Special situations: non-residents, US citizens, bankruptcy, immigrants and disabled persons 2026

Non-resident and emigrant: departing Canada

When a client ceases to be a Canadian resident for tax purposes, a deemed disposition of all property at fair market value (FMV) occurs on the departure date (s. 128.1 ITA). This means all unrealized capital gains become taxable, even though no actual sale has taken place. The client must file a departure return and Form T1161 (list of property held at the time of departure).

Certain property is excluded from the deemed disposition. Canadian real property (rental properties, land) is excluded because Canada retains the right to tax at the time of actual sale. RRSPs and RRIFs do not trigger a deemed disposition at departure, but future withdrawals are subject to a 25% withholding tax (or a lower rate under the applicable tax treaty). Future RRSP contributions are no longer possible without Canadian earned income.

Canadian life insurance is generally not affected by emigration. The policy remains in force, premiums can continue to be paid, and the death benefit is paid according to the contract terms. However, the advisor should verify whether the insurer's regulations allow the policy to be maintained for a non-resident and whether any restrictions apply to policy modifications.

The client may provide acceptable security to the CRA to defer payment of tax on deemed gains until the actual sale of the property. This is an important option for clients with significant unrealized gains but insufficient liquidity to pay the tax at departure.

US citizen residing in Canada

The United States taxes its citizens on their worldwide income, regardless of their country of residence. A US citizen living in Quebec must file two tax returns each year: a Canadian return (federal and provincial) and a US return (IRS Form 1040). The Canada-US tax treaty prevents double taxation by providing credits for taxes paid in the other country.

The RRSP is recognized by the tax treaty. Contributions reduce Canadian taxable income, and income can grow tax-deferred in the US if the taxpayer makes the election under Article XVIII(7) of the treaty. The TFSA, however, is not recognized by the IRS. All income generated in the TFSA (interest, dividends, capital gains) is taxable in the United States. The TFSA should therefore be avoided by US citizens.

Disclosure obligations are significant. The FBAR (Foreign Bank Account Report, FinCEN 114) must be filed if the aggregate of foreign financial accounts exceeds US$10,000 at any time during the year. FATCA (Foreign Account Tax Compliance Act) requires disclosure of foreign financial assets exceeding certain thresholds (US$200,000 for residents abroad). Penalties for non-compliance are severe: US$10,000 per account per year for FBAR, and similar penalties for FATCA.

The advisor who has a US citizen client should systematically refer them to a tax specialist in cross-border Canada-US taxation. Planning errors can be costly and penalties are heavy.

Bankruptcy and creditor protection

In bankruptcy, some financial assets are protected from creditors and others are not. The RRSP is protected under the Bankruptcy and Insolvency Act, except for contributions made in the 12 months preceding the bankruptcy. Those recent contributions are presumed to have been made to shelter assets from creditors and may be seized by the trustee.

Segregated funds (variable annuity contracts) benefit from additional protection. Under the Civil Code of Quebec (art. 2457 C.c.Q.), insurance benefits are exempt from seizure if the beneficiary belongs to the preferred class: spouse, ascendant (parent), or descendant (child, grandchild) of the insured. This protection applies even outside of bankruptcy, against any creditor. This is a major selling point for segregated funds with clients at risk (professionals, entrepreneurs).

The TFSA is not automatically protected from creditors in bankruptcy. It does not benefit from the same protection as the RRSP. The RESP is not protected either. Non-registered accounts are fully seizable. The principal residence benefits from a limited exemption under provincial legislation.

For clients with high creditor risk (physicians, entrepreneurs, contractors), proactive planning with segregated funds and a preferred class beneficiary designation is an important strategy the advisor can implement well before any financial difficulty arises.

Immigrant and new Canadian resident

The year of arrival in Canada is a partial reporting year. The newcomer reports their worldwide income from the date they become a Canadian resident. Property held abroad is deemed to have been acquired at fair market value on the date of arrival, which establishes the ACB for future dispositions.

TFSA contribution room accumulates only from the year the person becomes a Canadian resident and is 18 or older. There is no retroactive room. A 30-year-old immigrant arriving in 2026 would have $7,000 of TFSA room for 2026 only, not the cumulative total since 2009. For the RRSP, contribution room is based on 18% of Canadian earned income from the previous year. In the first year, there is generally no RRSP room unless Canadian income was earned before the official arrival date.

Immigrants must be informed of the obligation to report foreign property with a total value exceeding $100,000 CAD (Form T1135). This obligation begins in the second fiscal year of residence (the first year is generally exempt). Penalties for non-reporting are $25 per day, minimum $100, maximum $2,500 per year.

Disabled persons: RDSP, DTC and Henson trust

The Registered Disability Savings Plan (RDSP) is a powerful tool for persons eligible for the Disability Tax Credit (DTC). The lifetime contribution limit is $200,000 with no annual limit. The federal government pays the Canada Disability Savings Grant (CDSG) up to $3,500 per year (300% matching) and the Canada Disability Savings Bond (CDSB) up to $1,000 per year based on family income. Grants and bonds stop at age 49.

The 10-year rule is important: withdrawals made within 10 years of the last contribution or grant trigger repayment of grants and bonds received during that period (assistance holdback amount). Contributions are not taxable on withdrawal, but grants and growth are taxable. The RDSP is a very long-term planning tool and should not be used for short-term needs. Reference: s. 146.4 ITA.

The discretionary Henson trust is a trust created for a disabled person where the trustee has absolute discretion over distributions. Because the assets are not the beneficiary's property, the beneficiary can maintain their government benefits (social assistance, GIS, allowances) while benefiting from the family estate. This trust is named after the Henson v. Ontario (1987) decision. The advisor should recommend consulting a lawyer specializing in planning for disabled persons to set it up.

The advisor's role in special situations

In all these special situations, the financial security advisor plays a front-line role in identifying issues and directing the client to the right specialists. The advisor must ask the right questions during the KYC update: "Are you a US citizen?", "Are you planning to leave Canada?", "Do you have assets abroad?". They should refer to a specialist tax advisor for cross-border situations, to a lawyer for trusts, and to a licensed trustee for bankruptcy situations.

The advisor can add direct value by recommending the right products: segregated funds for creditor protection, RDSP for disabled persons, RRSP rather than TFSA for US citizens, and a complete review of life insurance before departure from Canada.

Frequently asked questions