Episode 206: Why Moving Abroad Could Cost You Six Figures in Exit Taxes

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Are you a Canadian business owner trying to make sense of what it really means to build — or leave — wealth in Canada? Whether you’ve thought about packing up for a lower-tax destination or simply want to understand what happens if you ever did, this episode is for you.

Leaving Canada isn’t as simple as booking a flight south. The moment you cut tax residency ties, the CRA treats your assets as if you sold them all — and the exit bill can be staggering. But even if you plan to stay, understanding these rules can help you avoid the same traps when restructuring, reinvesting, or accessing retained earnings inside Canada.

Through the story of Eric, a successful media entrepreneur weighing a U.S. move, we uncover how careful planning can turn a punishing exit into a strategic transition — and how the same principles can help any Canadian business owner build flexibility, control, and tax efficiency right here at home.

In this episode, you’ll learn:

1. How to minimize departure and dividend taxes with a gradual “slow drain” exit plan instead of a one-year financial hit.

2. The smarter way to pay yourself — why the right mix of salary and dividends can lower both corporate and personal tax as you prepare to leave.

3. Which assets to hold or liquidate — from whole life insurance and TFSAs to real estate — and how to structure your holdings for cross-border peace of mind.

Before you make any big move, hit play now — and discover how to plan your exit (or decide to stay) without letting the tax tail wag your financial future.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Building lasting wealth as a Canadian business owner requires more than hard work—it demands a clear financial vision and a smart blend of corporate wealth planning, tax-efficient investing, and financial diversification. Whether you’re exploring an exit strategy or planning early retirement, understanding tax residency, cross-border tax rules, and corporate structure optimization is essential. From salary vs dividends decisions and RRSP optimization to real estate investing in Canada and capital gains strategies, every move affects your long-term outcome. A thoughtful Canadian wealth plan balances financial independence goals with legacy planning, using proven tools like financial buckets, corporation investment strategies, and estate planning to build a sustainable, modest-lifestyle wealth approach. By aligning personal and corporate tax planning, entrepreneurs can unlock financial freedom in Canada, safeguard assets through wealth management and real estate, and design a life where smart systems—not stress—drive their prosperity.

Transcript:

If you’re a Canadian business owner thinking about moving abroad, maybe to the US or another low tax jurisdiction, this episode is for you.

Because when you rip the Canada Band-Aid and cut ties as a tax resident, the financial consequences can be shocking. Between capital gains on your assets and the cost of extracting retained earnings from your corporation, the exit bill can easily reach six figures or much, much more. Today, I’m gonna walk you through a real world example. It’s the story of Eric, a Canadian entrepreneur who’s seriously exploring a full exit.

We’ll break down what it means to leave Canada from a tax perspective, what mistakes to avoid and how to plan a smoother low pain transition. So here’s Eric’s situation. He runs a profitable media company here in Canada. Last fiscal year, his corporation earned around 700,000 in profit and paid about 116,000 in corporate tax. Like many entrepreneurs, Eric paid himself primarily through dividends.

about 85,000 and took little to no salary. He and his spouse own three rental properties. One’s being sold right now, likely at a small loss. Another should break even and the third is a smaller condo where the family members live.

Inside the corporation, Eric also has a high early cash value participating whole life insurance policy, the kind we often use for long-term tax advantaged corporate asset growth.

Now, Eric and his wife are looking south. She works in an industry with far more opportunity in some of the bigger US cities, as opposed to what she has available to her here in Canada. Eric’s brother already lives in California and they’re talking to immigration lawyers about visas like EB1As or EB1Cs depending on the different qualifications that they have.

In short, they’re at a crossroads many successful Canadians eventually face. Stay and keep building in Canada or make the leap and pay the price to get out of here.

Let’s start with what makes an exit so expensive. When you cease to be a Canadian tax resident, there are two main categories of pain. Number one, the departure tax, also called the deemed disposition. When you cease to be a Canadian tax resident, the CRA treats most of your property as if it’s sold at fair market value the day before you leave. You report any capital gains on your final return.

