Exit tax dilemma before relocating to Italy from Canada
A Canadian citizen plans to relocate to Italy in December, having liquidated a portfolio with significant capital gains ahead of the move. The individual notified Canadian authorities of their intention to cease tax residency. The issue arises with Canada's departure tax, which taxes capital gains on assets when leaving the country, creating uncertainty about the correct timing and valuation for this tax.
Input Data
- Individual type: Canadian citizen
- Country of departure: Canada
- Country of destination: Italy
- Asset type: Brokerage account
- Event: Sale of assets prior to relocation
Jurisdiction Conflict
Country of registration — Canada requires individuals ceasing residency to pay a departure tax on unrealized capital gains, treating them as sold at fair market value.
Country of destination — The individual plans to establish residency in Italy, where the assets were sold before the physical relocation.
Conflict — The timing of asset sale and change of residency status creates tension, as Canadian authorities may interpret the sale as taxable if the residency change is not clearly documented.
AI Analysis
Scenario A — Canadian Interpretation
- Canada may view the individual as still resident if documentation of residency change is unclear.
- Potential tax liability for capital gains realized before departure.
- Risk: Documentation ambiguity could lead to misinterpretation.
Scenario B — Italian Interpretation
- Italy may not recognize the individual as a resident until physical relocation occurs.
- No immediate tax implications for capital gains realized prior to move.
- Risk: Delay in residency recognition could affect tax obligations.
Scenario C — Dual Tax Claim
- Both Canada and Italy may assert taxing rights over the same capital gains.
- If the Canada–Italy tax treaty tie-breaker or Canada's Form T1243 is not properly applied, double taxation may occur.
- Risk: Failure to document treaty residency status or claim departure tax relief may result in conflicting tax obligations.
Key risk indicators
- Timing of asset sale relative to residency change.
- Clarity of official documentation on residency change.
Output of Richys AI Analysis
- AI assesses exposure based on timing and documentation clarity.
- AI matches facts with potential treaty applications.
- AI highlights the need for expert escalation due to dual interpretation risk.
Expert Boundary
Involvement of a verified EU expert is required for:
- country-specific interpretation of the departure tax
- application of the Canada–Italy tax treaty to concrete facts
- selection of a defensible filing position
- preparation for potential tax authority inquiries
Case Conclusion
Canadian tax authorities observe the timing of asset sale and residency change. Departure tax is triggered by change in tax residency, not physical relocation. Capital gains realized close to the date of exit are scrutinized. Risk arises from unclear documentation and assumptions about timing.
Start case analysisThis case is for illustration purposes only. Real outcomes depend on residence, income structure, documents and timing. For your specific situation, use structured case analysis with AI and verified EU experts.
Ria Solberg
AI assistant – Immigration & Residence
