Why This Matters to You as an NRI
Leaving Canada to settle back in India (or anywhere else) triggers a whole set of tax obligations that many people discover too late. Canada treats your departure as if you sold most of your worldwide assets on the day you left. That means capital gains tax can hit you even though you never actually sold anything. At the same time, any Canadian source income you earn after departure faces withholding tax, which the Canada India Double Taxation Avoidance Agreement (DTAA) can reduce significantly.
Whether you hold Canadian stocks, mutual funds, RRSPs, TFSAs, rental property, or receive a Canadian pension, understanding these rules protects your wealth and keeps you compliant on both sides.
Who Counts as an Emigrant from Canada?
You become an emigrant (and therefore a non resident of Canada) when you leave Canada to live in another country and you sever your primary residential ties. The Canada Revenue Agency (CRA) looks at three main primary ties:
- You no longer maintain a home in Canada
- Your spouse or common law partner no longer lives in Canada
- Your dependents no longer live in Canada
If you are uncertain about your status, file Form NR73 (Determination of Residency Status — Leaving Canada) with CRA and get an official opinion before your departure date.
The Departure Tax: Deemed Disposition Explained
On the day you cease to be a Canadian resident, CRA treats you as having sold virtually all your property at fair market value (FMV). This is called deemed disposition, and it triggers capital gains tax on any appreciation that built up while you were a Canadian resident.
What Gets Deemed Disposed
All taxable Canadian property and worldwide property, including:
- Canadian and foreign stocks, ETFs, mutual funds
- Business interests
- Real estate (other than certain Canadian real property that remains taxable to non residents anyway)
- Any other capital property
What Is Generally Exempt
- RRSPs and RRIFs (these are "rights or interests" protected under Article XVIII of the Canada India treaty)
- TFSAs (often exempt from deemed disposition if treaty protected)
- Certain pensions and inventory
- Property that remains taxable Canadian property (like Canadian real estate, which Canada retains the right to tax on actual sale)
How to Calculate and Report
1. Determine the FMV of each asset on your departure date 2. Subtract the adjusted cost base 3. The resulting gain is 50% taxable (the capital gains inclusion rate as per the current rules) 4. Report everything on Schedule 3 (Capital Gains or Losses) of your 2025 return 5. Complete Form T1243 (Deemed Disposition of Property by an Emigrant of Canada)
The $25,000 Threshold for Form T1161
If the total FMV of all properties you own (inside and outside Canada combined) exceeds $25,000, you must also file Form T1161 (List of Properties by an Emigrant of Canada). This form requires you to list every single asset. Missing items can lead to CRA reassessment, penalties of up to 200% of the tax owing, plus interest.
Professional Valuation Matters
Get your assets valued professionally at FMV on your departure date. This is especially important for unlisted shares, business interests, and real estate. A solid valuation protects you if CRA questions your numbers later.
Deferral Election
You can elect to defer payment of the departure tax. File the election with your return and be prepared to provide security (such as a letter of credit) if CRA requests it.
Withholding Tax on Canadian Source Income After Departure
Once you become a non resident, any Canadian source income paid to you faces Part XIII withholding tax at a default rate of 25%. This applies to:
- RRSP withdrawals
- Pension payments
- RRIF payments
- TFSA distributions (if you are no longer a resident)
- Rental income
- Other investment income from Canadian sources
How the Canada India DTAA Reduces Withholding
The Canada India tax treaty (particularly Article XVIII on Pensions) can reduce withholding to 15% or 25% depending on the type of payment. Periodic pension payments generally qualify for the lower 15% rate.
To get the reduced rate, you need to take active steps:
1. File Form NR5 (Application by a Non Resident for Reduction in Non Resident Tax Withholding) with CRA. Once approved, this covers you for up to 5 years before you need to refile. 2. Elect under Section 217 of the Income Tax Act for eligible income like RRSP annuities and pensions. This lets you file a Canadian return and potentially pay less tax than the flat withholding rate.
Without these elections, payers will withhold the full 25%, and you will not get an automatic refund. You must actively claim treaty benefits.
Rental Income: Section 216 Election
If you own Canadian rental property after departure, the default is 25% withholding on gross rent. By filing a Section 216 election, you can instead pay tax on net rental income (after expenses), which is almost always lower.
Key Deadlines for 2025 Departures
| Item | Deadline | |---|---| | 2025 tax return (general) | April 30, 2026 | | 2025 tax return (self employment income) | June 15, 2026 | | Section 217 return | June 30, 2026 | | Balance owing (to avoid interest) | April 30, 2026 | | Interest on unpaid balance starts | May 1, 2026 |
Late filing triggers penalties and interest. If you owe departure tax and miss the deadline, the consequences compound quickly.
