Leaving Canada: The Departure Tax, RRSPs, and the TFSA Trap
The day you stop being a Canadian tax resident, the CRA treats you as if you sold almost everything you own — at fair market value, with the tax bill due on your final return. Your RRSP and TFSA escape that deemed sale, but each comes with its own set of cross-border rules that can quietly cost more than the departure tax itself. Here's what actually happens to your accounts when you leave.
Meet the engineer this article is about
Priya, 34, a software engineer in Vancouver, accepts an offer in Seattle starting March 2027. She owns a $450,000 non-registered ETF portfolio with a $280,000 cost base, an $85,000 RRSP, a $48,000 TFSA, an $11,000 FHSA opened last year, and a Vancouver condo she plans to rent out, not sell. Her partner is American and she expects to stay in the US for at least 5 years. The day she boards her flight is the day Canadian tax law treats her as having sold almost everything — and the day a separate set of rules kicks in for the four registered accounts she's leaving behind.
First Question: When Does Residency Actually End?
The CRA does not look at your passport, your visa, or how many days you spent abroad. It looks at residential ties. The primary ties are a home available to you in Canada, a spouse or common-law partner in Canada, and dependents in Canada. Secondary ties include personal property (car, furniture), social ties (memberships, family doctor), and economic ties (bank accounts, employment).
You generally cease to be a tax resident on the latest of: the date you leave Canada, the date your spouse and dependents leave, or the date you become a tax resident of another country. Renting out your home (at arm's length, with no right of return) usually breaks the primary tie. Keeping a furnished condo "ready for visits" does not.
The Departure Tax: Section 128.1 in Plain English
On the day you cease residency, subsection 128.1(4) of the Income Tax Act treats you as having sold every property you own at its fair market value, then immediately repurchased it for the same amount. Any unrealized gain becomes a real, reportable capital gain on your final Canadian tax return. The 50% inclusion rate applies and the tax is due by April 30 of the following year.
A handful of categories are excluded property — they survive the deemed sale untouched. Most of the registered accounts Canadians care about are on that list.
What Gets Taxed and What Doesn't
Non-registered investments (stocks, ETFs, mutual funds, crypto)
Deemed sold at FMV the day you leave. Capital gain or loss reported on a final T1.
RRSP / RRIF / LIRA / LIF
Excluded — no deemed disposition. Account keeps growing tax-deferred under Canadian rules.
TFSA
Excluded — no deemed disposition. Growth stays tax-free under Canadian law (your new country may tax it).
FHSA
Excluded from departure tax, but you cannot make a qualifying withdrawal as a non-resident, which strips most of its value.
RESP, RDSP, DPSP, EPSP
Excluded — no deemed disposition. RESP keeps growing; new contributions while non-resident lose CESG.
Canadian real estate
Excluded from the deemed sale, but counts as 'taxable Canadian property' — a real future sale will still be taxed in Canada with 25% withholding under section 116.
Canadian-employee stock options
Excluded from deemed disposition. Tax applies when you actually exercise.
Personal-use property under $10,000 per item (cars, jewellery)
Effectively excluded by the $1,000 floor on cost and proceeds.
Departure-Tax Calculator
Estimates the federal+provincial bill on the unrealized gain in your non-registered portfolio. Registered accounts are excluded.
Unrealized gain
$170,000
Taxable (50% incl.)
$85,000
Departure tax due
$36,550
You can elect on form T1244 to defer payment until the property is actually sold — interest-free. Security may be required if the deferred tax exceeds roughly $16,500 federal (rounded; varies by province).
The TFSA After You Leave
The TFSA is excluded from the departure tax — Priya's $48,000 stays where it is and keeps growing tax-free under Canadian rules. Three things change the moment she becomes a non-resident:
- No new contributions. Any contribution made while non-resident is hit with a 1% per month penalty on the contributed amount until it is withdrawn or until she becomes a resident again. This is a separate tax under section 207.02 — it is not refundable and the amount also doesn't generate room.
- No new contribution room accrues. The annual room only counts for years in which she is a Canadian resident. A 5-year stint abroad means 5 years of room she will never get back.
- Withdrawals are still allowed tax-free under Canadian rules, and the room from a withdrawal is restored — but only on January 1 of the year after she returns to Canadian residency.
The US TFSA trap
The IRS does not recognize a TFSA as a tax-sheltered account. The Canada-US treaty's pension exception does not extend to it. For a US tax resident, the TFSA is treated as a foreign grantor trust, which means the income is reportable each year on the US return and Forms 3520 and 3520-A must be filed. The accountant fees alone often run $1,000–$2,000 a year. For Priya, leaving the $48,000 sitting in the TFSA could cost more in compliance than the account earns. Most advisors recommend collapsing it before becoming a US tax resident.
