One of the main considerations for a person leaving Canada is the deemed disposition tax or departure tax. As of the date of departure, the CRA considers you to have sold your assets (deemed to have disposed of all assets). The deemed disposition tax is an attempt by the CRA to tax the appreciated value of your capital property that grew in value during your residency.
Under the departure tax, all of your capital assets are deemed sold at a fair market value (“FMV”) which is determined immediately before ceasing residency and on which capital gains tax is payable except for certain assets (like most life insurance policies, RRSPs and RRIFs) and Taxable Canadian Property (TCP). TCP includes real or immovable property situated in Canada, property used or held by the taxpayer in a business carried on in Canada and a share of the capital stock of a corporation resident in Canada that is not listed on a prescribed stock exchange.
Simply stated, gains on marketable securities are generally deemed to be disposed of and consequently taxed in your year of departure.
Being deemed to dispose property will result in an immediate tax liability on the resulting income or gains. One either pays the resulting tax or elects to defer the payment of the tax until actual disposition by depositing security with the government. You will not have to post security for the first $100,000 of deemed disposition tax, and the tax will only be due when the assets are sold.
What happens when the property owned declines in value after emigration? For certain property, like TCP (most notably, Canadian private company shares or most real estate), individuals may be able to apply the actual losses realized on the sale against the deemed gain on emigration.
Also, if an individual returns to Canada. within five years of departure, he or she can generally unwind the deemed disposition on departure for property that is still owned by making special elections.
If you are an active or retired partner of a professional partnership and you are leaving Canada, the CRA will continue to tax any income allocated to you from the partnership. There are many other implications to leaving as a partner (retired or active) of a professional partnership and professional advice should be obtained.
Many steps can be taken to reduce and sometimes eliminate departure taxes. Proper planning before you leave is critical for wealth preservation.
One of the easiest ways to reduce departure taxes is by using the capital gains exemption. That is, in 2016, every individual is entitled to receive an $824,176 capital gains exemption on gains from disposing qualified small business shares or farm property. This exemption amount is indexed to inflation. As a non-resident, you cannot use the capital gains exemption. To the extent that you have not used the capital gains exemption, you should consider taking steps to “crystallize” your gains before you emigrate.
For example, if at the time of your departure, you have shares of a qualified small business corporation with a FMV of $750,000 and a nominal adjusted cost base, you could be subject to $174,000 of taxes when you leave Canada (taxes will vary depending on the province in which you reside). By using the capital gains exemption, you will not be subject to Canadian taxes upon departure, and Canadian taxes will only apply to the increase from the FMV at time of departure to the value when you eventually dispose of the shares.