Some assets are excluded. This can be Canadian real estate, Canadian business property, registered plans like RRSPs, tax-free savings accounts, RESPs, et cetera, and certain life insurance policies. Those stay taxable in Canada when you eventually sell or withdraw from them. Now, number two is getting retained earnings out of your corporation.

If you choose to shut down or wind up your Canadian corporation, any money distributed to you beyond the company’s paid up capital is generally treated as a deemed dividend under section 84.2 of the Income Tax Act. That means that you pay personal dividend tax on top of the corporate tax already paid. If you do both of these things in the same year, exit and close the corporation.

The combined bill can reach anywhere from 35 to 40 % ish of total cash depending on your province and depending on whether the dividends are eligible or not. That’s why a gradual slow drain strategy for someone who’s planning to leave can make a ton of sense. Instead of ripping off that Canada Band-Aid and taking everything in one big hit, you draw funds gradually. Over two to five years while you’re still a resident,

That’s gonna smooth out your tax rates and may help keep you below the top tax brackets. For people staying in Canada permanently, the usual advice is the opposite. Keep it inside the corporation and defer tax as long as possible. But for someone planning an exit like Eric, the logic flips. Get more money out strategically before you’re ready to pick up and go. Now, if you’ve been thinking about

whether to take a salary or dividend, most business owners do, it’s going to change a little bit in terms of what you should be doing if you’re planning to leave, right? So this is gonna be an important decision whether you’re planning to stay in Canada or whether you’re planning to leave. Now for Eric, once his company crossed the $500,000 active business income threshold, the corporate tax he was paying jumped from about 12 % here in Ontario to about 26.5 % on net operating income above 500,000.

At that point, whether you’re planning to stay in Canada or planning an exit, deciding to pay a reasonable salary can actually save tax overall because salary is deductible to the corporation. So that’s gonna remove or reduce the amount of net operating income the corporation would have to pay that higher tax rate on. So for example, if Eric had taken a salary of about 130 to $140,000, it would have lowered his corporate tax

put cash in his personal hands and he would have maintained RSP room for flexibility should he choose not to leave Canada. Now RSPs can be helpful for those staying in Canada, but for someone who’s planning to leave soon like Eric, they can backfire. So withdrawals by non-residents are gonna typically be subject to 25 % withholding tax unless a tax treaty applies. And let’s be honest,

For most people like Eric who wanna leave Canada, they’re actually looking to fully rip the bandaid to free themselves from the tax system. That is the main reason for them wanting to leave in the first place. So for potential immigrants, that’s people leaving Canada, the better short-term tools are going to be things like tax-free savings accounts, which remain tax-free in Canada even if you later become a non-resident. But be careful because, Other jurisdictions may not recognize the withdrawal from the tax-free savings account.

So for potential immigrants, the better short-term tool is gonna be the tax-free savings account, which remains tax-free in Canada, even if you later become a non-resident. And even non-registered accounts can be helpful because you can reposition them before leaving in a more flexible way. Just keep in mind, you can’t contribute to a tax-free savings account after you’ve left, and no new room is going to occur

while you’re abroad. The other nuance is you have to make sure that wherever you’re going that they actually recognize the tax free savings account and that they’re not going to tax you on that income from tax free savings accounts as.

Just note, you can’t contribute to a tax-free savings account after you’ve left, and no new room is going to be growing while you’re abroad. The final note here is you have to be careful because if you withdraw from a tax-free savings account and you’re in another jurisdiction that doesn’t recognize the tax-free savings account, you might get taxed in that jurisdiction based on the income that you’re receiving.

So the big idea here is that the compensation plan that you make for yourself from your business should align with your timeline. If you’re likely leaving in a couple of years, your goal isn’t to defer tax for as long as possible, like we’re often suggesting here on the Canadian Wealth Secrets podcast. It’s to extract efficiently while rates are still manageable. Now, Eric also asked about his corporate owned high early cash value participating whole life insurance policy.

