Overview
This CRA technical interpretation examines how departure tax rules apply to a taxpayer leaving Canada while holding a U.K. Individual Savings Account (ISA).
Under subsection 128.1(4) of the Income Tax Act, most assets are subject to deemed disposition at Fair Market Value (FMV) when a taxpayer ceases to be a resident of Canada.
The ruling clarifies:
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When an emigrant must recognize capital gains based on FMV
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How the short-term resident exception applies
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Whether ISA income is taxable in Canada
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Whether T1135 Foreign Property reporting applies
Key Issues Considered
- How businesses must report income when paid in Bitcoins
- Whether GST/HST must be charged on Bitcoin transactions
- How capital gains apply to Bitcoin appreciation
- Whether Bitcoin donations receive charitable tax treatment
- How Bitcoin gains/losses are classified (income vs. capital)
1. Background
A taxpayer temporarily worked in Canada, held a U.K. ISA, and later departed Canada. CRA was asked whether:
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The ISA is subject to FMV deemed disposition when leaving Canada
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Gains inside the ISA must be reported in Canada
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A T1135 foreign reporting obligation applies
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Interest inside the ISA is taxable while resident
2. Deemed Disposition at FMV on Departure — s.128.1(4)
Under 128.1(4):
A taxpayer who ceases to be resident in Canada is deemed to have disposed of most property at FMV immediately before departure.
This results in:
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Capital gains or capital losses
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Reported as part of the taxpayer’s final Canadian return
The ISA is not one of the excluded categories under 128.1(4)(b).
Therefore:
The ISA is generally subject to departure tax at FMV.
3. Short-Term Resident Exception — 128.1(4)(b)(iv)
The Act provides relief for individuals who were:
Residents of Canada for 60 months or less in the 10-year period before departure, and
Owned the property before becoming resident
Under this rule:
The taxpayer is not deemed to dispose of pre-residency property for departure tax purposes.
CRA Conclusion
✔ If the ISA was acquired before becoming a Canadian resident,
✔ And taxpayer was a Canadian resident for 60 months or less,
➡ No deemed disposition applies on departure.
If either condition is NOT met,
➡ FMV departure tax applies.
4. Taxation of Income Earned Inside a U.K. ISA
CRA confirms:
Interest earned inside an ISA is fully taxable in Canada while the taxpayer is a resident
(no Canadian tax exemption exists for ISA accounts)
Relevant ITA sections referenced in CRA’s analysis:
12(1)(c) — inclusion of interest in income
90(1) — inclusion of foreign investment income
3(b) — taxable capital gains
5. Foreign Property Reporting — T1135
CRA confirms:
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A U.K. ISA is foreign property for the purposes of Form T1135
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It must be reported if cost exceeds $100,000 CAD
Exception:
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Individuals who are non-residents for part of the year may have reduced reporting obligations
Disclaimer
This page summarizes CRA technical interpretation 2013-0485661E5, which may not represent current CRA policy. This content is for general information only and does not constitute tax, legal, or financial advice.
Redaction Notice
All names, identifying details, contact information, CRA internal references, and confidential taxpayer data have been removed.