The RRSP After You Leave
The RRSP is the friendliest account for non-residents. It survives the departure tax, keeps growing tax-deferred, and the Canada-US treaty (and most other Canadian tax treaties) explicitly recognize it as a pension. Priya can leave her $85,000 in the plan and ignore it for years if she wants.
The cost shows up at withdrawal. A non-resident pulling money out of an RRSP or RRIF faces Canadian withholding tax at the source:
Lump-sum withdrawal
25%
Default rate. Most treaties do not reduce it for lump sums.
Periodic pension payment
15%
Treaty rate for most countries (US, UK, France, Germany, Australia and many more). Requires "periodic" structure — typically RRIF minimums.
A "periodic" payment for treaty purposes generally means the annual withdrawal does not exceed the greater of twice the RRIF minimum and 10% of the FMV at the start of the year. Convert the RRSP to a RRIF, take only the minimum, and the rate drops from 25% to 15% for someone in the US.
A non-resident can also file a Canadian return under the section 217 election to be taxed at regular progressive rates instead of flat withholding. This is worth doing if Canadian-source income (RRIF + CPP + OAS) is most of your worldwide income — the personal amount and lower brackets often beat the 25% flat rate. The election is calculated each year and only filed if it produces a refund.
The FHSA: Probably Just Close It
The FHSA is the awkward account in this group. It survives the departure tax, but a non-resident cannot make a qualifying withdrawal — you must be a Canadian resident throughout the period from the withdrawal request to the home purchase. So Priya can keep the account open and watch it grow, but she cannot pull the $11,000 out tax-free for a Seattle home.
Contributions made while non-resident attract the same 1%-per-month overcontribution-style tax as the TFSA. The 15-year participation clock keeps ticking. Most non-residents either close the FHSA (taxable withdrawal as ordinary income) or transfer the balance directly to an RRSP, which is allowed at any time and uses no contribution room.
RESP, CPP, and OAS
RESP
Excluded from departure tax. Existing CESG stays. New contributions while the subscriber or beneficiary is non-resident generally do not earn CESG — the grant rules require the beneficiary to be a Canadian resident. The plan keeps growing on what's already in it.CPP
Contribution years already credited stay. You can claim CPP from anywhere in the world; it is paid in Canadian dollars and is subject to a 25% Canadian withholding, reduced by treaty (typically 0%–15% to most major countries — and CPP is exempt from withholding under the US treaty).OAS
Requires 20 years of Canadian residence after age 18 to be paid abroad. Below 20 years, OAS stops six months after you leave. Above 20 years, it follows you and is subject to the same treaty withholding as CPP.
The Forms Priya Has to File on Her Final Return
Reports the deemed disposition of property — your departure-tax calculation.
Lists every property you owned on the day you left Canada with FMV over $25,000 in total. Late-filing penalty: $25/day, max $2,500.
Election to defer payment of the departure tax until you actually sell. Security may be required above ~$16,500 federal.
Optional — asks CRA to confirm your residency status. Many advisors avoid it because the answer is binding.
Used to claim treaty relief on pension contributions for cross-border workers — different form per country.
Her final return is filed by April 30 of the year following departure. She must enter her departure date on page 1 and prorate the personal amount for the days she was a Canadian resident.
If You Move Back
Subsection 128.1(7) lets a returning resident unwind the original deemed disposition on any property they still own. The election effectively restores the pre-departure cost base — useful if the property dropped in value abroad, painful if it ballooned (because the gain triggered on departure isn't refunded). For non-registered investments that grew while you were away, you keep the higher post-departure cost base, which means less Canadian tax on the eventual real sale.
TFSA contribution room starts accruing again the year you become a resident. RRSP room is unaffected — it's based on Canadian earned income, so a year abroad with no Canadian income simply earns no new room.
The Bottom Line
For Priya, the move costs about $36,500 in departure tax on her ETF portfolio (election on T1244 defers it, interest-free, until she actually sells). The RRSP comes with her — she'll likely convert it to a RRIF in her 60s and accept the 15% treaty rate on minimum withdrawals. The FHSA gets rolled into her RRSP before she leaves. The TFSA is the harder call: keep it for the tax-free Canadian growth and accept the US compliance cost, or empty it before becoming a US tax resident to avoid the 3520 / 3520-A filings. Leaving Canada is a tax event, not just a flight.
Map your RRSP, TFSA, and non-registered balances before the deemed-disposition date