reduced income return based on net rental income (income minus expenses) rather than gross, which typically results in much lower withholding. You need to notify CRA and your property manager of your non-resident status. See the CRA rental income guide for full details.

What is the security deposit election and should I use it?

Section 220(4.5) of the Income Tax Act allows you to defer paying the capital gains tax triggered by the deemed disposition by providing adequate security to CRA. Instead of writing a large cheque to CRA in the year you leave, you post a bond, pledge a guaranteed investment certificate, or arrange another form of security equal to the deferred tax amount. The tax only becomes due when you actually sell the asset (or repatriate to Canada). This is valuable when: you have significant unrealized gains in a portfolio that you do not want to sell immediately (triggering actual capital gains), and the deemed disposition creates a large theoretical tax bill that you cannot fund without liquidating assets. The security deposit election buys you time — the tax clock stops ticking on those assets until the actual triggering event. The downside: you must maintain the security with CRA, which ties up capital in a pledge or bond rather than invested assets. Consult a Canadian tax accountant to calculate whether the interest cost of maintaining the security is lower than the cost of selling and redeploying capital.

Can I still contribute to my RRSP after I leave Canada?

Technically, you can contribute to an RRSP as a non-resident if you have unused contribution room — but it is generally inadvisable. RRSP contributions by non-residents do not generate a tax deduction on your Canadian return (because you no longer have Canadian employment or business income to deduct against). The contribution locks up money in a Canadian registered account subject to 25% withholding on withdrawal. More importantly, the point of an RRSP is the deduction at contribution and tax-free growth — without the deduction, you are essentially putting after-tax money into an account that will be subject to withholding on the way out. The conventional wisdom for Canadians who emigrate: stop contributing to the RRSP on departure, and plan a drawdown strategy for existing RRSP/RRIF assets that takes advantage of your new country's tax treaty rate. If your new country has a favourable treaty rate on RRSP withdrawals (e.g., Canada-Portugal: 10%), drawing down the RRSP in the early years of non-residency at that reduced rate can be very tax-efficient.

What happens to my TFSA when I leave Canada?

Your TFSA does not close when you leave Canada, and it is not subject to deemed disposition on departure. However, you must stop contributing the moment you become a non-resident. Any contribution to a TFSA while you are a non-resident attracts a penalty tax of 1% per month on the contribution amount — this accrues indefinitely until the non-resident contribution is withdrawn and the penalty paid. The existing balance in your TFSA on departure continues to grow tax-free within the account (no deemed disposition), but you lose the annual contribution room that would normally accrue ($7,000/year as of 2025). Many Canadians choose to leave TFSA assets invested after departure if the investments are appropriate for non-resident holding and manage the account from abroad. Some choose to withdraw the full balance before departure (TFSA withdrawals are always tax-free) and invest the proceeds in their new country. The right strategy depends on your investment holdings, destination country, and anticipated timeline of return to Canada.

I bought a property in Mexico before leaving Canada. Does the departure tax apply to it?

Yes — if you owned a Mexican property (or any foreign property) before you left Canada and it had unrealized capital gains at the time of your departure, the deemed disposition applies. CRA treats you as having sold the Mexican property at its fair market value on your departure date, and you must report the deemed capital gain (50% inclusion rate) on your departure-year T1. You did not actually sell the property — but you still owe tax on the paper gain as if you had. If the property was worth CAD $400,000 on departure and you originally paid CAD $250,000 (in the fideicomiso), the deemed gain is CAD $150,000, the taxable amount is CAD $75,000, and you owe tax at your marginal rate. You can use the security deposit election to defer this payment until you actually sell the Mexican property. Note: you will also owe Mexican SAT tax when you actually sell — the Canada-Mexico treaty provides FTC relief to prevent double taxation but the ordering of credits can be complex. Plan this with a cross-border tax professional before you depart.

What is Form T1161 and what happens if I forget to file it?

