Author and professor Gad Saad has revealed that he is preparing to leave Canada, citing a significant financial “exit tax” and growing concerns over antisemitism as key factors in his decision. Saad, a marketing professor at Concordia University and author, shared his distress following a meeting with his accountant, describing the cost of departing the country as “numb[ing].”
Understanding Canada’s Departure Tax
The financial levy Saad is facing is commonly referred to as an “exit tax” or “departure tax.” Experts explain that this is not a separate tax, but rather a consequence of becoming a non-resident of Canada. Under the Income Tax Act, it is considered a “deemed disposition.” This legal fiction means that for tax purposes, an individual is treated as if they have sold their assets at fair market value upon leaving the country.
Kim Moody, founder of Moodys Private Client, clarifies that this policy has been in place for a long time. The intention is to ensure that Canada collects taxes on any capital gains accrued while an individual has benefited from the country’s economic and tax system, especially if they will no longer be a Canadian tax resident in the future.
What Assets Are Subject to the Tax?
Certain assets are typically exempt from this departure tax. These commonly include Canadian real estate held personally and registered savings plans such as RRSPs, RRIFs, and TFSAs. The rationale is that Canada will eventually collect taxes on these assets either through future sales or upon death. This effectively defers the tax rather than eliminating it.
However, a broad range of other assets are subject to the departure tax. This includes investment portfolios, such as stocks, and significantly, cryptocurrencies. Tax lawyer David Rotfleisch notes that many clients in the cryptocurrency sector have encountered substantial departure tax liabilities.
Unrealized Gains and Payment Options
Saad has expressed that he is being taxed on money that has not yet been taxed. Rotfleisch explains this refers to unrealized gains. For instance, if an individual purchased a stock for $1 and it is now worth $10, taxes are not typically due as long as they remain a Canadian resident. Upon becoming a non-resident, the $9 gain is subject to tax as a deemed disposition, even though the asset hasn’t been sold.
For individuals who cannot afford to pay the entire tax bill upfront, options exist. Security can be posted with the Canada Revenue Agency (CRA) to cover the tax liability. This allows individuals to leave the country and settle the tax once the assets are eventually sold. Moody confirms that the CRA will accept adequate security, including private company shares from business owners, provided the business is deemed to be ongoing.
Can the Tax Bill Be Contested?
Both Moody and Rotfleisch indicate that there are limited avenues to avoid or significantly reduce departure tax. It is a tax on capital gains, and while deferrals are possible, the tax itself is generally unavoidable. Transferring assets to a corporation or gifting them to family members can also trigger capital gains taxes, making it difficult to circumvent the requirement.
Regarding the United States, Rotfleisch points out that U.S. citizens are taxed based on their citizenship, not residency. Therefore, the U.S. does not have an equivalent “exit tax” in the same manner as Canada. To cease U.S. tax obligations, one must formally renounce their citizenship, which itself can involve tax implications.
This phenomenon of departure tax is not new, according to Moody, who has been raising awareness about it for years. Gad Saad’s public announcement has brought increased attention to the issue due to his profile and his explicit reasons for leaving, including concerns about rising antisemitism in Canada.