Impact on Your Investment Portfolio
This is where things get practical for NRIs who actively invest in markets on both sides.
Canadian Stocks, ETFs, and Mutual Funds
All unrealized gains on Canadian listed securities get taxed on departure. If you built a large portfolio during your years in Canada, the deemed disposition can create a significant tax bill even though you still hold the shares. Consider whether it makes sense to actually sell some positions before departure to control timing, or to use capital losses to offset gains.
RRSPs and TFSAs
RRSPs are not deemed disposed on departure, which is a relief. But withdrawals after you leave face Part XIII withholding. The treaty can reduce this, so file Form NR5 and elect Section 217 before you start drawing down.
TFSAs are a special case. Growth inside a TFSA is generally not taxed by Canada even after departure, but India does not recognize TFSAs as tax exempt vehicles. Once you become a resident of India, the income and gains inside your TFSA may be taxable in India under the Income Tax Act, 1961. You also cannot contribute to a TFSA as a non resident of Canada.
Indian Investments Held While in Canada
If you held Indian stocks, mutual funds, InvITs, REITs, or other Indian assets while you were a Canadian resident, those also get deemed disposed on your departure date. Any gains that accrued during your Canadian residency period are taxable in Canada. After departure, these assets fall purely under Indian tax rules (and the treaty ensures no double taxation through credits).
Repatriation and FEMA Compliance
When you move funds from Canada to India, remember that India's Foreign Exchange Management Act (FEMA) and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act apply. Declare your Canadian assets properly in your Indian tax returns. The treaty prevents double taxation, but only if you claim the right credits and file correctly in both countries.
How the Canada India DTAA Prevents Double Taxation
The treaty works through a system of credits. Here is the general flow:
- Article XIII (Capital Gains): If Canada taxes your deemed disposition gains on departure, India gives you a credit for the Canadian tax paid when you eventually sell the same asset and report the gain in India. The cost base in India effectively resets to the FMV on your departure date.
- Article XVIII (Pensions): Canada can withhold on pensions and RRSP payments, but at treaty rates (typically 15% for periodic pensions). India taxes the same income but gives credit for Canadian withholding.
- Residency tie breaker (Article IV): If both countries claim you as a resident, the treaty has tie breaker rules based on permanent home, centre of vital interests, habitual abode, and nationality.
Practical Checklist for NRIs Leaving Canada in 2025
1. Determine your departure date and enter it on page 1 of your 2025 return under Residence Information 2. Sever primary ties completely: vacate or sell your home, move spouse and dependents 3. File Form NR73 if there is any ambiguity about your residency status 4. Get professional FMV valuations for all assets on your departure date 5. Complete Form T1243 for deemed disposition and report on Schedule 3 6. File Form T1161 if total FMV of all properties exceeds $25,000 7. File Form NR5 for withholding reduction on post departure Canadian income 8. Elect Section 217 for eligible income like pensions and RRSP annuities 9. Elect Section 216 if you keep Canadian rental property 10. Notify CRA of your status change to stop benefit payments (CCB, GST/HST credit, GIS) 11. Report spouse's net world income (all sources inside and outside Canada during the residency period) on your return 12. Address unrepaid HBP or LLP withdrawals from RRSPs, as these trigger mandatory filing 13. Coordinate with your Indian tax advisor on FEMA compliance, DTAA credit claims, and disclosure of foreign assets 14. Use the provincial tax package from your province of residence on departure day 15. Pay any balance owing by April 30, 2026 to avoid interest starting May 1, 2026
Common Mistakes to Avoid
- Not reporting deemed disposition at all. CRA can reassess you years later with penalties up to 200% of the tax owing plus interest.
- Assuming TFSA income stays tax free in India. It does not. India taxes worldwide income of its residents.
- Forgetting to file Form T1161. The $25,000 threshold covers all assets globally, not just Canadian ones.
- Relying on default withholding rates. Without Form NR5 and a Section 217 election, you pay 25% on every Canadian payment instead of the treaty rate.
- Not severing ties properly. If CRA determines you are still a Canadian resident, you owe tax on worldwide income for the entire year.
- Ignoring the Home Buyers' Plan or Lifelong Learning Plan. Unrepaid balances become taxable income in the year of departure.
Source Documents
All information in this article comes from the following CRA publications for the 2025 tax year:
- 2025 Income Tax and Benefit Guide for Non Residents and Deemed Residents of Canada
- Leaving Canada (emigrants) — CRA guidance page
- Dispositions of property for emigrants of Canada — CRA guidance page
- Individuals — Leaving or entering Canada and non residents — CRA hub page