What is Canada's departure tax, and why does aliyah trigger it?
On the day you stop being a tax resident of Canada, the Canada Revenue Agency (CRA) deems you to have sold almost everything you own at fair market value and to have immediately bought it back at the same price2. That fictional sale crystallises every unrealised capital gain you were sitting on, and the gain is taxable on your final Canadian return. For most Canadian olim this "departure tax" is the single biggest tax event of the entire move, and a lifelong Israeli, who never ceases Canadian residency, never faces it. You face it because you are leaving.
Not advice
The rule lives in section 128.1 of Canada's Income Tax Act. The phrasing matters: nothing is actually sold, no money changes hands, but the CRA treats the holding as disposed of at its market value on your departure date and taxes the built-in gain as if you had cashed out1. Almost every new oleh is blindsided that becoming non-resident is itself a taxable act. In the US you would only owe capital-gains tax when you sell; in Canada, the act of leaving is the trigger.
What property gets caught, and what is excluded?
Most of your capital property is caught; a short, important list is excluded. The deemed disposition under section 128.1 sweeps in your non-registered investments and other private capital assets, but the CRA carves out Canadian real estate, Canadian business property carried on through a permanent establishment, and your registered retirement and savings plans2. The split decides how big your departure-tax bill is.
| Asset | Caught by deemed disposition? | What actually happens on departure |
|---|---|---|
| Non-registered brokerage account (stocks, ETFs, mutual-fund units, bonds) | Yes | Deemed sold at market value; the built-in gain is taxed now2 |
| Foreign real estate and foreign shares | Yes | Deemed sold at market value; gain taxed on the departure-year return |
| Private-company shares | Yes (usually) | Deemed sold at fair market value; valuation often needs a professional appraisal |
| Canadian real property (your house, a rental) | No | Excluded; stays Canadian-taxable and is taxed only on the actual future sale2 |
| RRSP / RRIF / RPP (registered retirement plans) | No | Not deemed disposed; taxed only on withdrawal (25% non-resident withholding, treaty may reduce)1 |
| TFSA | No | Stays open and Canada-tax-free; no new contribution room accrues while non-resident2 |
| RESP | No | Not deemed disposed; grant/benefit rules turn on the beneficiary's study plans |
The practical headline: your retirement nest egg and your Canadian house do not generate departure tax, but a regular taxable brokerage account holding appreciated funds or shares does. If most of your wealth is inside an RRSP or a principal residence, your departure tax may be modest. If you have a large non-registered portfolio that has run up over the years, the bill can be substantial.
Which CRA forms do I have to file, and what are the thresholds?
Three forms, all attached to your final (part-year) Canadian return for the year you leave. First, Form T1161, List of Properties by an Emigrant of Canada, is mandatory if the total fair market value of all the property you own when you leave exceeds CAD 25,0003. T1161 is a disclosure list, it does not calculate tax, but it catches almost every oleh, because the CAD 25,000 line counts everything inside and outside Canada, registered plans and personal-use property included.
- Form T1161, List of Properties. Required when worldwide property exceeds CAD 25,000 on the departure date. A late or missing T1161 carries its own penalty, separate from any tax3.
- Form T1243, Deemed Disposition of Property. This is where you actually calculate the deemed capital gain or loss on each caught asset; the totals flow to Schedule 3 of your return and into your taxable income for the departure year4.
- Form T1244, Election to defer payment. Optional. Lets you defer paying the tax until you actually sell the asset (covered below)5.
File the part-year return for the departure year by the normal deadline. The deemed gain is reported in that year regardless of whether you elect to defer the payment; deferral delays the cash, not the reporting.
Can I postpone paying the departure tax until I actually sell?
Yes. The CRA lets you elect on Form T1244, under subsection 220(4.5) of the Income Tax Act, to defer paying the departure tax, without interest, until you genuinely dispose of the property5. This is the single most useful planning tool for an oleh, because it lets you carry the unpaid Canadian tax forward into the years when your Israeli benefits are live, rather than writing a cheque on aliyah day.
Two conditions attach to the election:
- Deadline. The T1244 election must be made by 30 April of the year after you emigrate1. Miss it and the deferral is gone.
- Security. If the federal tax owing on the deemed-disposition income exceeds CAD 16,500 (or CAD 13,777.50 for former residents of Quebec), you must post adequate security with the CRA to cover the deferred amount; you may also owe security for provincial tax5. Below that line, no security is required.
Because the deferral is interest-free, the cost of carrying it is essentially the cost of the posted security (often a pledge of the very asset, a bank letter of credit, or other acceptable collateral). For an oleh planning to sell appreciated holdings during the Israeli 10-year window, the T1244 election can convert an immediate cash bill into a deferred one that you pay only when you have the sale proceeds in hand.
Knowledge Check
A Canadian oleh has CAD 60,000 of unrealised gains in a non-registered ETF account and elects to defer the departure tax on Form T1244. What is the immediate effect?
How does the Israeli side treat the same assets after aliyah?
Israel does not tax you on the Canadian deemed disposition, and on top of that it gives a new oleh a 10-year exemption from Israeli tax on foreign-source income and capital gains6. So the asset that just triggered a Canadian departure-tax gain enters the Israeli system clean: foreign-source gains realised during the first ten years after your aliyah date are exempt from מס הכנסה (Mas Hachnasa) in Israel6.