Would that count as a tie that prevents him from being considered a non-resident? It’s a smart question, but when the CRA decides if you’ve left Canada for tax purposes, it’s looking at your primary ties. Things like your home, spouse or dependents are your s-

When the CRA decides if you’ve left Canada for tax purposes, it looks at your primary ties, things like your home, spouse or dependents, and your secondary ties like bank accounts, memberships and credit cards. A single secondary tie like a policy owned through a corporation generally does not make you a resident by itself. That’s because the policy is actually owned by the corporation, not by Eric personally. It’s an asset on the corporate balance sheet.

If that policy were canceled, the cash surrender value would be paid back to the corporation, not directly to Eric. The real tax event happens only when the money comes out of the company, typically as a dividend. That’s why for most people, the best moves to actually keep the policy until it reaches at least the early breakeven point. And it might be the last asset that you actually touch before leaving, before actually ripping the bandaid off.

Why? It’s super easy to cancel when you’re ready to cancel, but you might not even need to.

You can even leave the Canadian corporation alive as a holding company and just pay Canadian tax on any income that the hold co-earns. Now, if you’ve been paying attention to our previous videos and podcasts, you’ve already been limiting or completely eliminating passive income generation inside your holding company since it’s taxed at such a high rate. And worth remembering is that the corporate owned high early cash value participating whole life insurance policy grows like a fixed income

asset without triggering any taxable passive income despite it growing and compounding over time. Under most tax treaties you’ll only be taxed in Canada on Canadian sourced income and your new country will handle the rest. So it’s not necessarily the policy or the corporation that’s the problem it’s how and when you take cash out of it.

If you’re making a move to the United States like Eric’s planning, the planning you’ll need to work on with a cross-border tax lawyer or planner is how the future death benefit of a corporate-owned policy will be handled upon the death of the insured person or persons.

Here in Canada, the massive capital dividend account credit that the corporation receives upon the payout of the tax-free death benefit is a means to flow out a significant amount of what were once retained earnings into the hands of the shareholders. This is spouses, children, or even charities completely tax-free.

Since the IRS in the United States does not recognize the capital dividend account, the tax-free dividend that can be paid out to shareholders via the capital dividend account here in Canada may still be considered ordinary income in the US unless you’ve done some structuring ahead of time. So once again, working with a tax planner who does cross-border planning is going to be very critical.

Now, Eric’s real estate picture is fairly simple. Three rental properties, no big capital gains, and one is even selling at a loss. Since the Canadian real property is excluded from deemed disposition, those assets aren’t part of the departure tax. They’ll simply remain taxable in Canada when they’re eventually sold.

For anyone who does have large real estate gains, spreading those sales over multiple tax years can smooth income and lower tax rates. But Eric’s focus is mainly liquidity, freeing up cash to prepare for the move. And that makes perfect sense for him to try to start selling these properties sooner than later.

Gradual sales also are going to let you adapt if the current Canadian housing market conditions improve after coming off of what were some pretty aggressive highs during the COVID bubble and have recently sort of seen some dipping in different parts of Canada. So what does a smart exit plan look like for someone like Eric? Well, as mentioned earlier,

you’re often doing the opposite of what we’re commonly suggesting on the podcast. So here’s a practical runway, assuming the exit is happening in a few years down the road. First, decide on the salary or dividend amounts that make sense to get more money out of the corporation each year without necessarily pushing yourself into the highest personal tax brackets. You’re going to have to do some calculating here to figure out whether you’re going to be in the highest tax bracket anyway now by smoothing it out or

you take it all in one shot. Number two, continue funding the high early cash value corporate life policy until your cash value at least breaks even with the premiums paid. That’s going to be usually around year four or five.

This will save him from losing money by canceling early and it’ll also give him some time to plan with a cross-border tax lawyer to determine if keeping the holding company and the policy active in Canada will still make sense for their scenario.

Number three is to top up the tax-free savings account with that extra money that you’re using to take out of the corporation each year. That combined room of about $200,000 that each Canadian has if you’ve been here since the beginning, that can grow tax-free is a great spot for the extra personal cash you’ll have in your pocket, at least until the exit, but potentially longer depending on where you’re going to move.

Number four is to sell rental real estate gradually. For most people here, Eric can do it all at once because there’s not a huge gain here, but if you wanna manage liquidity, flexibility, and to spread out any possible tax burden over a number of income tax years, you’re gonna wanna spread those out over multiple years.

