Move to Portugal under D7, sever Canadian residency, and Section 128.1 deems your foreign property sold at fair market value the day before you leave — capital gains tax owed on the unrealized gain, hitting the terminal Canadian return. On a Portugal place bought for CAD 600,000 in 2020 with CAD 770,000 FMV at 2026 departure, the CAD 100,000 gain produces CAD 17,500-25,000 in immediate departure-tax exposure, with no actual sale to fund it.[Canada Revenue Agency, Section 128.1 Income Tax Act and CRA guidance, 2026-04]
The T1244 election lets you defer payment until actual disposition by posting CRA-acceptable security, but it does not defer the calculation — the gain is locked in at departure. Get this wrong and the cash-flow surprise lands in the wrong year.
When the departure tax applies
The departure tax applies when a Canadian person becomes a non-resident of Canada for Canadian tax purposes. Canadian tax-residency is determined under common-law residence tests plus statutory deemed-residency provisions. The key question is whether the Canadian has severed sufficient residential ties to Canada and established sufficient ties to the new country of residence.[Canada Revenue Agency, Income Tax Folio S5-F1-C1: Determining an Individual's Residence Status, 2026-04]
Common factors that CRA considers in the Canadian-residency analysis:
- Primary residential ties: maintaining a Canadian residence (house, apartment), spouse or dependents in Canada, dependent children in Canada
- Secondary residential ties: Canadian driver's license, Canadian bank accounts, Canadian credit cards, provincial health card, Canadian membership in clubs/organizations, Canadian work
- Treaty-tiebreaker rules in tax treaties between Canada and the destination country (where applicable)
For Canadians relocating to Portugal under D7 residency, Costa Rica under Pensionado, Panama under Pensionado, Mexico under Permanente, or other foreign-residency programs, the analysis depends on the specific factual pattern. Some Canadians remain Canadian-tax-resident even while spending substantial time abroad (where they maintain primary residential ties); others become non-resident relatively quickly.
The factual analysis is complex and buyer-specific — Canadians planning relocation should engage Canadian tax counsel before completing the move to model the departure-tax consequences and to plan accordingly.
What the departure tax taxes
Under Section 128.1, the departing Canadian is deemed to have disposed of "taxable Canadian property" at its fair market value immediately before becoming non-resident, with the proceeds equal to fair market value and acquisition equal to fair market value (creating a step-up in basis that the new country of residence may use for its own basis-tracking purposes).[Canada Revenue Agency, Section 128.1 Income Tax Act and CRA guidance, 2026-04]
The deemed disposition applies to most capital property held by the departing Canadian, including:
- Foreign real estate held in personal name
- Foreign-corporation shares (relevant for property held through Sociedad Anónima, Lda, or other foreign corporate entities)
- Investment portfolios (RRSPs and RRIFs are exceptions — they don't face departure tax but face withholding when distributions are made post-departure)
- Cryptocurrency holdings
- Most other capital property
Key exclusions from departure tax:
- Canadian real estate (the Canadian-real-estate exclusion is structurally significant — Canadian real estate is "taxable Canadian property" and remains subject to Canadian capital gains tax on eventual disposition rather than at departure)
- TFSAs and registered savings plans
- Pension benefits and certain pension rights
- Property of certain types specifically listed in the Income Tax Act
For Canadian foreign-property buyers, the foreign real estate is generally the largest deemed-disposition exposure at departure.
Calculating the deemed-disposition gain
The deemed-disposition gain is calculated as fair market value at departure minus adjusted cost base (ACB) — the same calculation as an actual sale.
For foreign real estate:
- Fair market value at departure: typically established through professional valuation. For property without recent transaction comparables, an independent appraisal is recommended. CRA can challenge valuations that are not supported by professional analysis.
- Adjusted cost base: the original CAD-converted purchase price (purchase price plus closing costs at acquisition, converted to CAD at acquisition-date FX rate) plus any subsequent capital improvements (also CAD-converted at the dates incurred).
For a Canadian who acquired a Portugal apartment for EUR 400,000 in 2020 (CAD ACB of CAD 600,000 at the 1.5 CAD/EUR rate), with EUR 50,000 in capital improvements over the holding period (CAD-converted at the dates incurred), and a fair market value at 2026 departure of EUR 550,000 (CAD 770,000 at the 1.4 CAD/EUR departure-date rate):
- ACB: CAD 600,000 + CAD 70,000 (improvements at average rate) = CAD 670,000
- FMV at departure: CAD 770,000
- Deemed disposition gain: CAD 100,000
- Capital gain inclusion rate: 50% (assuming standard rules) = CAD 50,000 added to taxable income
The Canadian-side capital gains tax on this CAD 50,000 inclusion at the departing Canadian's marginal rate (federal plus provincial — typically 35-50% combined for most Canadians at the year of departure) produces departure tax exposure of CAD 17,500-CAD 25,000.
