Canadian Departure Tax and Deemed Disposition

• Applies to: stocks, mutual funds, ETFs, rental properties outside Canada, business interests, and most other capital property.
• Principal residence: EXEMPT from deemed disposition. Your main home is not subject to departure tax.
• Canadian real property: NOT deemed disposed on departure. Instead, it remains subject to Canadian tax when you actually sell it later.
• Tax-deferred accounts (RRSPs, TFSAs): NOT subject to deemed disposition. But the rules for these accounts change when you become non-resident.
• The capital gains inclusion rate is 50% — so you pay tax on half of the gain at your marginal rate.
• Example: you hold $500,000 in stocks with a cost base of $200,000. The $300,000 gain triggers a $150,000 inclusion. At a 45% marginal rate, that is $67,500 in departure tax.

Severance of residential ties

To establish non-residency, the CRA (Canada Revenue Agency) looks at whether you have severed your residential ties to Canada. This is a factual determination based on multiple factors.

• Primary ties to sever: home (sell or rent to arm's-length tenant), spouse/dependants (they must also leave), personal property (move or store).
• Secondary ties to sever: Canadian driver's license, provincial health insurance, bank accounts (can keep some), professional memberships, social ties.
• You do NOT need to sever everything. The CRA looks at the totality of circumstances.
• The most important factor: where is your permanent home? If you maintain a home available for your use in Canada, the CRA may consider you still resident.
• Filing: you must file a final Canadian tax return for the year of departure, reporting all income up to your departure date plus any deemed disposition gains.
• Departure date: choose this strategically. The exact date affects which tax year captures the departure tax.

RRSPs and TFSAs as a non-resident

Your registered accounts continue to exist when you leave Canada, but the rules change in important ways.

• RRSPs: you can maintain them as a non-resident. They continue to grow tax-deferred. Withdrawals are subject to 25% withholding tax (potentially reduced by treaty). You cannot make new contributions.
• TFSAs: stop being tax-free when you become non-resident. No new contributions allowed. Existing holdings remain but growth may be taxable depending on your new country of residence. Cayman has no tax, so this is less of an issue — but the Canadian rules still apply.
• Pension plans (RPPs): employer pensions continue. Payouts when you retire are subject to Canadian withholding tax.
• RESP: can maintain. Withdrawals for education may be subject to withholding.
• Strategy: consider RRSP withdrawals before departure if your income in the departure year is lower than usual (e.g., if you stop working months before leaving). The departure year may be a tax-efficient window.

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CPP, OAS, and government benefits

Canadian government benefits continue to be payable from Cayman, but some are subject to withholding tax.

• CPP (Canada Pension Plan): payable worldwide. Subject to 25% withholding tax on periodic payments (may be reduced by tax treaty).
• OAS (Old Age Security): payable worldwide if you lived in Canada for at least 20 years after age 18. Subject to 25% withholding. Clawback rules still apply based on worldwide income.
• Child benefits (CCB): stop when you become non-resident.
• EI (Employment Insurance): not payable to non-residents.
• Provincial benefits (OHIP, MSP, etc.): coverage ends when you establish non-residency. You must arrange private health insurance in Cayman.

Canadian property you keep

If you keep Canadian real estate (other than your principal residence) after becoming non-resident, it remains in the Canadian tax system.

• Rental property: rental income is subject to Canadian tax under Part XIII (25% withholding on gross rent) or you can elect under Section 216 to file a return and pay tax on net income.
• Sale: when you eventually sell Canadian property, the gain is subject to Canadian capital gains tax. The buyer must withhold 25% of the purchase price unless you obtain a clearance certificate.
• Principal residence: if you sell before departure, the gain is exempt. If you keep it and later sell as a non-resident, the exemption only covers the years it was your principal residence.
• Planning: decide what to do with Canadian property BEFORE departure. The tax consequences are significantly different depending on timing.

Planning timeline

Canadian tax exit planning should start 6-12 months before your planned departure. The deemed disposition calculation alone requires significant preparation.

• 12 months before: engage a Canadian cross-border tax advisor. Begin calculating potential departure tax liability.
• 6-9 months: review all investments for unrealized gains. Consider tax-loss harvesting to offset gains.
• 3-6 months: begin severing residential ties. Cancel provincial health insurance, update driver's license, notify financial institutions.
• Departure month: choose your exact departure date strategically. File your departure tax return for the year.
• After departure: maintain records for CRA. File any required non-resident tax returns for Canadian-source income.
• Key principle: the cost of a good cross-border tax advisor ($3,000-$8,000) is trivial compared to the tax saved through proper planning.