What happens to my business sale and taxes if I sell and retire abroad?

Moving abroad and selling a business are two separate tax events, and the order they happen in matters. The Income Tax Act deals with a person who stops being a Canadian resident in section 128.1, and with a non-resident who sells certain Canadian property in section 116. This page describes both in general terms. It does not say whether you should sell before or after you leave, and it quotes no rates or amounts.

Leaving Canada can itself be a sale

Under Income Tax Act s.128.1(4)(b), when a taxpayer ceases to be resident in Canada, the taxpayer is deemed to have disposed of each property owned, other than the property that paragraph lists for an individual, for proceeds equal to its fair market value, and s.128.1(4)(c) deems it reacquired at that cost. The rule in s.128.1(4)(a) that ends the taxation year at departure applies where the taxpayer is a corporation or a trust. The Canada Revenue Agency calls this a deemed disposition and says you may have to report a capital gain. It names shares among the property affected.

What the carve-outs do and do not cover

For an individual, s.128.1(4)(b) excludes certain property, subject to its conditions. The list includes real or immovable property situated in Canada, and capital property or inventory of a business carried on through a permanent establishment in Canada, and, under s.128.1(4)(b)(iv), certain property of an individual who was resident in Canada for only part of the period it sets. Shares of a company are not named as an item of their own on that list, though an item such as subparagraph (iv) can still cover them. The CRA says an emigrant whose property is above a total value it states completes Form T1161. Section 128.1(9) sets the filing duty.

When you become a non-resident

The CRA says that when you leave to settle in another country, you usually become a non-resident on the latest of the date you leave, the date your spouse or common-law partner and dependants leave, and the date you become a resident of the country you settle in; if you are returning to a country you lived in before Canada, it says this is usually the date you leave. It says that if you keep residential ties with Canada you are usually considered a factual resident, though a tax treaty may make you a deemed non-resident. Have a cross-border tax adviser confirm your status.

A sale after you have left

If you sell after becoming a non-resident, Income Tax Act s.116 may apply; the CRA’s circular IC72-17R6 says it applies where a vendor is a Canadian resident when contemplating the sale but a non-resident when the property is finally disposed of. For taxable Canadian property other than excluded property and the property s.116(5.2) describes, s.116(1) lets the seller notify the CRA before the disposition, and s.116(3) requires a notice by registered mail within 10 days after it unless an earlier notice meets the conditions that subsection sets. The circular says the purchaser’s country of residence is not relevant to whether section 116 applies. Whether your property is taxable Canadian property is a separate question. This page compares how the two kinds of seller are taxed.