Form T1161 (List of Properties by an Emigrant of Canada) must be filed with your departure-year T1 return. It requires you to list every property with a total fair market value over $25,000 that you held at the time of your departure. This includes: Canadian and foreign real estate, investment accounts, shares, bonds, vehicles (if over $25,000), and other assets. The form is informational — it does not create additional tax — but it is required and CRA uses it to verify deemed disposition reporting and future compliance. The penalty for failing to file T1161 is $100/day from the day it was due, with a minimum of $100 and a maximum of $2,500. This penalty accrues for each year the form remains unfiled. Because the penalty is relatively modest (vs the T1135 penalties which also apply to non-residents in some circumstances), some departing Canadians overlook T1161 — but it is required and the penalty is real. File it even if you believe your deemed disposition gains are zero or protected by the principal residence exemption.

If I leave Canada to retire to Mexico but keep my Canadian home to rent out, what exactly do I owe CRA?

In the year you leave, your T1 departure return covers the period January 1 to your departure date. On it, you report: (1) Income earned in Canada up to departure as usual; (2) Deemed dispositions on all assets subject to deemed disposition — investment accounts, foreign property (e.g., your Mexican condo if you already owned it), any stocks or ETFs held personally. Your Canadian home is NOT deemed disposed — it is taxable Canadian property and exempt from deemed disposition. (3) You file Form T1161 listing all property over $25,000. After departure, you become a non-resident for tax purposes: your tenant or property manager withholds 25% of gross rent (or you file under section 216 for net income reporting — strongly advisable), you continue to receive CPP and OAS with 25% withholding unless you file NR5 form to apply the Canada-Mexico treaty rate (15%), and you eventually pay Canadian capital gains tax when you sell the Canadian home — potentially offset by principal residence designation for the years you lived in it. This is a complex multi-year tax situation that genuinely warrants a Canadian tax professional familiar with non-resident departures.

Last updated: March 26, 2026

Reviewed on March 2026 by the Compass Abroad editorial team

Canada Departure Tax: What Actually Happens to Your Taxes When You Leave Canada

When you stop being a Canadian resident, CRA deems you to have sold most assets at fair market value on your departure date — triggering capital gains on unrealized appreciation. Canadian real estate is exempt (it stays taxable in Canada when you actually sell). RRSPs are not deemed disposed but become subject to non-resident withholding. TFSAs lose their contribution room for non-residents. You must file Form T1161 with your departure-year return.

Most Canadians moving abroad have heard of departure tax but have a vague picture of what it actually means for their specific assets. The rules are specific: some assets are taxed on departure, others aren't, and the RRSP/TFSA treatment trips people up regularly. This article works through the real mechanics — not the legal framework, but the practical scenarios relevant to Canadians buying property abroad.

Key Takeaways

When you cease to be a Canadian resident, CRA deems you to have sold all 'taxable Canadian property' and most other assets at fair market value on your departure date — triggering capital gains on unrealized appreciation. This is the deemed disposition.
Canadian real estate is NOT subject to deemed disposition — it is taxable Canadian property, which remains taxable in Canada after you leave regardless of your residency. You will owe Canadian capital gains tax when you actually sell it, wherever you live.
RRSPs are NOT subject to deemed disposition. But they transition from tax-sheltered accounts to non-resident retirement accounts — withdrawals are subject to non-resident withholding tax (25% unless a tax treaty reduces it).
TFSAs lose their Canadian tax-free status once you become a non-resident. The account continues to exist, but contributions as a non-resident attract a 1%/month penalty tax. You should stop contributing immediately upon departure.
Form T1161 must be filed with your departure-year T1 return, listing all property with a fair market value over $25,000 that you held at departure. Failure to file T1161 is a $100/day penalty, up to $2,500.
The security deposit election (section 220(4.5) of the Income Tax Act) allows you to defer the tax on deemed disposition gains by posting security with CRA — allowing you to avoid a large lump-sum tax bill in the year of departure.
Principal residence designation on your Canadian home can be used for years you owned and lived in it — reducing or eliminating capital gains on future sale, even after you become a non-resident.
CPP and OAS are payable after emigration but become subject to non-resident withholding tax — reduced by bilateral tax treaties with your new country of residence.

