Can I defer departure tax on shares I cannot sell?
That is the situation the election is designed for. A deemed disposition on emigration can create a liability on private company shares or other illiquid holdings you have no intention of selling and often no way of selling, and the cash to settle it has to be found somewhere. The election defers collection of that amount until the property is actually disposed of, in exchange for security acceptable to the CRA. It does not reduce the liability or change the computation. It changes when the amount is collected, which is usually the difference between a considered exit and a forced sale.
Who can elect to defer departure tax on emigration?
An emigrant whose deemed disposition on ceasing Canadian residency creates tax on property they cannot or will not sell. In practice that is most often an interest in a private company, but it covers other illiquid holdings too. Two conditions shape whether the election is worth making. There has to be a real liability arising from the departure computation, which means the computation comes first. And there has to be something the CRA will accept as security for the deferred amount, which is a matter of negotiation rather than a box to tick. Neither is settled by filing the form on its own.
What counts as acceptable security for deferred departure tax?
That is decided with the CRA rather than assumed from a list. The principle is straightforward: the deferred amount has to be secured by something the CRA is willing to look to if the liability is never otherwise settled. What is offered, how it is valued, and what documents create the charge are all negotiated, and an offer that seems obviously adequate to a taxpayer is not always accepted in the form first proposed. We treat the security as the substance of the engagement and the form as the record of it, which means identifying what can realistically be offered before anything is filed.
Does electing to defer mean I never pay the tax?
No. The liability computed on departure stands; what changes is when it is collected. The election holds the amount over until the property is really disposed of, at which point it comes due, and it is secured in the meantime. Two things follow that people miss. The election is an arrangement with the CRA that continues for as long as the property is held, so it has to be maintained rather than filed and forgotten. And a disposition is not the only event that can bring the deferred amount into play, which is why the terms matter at the outset.
What happens to the deferral if I die while abroad?
It is dealt with by the terms of the arrangement rather than by a general rule, and it is one of the questions worth settling when the election is made rather than leaving to an estate to discover. Death and a later disposition are the two events that bring a deferred departure amount back into view, and the security posted is part of what has to be unwound in either case. If an election is already in place and the position is unclear, the arrangement itself and the correspondence behind it are where the answer is found, so those papers belong with the will.
Do I have to defer the tax on all my property?
No, and it is usually a poor idea to try. The election is made in respect of property, so the sensible approach is to look at the departure computation holding by holding and defer where the liability attaches to something illiquid. Liquid holdings with a tax cost you can settle are generally better dealt with in the departure year than wrapped into a security arrangement that has to be maintained for years. That choice also affects what you need to offer as security, because a smaller deferred amount is easier to secure on terms the CRA will accept.
What is Canada's departure tax?
On the day you stop being a resident, you are treated as having sold most of your property at market value and are taxed on the resulting gain, even though nothing was sold. Several categories are excluded, including Canadian real property, registered plans and certain pension interests. Payment of the tax on the deemed disposition can be deferred by election with security, and property above a value threshold is listed on a departure schedule. See departure tax on leaving Canada.
Do I owe state income tax if I live abroad?
Possibly, and it is the part Americans abroad most often miss. States are not parties to tax treaties, several do not follow the federal foreign earned income exclusion, and liability generally follows domicile rather than physical presence. A driver's licence, a voter registration, a home kept available and a mailing address are the facts a state weighs. Some states have no income tax at all, which is why the last state you were domiciled in matters so much. See state residency and domicile.