There is a built-in cost-base alignment. Canada deems you to have reacquired each caught asset at its market value on the departure date2, so your Canadian cost base is effectively stepped up to that value; Israel, for its part, looks at foreign assets from your residency start. The pre-aliyah growth that Canada already taxed via the deemed disposition is not re-taxed by Israel during the exemption, and gains that accrue after aliyah are foreign-source and exempt for ten years. The practical result for many olim: sell appreciated non-registered holdings during the exemption window, pay the (possibly deferred) Canadian tax, and pay zero Israeli tax on the gain.
The 2026 reporting change
What about US-citizen olim who also held a green card or US passport?
A dual Canadian-American oleh is exposed to PFIC rules that a Canada-only oleh never touches. Any pooled fund you held in that non-registered Canadian account, a Canadian mutual fund, a TSX-listed ETF, a segregated fund, is a Passive Foreign Investment Company (PFIC) for US tax purposes, reportable to the IRS on Form 8621 and taxed under the punitive default §1291 regime (gains taxed at the highest rate with an interest charge)7. The Canadian departure tax does not address this at all, it is a parallel US obligation. A US-person oleh planning the deemed-disposition timing should also plan the US PFIC consequences of selling those funds, ideally before the move, because §1291 compounds for every year the PFIC is held.
Canada-only olim (no US citizenship, no green card) can ignore PFIC entirely, it is a US-person rule. This is the cross-border fork: the same Canadian ETF unit is a simple deemed disposition for a Canada-only oleh and a §1291 PFIC headache for a dual US citizen.
How should a Canadian oleh sequence the move to manage the bill?
Sequence three things in order: value, elect, then time the sale. First, document the fair market value of every caught asset on your departure date, that figure sets both your Canadian deemed gain and your stepped-up reacquisition cost2. Second, decide on the T1244 deferral before the 30 April deadline so you do not lose the option5. Third, plan the actual sale of appreciated non-registered holdings to fall inside the Israeli 10-year exemption window, where the gain is exempt from Israeli tax6.
- Get a defensible valuation for private-company shares and any hard-to-price asset, the CRA can challenge a self-assessed market value.
- Consider realising capital losses in Canada before the departure date if they can offset deemed gains on the same return.
- Keep RRSP / RRIF drawdown planning separate, those are not departure-tax events; they are taxed on withdrawal at the 25% non-resident rate, often reduced under the Canada-Israel treaty1.
- File the דוח שנתי (Doch Shenati) in Israel for foreign income even while it is exempt, under the 2026 reporting rule.
None of this is about avoiding the tax, the deemed disposition is mandatory. It is about not paying it twice, not paying it sooner than you must, and not paying Israeli מס שבח (Mas Shevach)-style or income tax on a gain the exemption was designed to shelter.
Frequently Asked Questions
When you cease Canadian residency on aliyah, the CRA's section 128.1 deemed disposition treats you as having sold most capital property at fair market value, so unrealised gains in your non-registered brokerage account, foreign real estate, and private-company shares are taxed on your departure-year return. RRSPs, RRIFs, RPPs, RESPs, TFSAs, and Canadian real estate are excluded. You list everything on Form T1161 if your worldwide property tops CAD 25,000, calculate the gain on Form T1243, and can elect on Form T1244 to defer the tax interest-free until you actually sell, by 30 April of the year after you emigrate. Israel does not tax that gain and adds a 10-year exemption on foreign-source gains, so timing the sale inside that window matters.
It does not, because RRSPs are not subject to the departure tax in the first place, they are excluded from the deemed disposition1. Cashing one out early instead triggers a full Canadian income inclusion (and 25% withholding once you are non-resident) and wastes the tax shelter. For most olim the RRSP is best left intact and drawn down later, not liquidated to dodge a tax it never attracted.
No. Canadian real property is explicitly excluded from the section 128.1 deemed disposition2. Your house keeps its Canadian cost base and is taxed by Canada only when you actually sell it, at which point principal-residence-exemption and non-resident withholding rules apply. The departure tax targets your portable capital, chiefly non-registered investments, not the land you leave behind.
Below the CAD 25,000 line you are not required to file Form T1161, the property-list disclosure3. You may still have a deemed gain to report on Form T1243 if you hold appreciated caught assets, but the disclosure list itself is waived. The threshold counts everything you own worldwide, so it is easy to exceed even with a modest brokerage account plus personal property.
Yes. The Form T1244 deferral postpones payment of the Canadian tax until you actually sell the asset; it does not freeze the asset or stop you from emigrating or transferring funds5. If the federal tax on the deemed gain exceeds CAD 16,500 you must post security, but you remain free to relocate and to bring transferable cash into Israel through your Israeli bank.
Generally no, during the first ten years. New olim receive a 10-year exemption from Israeli tax on foreign-source income and capital gains6, and Israel does not re-tax the pre-aliyah growth that Canada crystallised through the deemed disposition. From 1 January 2026 you must report the foreign income to the Israel Tax Authority, but it remains exempt from Israeli tax inside the ten-year window.
No. The Canadian departure tax is a purely Canadian event and says nothing about your US duties. As a US person you still file worldwide, and any pooled Canadian fund you held is a PFIC reportable on Form 8621 under the §1291 regime7. A dual citizen needs the Canadian deemed disposition and the US PFIC and worldwide-filing rules handled together, not as if Canada's departure tax settles the US side.
Two: report the deemed disposition on your departure-year Canadian return by its normal filing date, and, if you want to defer payment, file the Form T1244 election by 30 April of the year after you emigrate5. The reporting is mandatory either way; the deferral is the time-sensitive option. Missing the T1244 deadline forfeits the interest-free deferral and can force an immediate cash payment of the full departure tax.