Key Facts: Canada Departure Tax

Deemed Disposition Date: The day you cease to be a Canadian resident — typically date of departure(ITA s.128.1(4))
Form T1161 Filing: Required with departure-year T1 — list all property over $25,000 FMV(ITA s.233.6)
T1161 Late Penalty: $100/day, minimum $100, maximum $2,500(ITA s.162(7))
Security Deposit Election: Defer deemed disposition tax by posting security with CRA(ITA s.220(4.5))
RRSP After Emigration: Not deemed disposed — withdrawals subject to 25% NR withholding (treaty may reduce)(ITA s.212(1)(l))
TFSA After Emigration: 1%/month penalty on contributions as a non-resident — stop contributions on departure(ITA s.207.01)
Canadian Real Estate After Emigration: Remains taxable in Canada — exempt from deemed disposition; taxed on actual sale(ITA s.115(1))
Principal Residence Designation: Available for years resident + owned — can offset future gains on Canadian home(ITA s.54)
CPP/OAS NR Withholding: 25% standard; reduced by treaty (15% for Mexico, US; 10% for Portugal)(ITA s.212(1)(h))
NR4 Information Return: Payers (Service Canada, financial institutions) report to CRA on non-residents(ITA s.215)

What the Deemed Disposition Actually Is

The deemed disposition under section 128.1(4) of the Income Tax Act is CRA's mechanism for taxing capital gains on assets before they leave the Canadian tax net. When you move to Mexico, Portugal, or anywhere else permanently, Canada's taxing jurisdiction over your worldwide income ends — but Canada wants its share of the appreciation that occurred while you were resident. The deemed disposition solves this: CRA assumes you sold all your qualifying assets on the day you left at their fair market value, even if you didn't actually sell anything.

The result: you owe capital gains tax (at the 50% inclusion rate applied to your departure-year income) on the unrealized appreciation in your investment portfolio, foreign property, and other deemed-disposed assets. Your adjusted cost base is reset to the deemed proceeds — so when you eventually sell those same assets, you are only taxed on appreciation occurring after you left Canada.

The deemed disposition applies to all property other than specifically exempt categories. The most important exemptions for Canadians with foreign property are the Canadian real estate exemption and the RRSP/RRIF exemption. Understanding which assets fall into which category is the first step in planning your departure.

What Is and Is Not Subject to Deemed Disposition

Asset types subject to or exempt from deemed disposition at emigration
Asset Type	Subject to Deemed Disposition?	Notes
Shares, mutual funds, ETFs held personally	YES — deemed sold at FMV on departure date	Capital gains on unrealized appreciation taxed in departure year. Can elect to defer with security deposit.
Canadian real estate (principal residence, rentals)	NO — exempt from deemed disposition	Remains 'taxable Canadian property' — taxed on actual sale regardless of your residency at time of sale.
RRSP, RRIF	NO — not deemed disposed	Account continues. Withdrawals become subject to 25% NR withholding. Tax treaty may reduce rate.
TFSA	NO — not deemed disposed on departure	But all new contributions as non-resident attract 1%/month penalty. Stop contributing immediately on departure.
Employee stock options (unexercised)	PARTIAL — rules complex; prorated for Canadian and foreign service periods	Requires specific calculation — consult a tax professional for employment-related options.
Canadian pension (CPP, defined benefit plan)	NO — not subject to deemed disposition	Payments continue; subject to NR withholding. Treaty may reduce rate. GIS stops after 6 months.
Foreign property you already owned	YES — deemed sold at FMV on departure	Unrealized gains on foreign property (Mexican condo, US stocks) are triggered on departure.
Life insurance policies (cash value)	Potentially — exempt if certain conditions met; consult actuary/tax professional	Complex rules — depends on policy type and whether it qualifies as an exempt policy.