Number five is to hold off on any new RRSP contributions until it’s clear you’re remaining a resident here in Canada. Otherwise those withdrawals later can be costly and just cause more pain and hassle than they’re worth. I would still be taking a salary as I’m draining my corporation though so I can create that room should my plan to leave actually not come to fruition. And finally, number six.

Work with that cross-border tax and immigration professional to confirm exactly when residency ends and what filings are needed on both sides of the border.

Think of it like draining a dam. You want to open the gates gradually, not blow down the whole wall and flood your tax bill in any one given year. So lastly, let’s chat about a couple of misconceptions, okay? Myth number one, once I move abroad, Canada can’t tax me. This just simply isn’t true. If you keep Canadian source assets like rental properties or a Canadian corporation, you’re still gonna pay Canadian tax on that income. Tax treaties are simply gonna decide on how both countries

the rules. Myth number two, I’ll just close my company and take the money out. While that’s true, you can definitely do it, but you’re going to have what they call a deemed dividend and that’s going to be taxable personally. That’s why planning the timing and sometimes leaving a hold co-active can be so important to spread out the pain of the tax as you slowly drain it. Myth number three, I’ll sell everything before I go. Again, you can, but don’t rush.

Market timing, liquidity, and emotional energy matter too. Most times spreading it out actually leaves you ahead instead of ripping off that Canada Band-Aid all at once.

And now for a couple gotchas to consider. number one is canceling the corporate life policy too early. Not only would canceling before hitting breakeven on the premium and the cash value leave you with less money than you had before starting it in the first place. Those dollars are actually returned back to the corporation and now you still have to slowly drain those funds out via salary or dividends in order to limit the additional personal tax hit you’ll need to take. Gotcha number two is leaving small

ties behind, like Canadian credit lines, active bank accounts, or provincial health cards, which can cause the CRA to question your non-resident status. So be sure to clean those up if your true intention is to get out. Remember, the goal here isn’t to hide, it’s to exit cleanly and transparently.

So if you’re a Canadian business owner considering a move abroad, treat your exit like a multi-year strategy, not a weekend decision. Plan your departure checks, map your corporate extraction and design a runway that gets you money out efficiently while keeping doors open. Now, before I wrap up, I wanna share my own thoughts around many Canadian wealth secret seekers just like you who may have reached out to us to riff on the idea of just leaving Canada completely because

of the high income taxes they’ve been paying compared to other jurisdictions around the world. And I get it, taxes can feel heavy and sometimes it’s tempting to believe that the only solution is to start fresh somewhere else. But in many cases, the real opportunity isn’t about escaping Canada, it’s about crafting a smarter personal and corporate wealth management plan. When you put the energy into understanding how tax,

structure and investment strategy work together, you often discover that you can achieve similar or even better after-tax results without uprooting your life or your business. The goal isn’t to flee the system, it’s to master it. With the right planning, you can align your corporate cashflow, your personal income strategy and your long-term investments in a way that minimizes tax drag, compounds wealth efficiently,

and still gives you the freedom to choose where and how you live. More often than not, that thoughtful approach leaves you in a stronger position financially and personally, rather than ripping off that Canada band-aid and walking away completely. If this episode has helped clarify some of those moving pieces for you, please do us a favor and share it with another entrepreneur wrestling with some of these same questions.

And if you’d like to start learning how you can master the Canadian tax system so you can build your net worth and leave a legacy that lasts, head on over to our Wealth Health Assessment page over at canadianwealthsecrets.com forward slash pathways.

And of course, if you’re an incorporated business owner, you should be hopping into our business owners masterclass over at CanadianWealthSecrets.com forward slash masterclass. Well, until next time, I’m Kyle Pierce. Thanks for diving into another long list of Canadian wealth secrets. And just as a reminder, this information should not be construed as investment advice. This is for entertainment and educational purposes only.

You should not construe this information as legal tax investment, accounting, financial, or any other advice. And Kyle Pearce is a life licensed and accident and sickness insurance agent and the president of Canadian Wealth Secrets, Incorporated.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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