Canadian Departure Tax When You Move to Israel

A Toronto couple planning aliyah had their eye on the Israeli side of the move: the shipping container, the sal klita absorption basket, the ten-year tax holiday everyone told them about. What they had not counted on was a tax bill from the country they were leaving. Their accountant explained it a month before departure. Canada was going to treat their non-registered investment account as if they had sold every holding on the day they left, and tax the gain, whether or not a single share actually changed hands.

This is Canada's departure tax, and it catches a large share of Canadians who make aliyah unprepared. It is not an Israeli tax and Israel cannot waive it. But how you handle it, and how it meshes with Israel's own rules for new immigrants, decides whether you pay once, pay twice, or manage the timing so the two systems fit together.

What Canada's Departure Tax Actually Does

When you cease to be a resident of Canada for tax purposes, the Canada Revenue Agency does not simply wave goodbye. It runs a reckoning.

In Practice: Under subsection 128.1(4) of the Income Tax Act (Canada), emigrating triggers a deemed disposition: the CRA treats you as having sold most of your property at fair market value on your departure date and taxes the accrued capital gain, with one-half of that gain included in income at your marginal rate. On a non-registered portfolio holding CAD 300,000 of accrued gain, that puts roughly CAD 150,000 into income and produces tax in the region of CAD 50,000 to CAD 70,000, reported on Form T1243 with your final Canadian return by 30 April of the year after you leave. The gain is real to the CRA even though you never sold, which is why the couple above faced a bill with no sale proceeds to pay it from.

Your departure date is not the day your flight lands at Ben Gurion. It is the day you sever your residential ties with Canada and your center of life shifts to Israel, which usually tracks closely with the aliyah date but is decided on the facts. Getting that date right matters, because it fixes the values on which the whole deemed disposition is calculated.

What Is Caught and What Escapes

The departure tax does not reach everything you own. The Income Tax Act carves out several categories, and the difference between a caught asset and an excluded one is often the difference between a large bill and none.

Excluded from the deemed disposition:

• Canadian real property, such as a house or condo you keep in Canada
• Registered accounts: RRSPs, RRIFs, RESPs, and TFSAs
• Canadian pension entitlements, including CPP
• Certain Canadian business property tied to a permanent establishment you leave behind

Caught by the deemed disposition:

• Non-registered investment portfolios: publicly traded shares, funds, and bonds held outside a registered plan
• Shares of private companies
• Foreign real estate and many other capital assets held personally

A Canadian who holds most of their wealth inside RRSPs and a Canadian home may face little or no departure tax. One who has built up a large taxable brokerage account is the classic exposed case. The planning question is not abstract: it is which of your assets sit on which side of that line, and whether any of them can be repositioned before you go.

The Forms and the Deferral

The departure tax comes with its own paperwork, filed with the return for your year of emigration.

Form T1243 reports the deemed disposition itself. Form T1161, a list of the properties you owned when you left, is required if the total fair market value of your reportable property exceeds CAD 25,000, and it is due whether or not you owe departure tax. Miss the T1161 and the CRA can impose penalties independent of any tax.

The relief that saves many olim from a cash-flow crisis is the deferral election. Rather than pay tax on gains you have not actually realized, you can elect under subsection 220(4.5) of the Income Tax Act, on Form T1244, to defer the tax until you truly sell the asset. No interest accrues while the deferral runs. Where the federal portion of the departure tax exceeds CAD 16,500, the CRA requires acceptable security before granting the deferral, typically a pledge over the assets themselves. For a couple who want to keep their portfolio intact and let Israel's exemption do its work, this election is often the difference between a manageable move and a forced sale.

One more Canadian obligation runs right up to your departure. While you are still a Canadian resident holding foreign property costing more than CAD 100,000, including assets in Israel, you file Form T1135, the Foreign Income Verification Statement, each year.

Israel's Side: The Ten-Year Exemption

Now the Israeli half, which is far friendlier and is the reason many Canadians can absorb the departure tax without being taxed twice on the same growth.