Worked Example: A Typical Scenario

Sarah is a 63-year-old Ontario resident who is moving to Puerto Vallarta permanently. She has:

A principal residence in Toronto (purchased for CAD $380,000, now worth CAD $980,000)
A non-registered investment portfolio of ETFs and Canadian stocks (cost basis CAD $220,000, FMV CAD $310,000 — unrealized gain: $90,000)
A TFSA worth CAD $85,000
An RRSP worth CAD $320,000
A Mexican condo in PV she purchased 3 years ago through a fideicomiso (cost: CAD $280,000, current FMV: CAD $340,000 — unrealized gain: $60,000)

On departure, here is what happens:

Toronto home: Not deemed disposed — taxable Canadian property. She can designate it as her principal residence for years lived in it. When she eventually sells, remaining gains (if any) are taxable in Canada. She could also rent it out and use the section 216 election for non-resident rental income.
Investment portfolio: Deemed disposed. Taxable capital gain = $90,000 × 50% inclusion = $45,000 taxable. At her marginal rate of approximately 43% (Ontario resident, high income year), tax owed ≈ CAD $19,350. She can defer this with the security deposit election.
TFSA: Not deemed disposed on departure. No contribution room accrues as a non-resident. She should stop contributing immediately. Existing balance stays invested — or she can withdraw it tax-free before departure and redeploy it in Mexico.
RRSP: Not deemed disposed. Stays registered. Withdrawals as a non-resident are subject to 25% withholding under the Canada-Mexico treaty reduced to 15%. She should develop a drawdown strategy for the RRSP in the early non-resident years.
Mexican condo: Deemed disposed. Taxable capital gain = $60,000 × 50% inclusion = $30,000 taxable. At 43% marginal, tax owed ≈ CAD $12,900. She can defer with the security deposit election.

Total departure-year deemed disposition tax (portfolio + Mexican condo, without deferral): approximately CAD $32,250. Sarah has 90 days after departure to pay this or arrange a security deposit deferral with CRA.

Form T1161: What It Is and What You Must Report

Form T1161 (List of Properties by an Emigrant of Canada) must be filed as part of your departure-year T1 return. It requires you to list all property you held at departure with a total fair market value over $25,000 — this includes Canadian and foreign real estate, investment accounts, vehicles over $25,000, business interests, and any other significant assets. The purpose is informational: CRA uses T1161 to verify your deemed disposition reporting and track assets that remain in their long-term compliance view.

T1161 is separate from T1135 (Foreign Income Verification). T1135 is for ongoing foreign property reporting by residents. T1161 is specifically for the year of departure. They can both be required in the same year — the departure year — if you owned foreign property above the threshold at any point while still resident.

The penalty for late or missing T1161 is $100/day (minimum $100, maximum $2,500). File it even if you believe no deemed disposition gains apply. The cost of missing it is not worth the oversight.

RRSP After Emigration: The Non-Resident Drawdown Strategy

Your RRSP is not deemed disposed when you leave Canada, but your relationship with it changes fundamentally. The account transitions from a domestic registered plan to a non-resident retirement account. You can leave the money invested indefinitely — the holdings inside the RRSP continue to grow without Canadian tax tracking (the shelter still applies to internal growth). But every withdrawal triggers 25% non-resident withholding unless a tax treaty reduces it.

Under the Canada-Mexico treaty, RRSP withdrawals by non-residents in Mexico are subject to 15% withholding. Under the Canada-Portugal treaty, the rate is 10%. Under the Canada-Panama treaty, 25% applies (no reduction). The withholding rate matters enormously for a drawdown strategy.

To activate treaty rates, you must file an NR5 form with CRA. Your RRSP custodian will require an NR5 confirmation before applying reduced withholding. File the NR5 before you plan to make your first RRSP withdrawal as a non-resident.

Many financial planners recommend drawing down the RRSP aggressively in the early years of non-residency when your marginal rate may be lower (before other retirement income starts). The logic: if you retire to Mexico at 62 and CPP/OAS don't start until 65, a 3-year window of low income in your new country combined with 15% Canadian withholding on RRSP withdrawals may be the most tax-efficient drawdown period you will ever have.

Planning to Leave Canada? Get Your Tax Ducks in a Row First.

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