The election to defer departure tax (T1244)
Section 220(4.5) of the Income Tax Act allows the departing Canadian to elect to defer payment of the departure tax until actual disposition of the property, by providing security to CRA equal to the deferred tax. Form T1244 is the election mechanism.[Canada Revenue Agency, Form T1244 Election to Defer Payment of Tax, 2026-04]
The election:
- Defers payment of the departure tax until actual disposition
- Requires security (typically a letter of credit, bond, or other CRA-acceptable security) equal to the deferred tax amount
- Does NOT defer the calculation — the deemed disposition still occurs and the gain is calculated at departure
- Requires ongoing compliance (annual confirmation, security maintenance)
For Canadian foreign-property buyers planning long holding periods after departure, the T1244 election can be valuable — it spreads the cash-flow impact of the deemed disposition. The security cost (typically 0.5-1.5% of the secured amount annually for letters of credit) needs to be weighed against the time-value-of-money savings from deferral.
The election is complex enough that engaging Canadian tax counsel is essential. The security requirements vary by individual circumstance, and the election interacts with provincial-level residency-tax considerations in some cases.
What happens to ongoing Canadian-tax compliance after departure
Post-departure, the former Canadian-resident:
- No longer files Canadian T1 returns as a resident (though may have non-resident filing obligations for Canadian-source income)
- No longer needs T1135 for foreign property (T1135 applies to Canadian residents only)
- Cannot claim Canadian principal residence exemption for years post-departure (PRE applies to Canadian-resident years only)
- Faces Canadian non-resident withholding tax on Canadian-source income flows (typically 25% on rental income, 25% on interest, 15% on most dividends, with treaty-based reductions)
- Loses access to Canadian credits and benefits (GST credit, child benefits, etc.)
- Cannot contribute to TFSAs as non-resident (existing TFSAs continue to grow tax-free; contributions during non-residency face penalty tax)[Canada Revenue Agency, non-resident tax framework, 2026-04]
The Canadian-side compliance simplifies dramatically post-departure for most former-residents, with non-resident withholding handled at-source on most income flows.
What about returning to Canada later?
If the former-Canadian re-establishes Canadian residency in the future, the Income Tax Act provides for a "return resident" framework that allows the deemed disposition to be "unwound" in certain circumstances, with the return resident treated as having disposed of and reacquired the property at the original ACB on the date of departure.[Canada Revenue Agency, return resident framework under Section 128.1, 2026-04]
The return-resident framework is complex and applies in specific circumstances — typically where the property held at departure is still held at return, and where the return is within a defined period. For Canadians planning potentially-temporary relocations (e.g., 5-10 year retirement abroad with planned eventual return to Canada), the return-resident framework can mitigate departure-tax impact, though planning is essential.
Where buyers commonly stumble
Three recurring failure modes for Canadian foreign-property buyers:
Failing to plan departure tax before relocating. Canadians who relocate to foreign countries without modeling the departure-tax consequences sometimes face substantial unexpected tax liability in the year of departure. Engage Canadian tax counsel before relocation to model the consequences and consider planning options (timing the departure, valuation strategies, T1244 election).
Misapplying residency tests after relocation. The Canadian residency analysis is fact-specific. Canadians who assume they have become non-resident based solely on physical presence abroad may continue to be Canadian tax residents (with continuing T1135 reporting and worldwide income inclusion) if they maintain primary residential ties to Canada. Conversely, Canadians who assume they remain Canadian residents may inadvertently have severed sufficient ties to trigger non-residency without departure-tax planning.
Not maintaining adequate basis records for foreign property. Departure tax (and eventual disposition tax) calculation requires accurate ACB tracking — original purchase price plus closing costs, capital improvements, all in CAD at the relevant FX rates. Foreign-property buyers should maintain a basis ledger from acquisition forward.
For broader Canadian foreign-property framework, see /canadians/buying-property-abroad/. For T1135 reporting during Canadian-resident period, see /canadians/t1135-foreign-property-reporting/. For principal residence exemption, see /canadians/principal-residence-exemption-foreign-property/. For specific country tax-relocation considerations, see /portugal/taxes-canadian-buyers/ for an example country-specific framework.
Disclaimer
This article is for informational purposes only and does not constitute tax advice. Tax laws change frequently and individual circumstances vary. Departure-tax planning is complex and fact-specific. Consult a qualified cross-border tax advisor before making decisions about Canadian residency status changes or foreign-property planning. CrossingHQ does not provide tax preparation, advice, or representation services.
Current as of 2026-12-05. We review tax content quarterly and update on rule changes. To report an error, contact us.