In Practice: Under Section 14 of the Income Tax Ordinance 1961, a new immigrant (oleh chadash) is exempt from Israeli tax on foreign-source income and capital gains for ten years from the date of aliyah, for assets held before arriving. Sell your Canadian portfolio during those ten years and Israel takes nothing, even on growth that occurs after you land. The exemption is administered by the Israel Tax Authority (Rashut HaMisim), and it is claimed through your residency position rather than by a separate application. For anyone becoming an Israeli resident on or after 1 January 2026, a 2024 amendment removed the parallel reporting exemption, so you must now file an annual return declaring that foreign income and your foreign assets, due by 30 April, even though no Israeli tax falls due on them.

That reporting change is the detail catching recent olim by surprise. The ten-year tax holiday survives. The old freedom from even mentioning your foreign accounts to the Israel Tax Authority does not, for arrivals from 2026 onward. Treating the exemption as permission to stay silent is now a filing failure waiting to happen.

The Double-Tax Trap After Ten Years

The two systems mesh well for a decade. The danger sits at the far edge of that decade.

Israel does not automatically step up the cost base of your foreign assets to their value on your aliyah date. So if you hold a Canadian portfolio past the ten-year exemption and sell in year eleven, Israel taxes the gain measured from your original purchase price, not from the value when you arrived. That can re-tax the same pre-departure growth Canada already caught with its departure tax, and the foreign tax credit machinery does not always line up cleanly across a gap of ten years and two deemed events.

Common Mistake: Assuming the Canadian departure tax and the Israeli ten-year exemption cancel each other out, then holding a foreign portfolio past the exemption and selling while an Israeli resident. Israel taxes the whole gain from the original cost, re-taxing the portion Canada taxed on departure, and the credit for the earlier Canadian tax may be unavailable because the two events fell in different years and different systems. Selling or crystallizing appreciated foreign assets before the ten-year window closes, or before aliyah where it makes sense, sidesteps a double charge that can reach tens of thousands of shekels on a mid-sized portfolio.

There is a mirror-image Israeli rule to keep in view if your plans ever change. Should you leave Israel later as a resident, Israel has its own exit tax under Section 100A, a deemed sale of your assets on the way out. Emigrants tend to think about the country they are entering. The country they are leaving, in both directions, is where the tax usually sits.

RRSPs, Pensions and the Treaty

RRSPs deserve their own thought, because they escape the departure tax but not Israeli planning. As a non-resident of Canada, your RRSP withdrawals face Canadian withholding tax of up to 25 percent, reduced to 15 percent on periodic pension-type payments under the Canada-Israel tax treaty. How Israel treats those withdrawals during your ten-year exemption, and after it, turns on the character of the payment and the timing.

The treaty is what stops the same pension income being fully taxed on both sides, and it sets the reduced withholding rates that make drawing an RRSP from Israel workable. The interaction is detailed enough that it warrants its own treatment in the guide to the Canada-Israel tax treaty for Canadian residents. The short version: coordinate any RRSP drawdown with your Israeli residency timeline rather than drawing on autopilot.

Practical Checklist

• Establish your Canadian departure date deliberately, tied to when your ties sever and your life moves to Israel
• Map which assets are caught by the deemed disposition and which are excluded, before you leave
• Value your caught assets at the departure date and calculate the likely departure tax
• File Form T1243 for the deemed disposition and Form T1161 if your property exceeds CAD 25,000
• Consider the subsection 220(4.5) deferral election on Form T1244 to avoid a forced sale
• Keep filing T1135 while you remain a Canadian resident holding foreign property over CAD 100,000
• Plan to sell or crystallize appreciated foreign assets before Israel's ten-year exemption closes
• If you arrive from 2026 onward, prepare to file an annual Israeli return declaring foreign income and assets even while exempt
• Coordinate RRSP withdrawals with the Canada-Israel treaty rates and your Israeli residency timeline

Speak With an Israeli Attorney

Aliyah from Canada is a two-country tax event, and the mistakes happen in the seam between the CRA's departure tax and Israel's ten-year exemption. An Israeli attorney working alongside your Canadian accountant can time your residency, position your assets before you leave, keep you compliant with Israel's new reporting rules for olim, and make sure the same gain is not taxed twice as the ten-year window closes.

Contact us for a confidential initial consultation about your move from Canada to Israel.