Canadian Expat Tax in Portugal

Canadian expat tax in Portugal starts with a problem most other nationalities do not have. Canada imposes a deemed disposition — commonly called departure tax — on the day you cease Canadian tax residency. Every asset you own is treated as if it were sold at fair market value. Unrealised capital gains become taxable in your final Canadian return.

This is not a theoretical risk. A Canadian with a $500,000 unrealised gain on a stock portfolio owes CRA tax on that gain the year they emigrate — even though they have not sold anything. The departure tax applies to securities, real estate (excluding your principal residence), stock options, and interests in private corporations.

Planning around departure tax is the single highest-value action a Canadian can take before arriving in Portugal. Unlike US citizens, Canadians are not taxed on worldwide income after they become non-resident. Once you sever residential ties with Canada — by disposing of your Canadian home, moving your spouse and dependants, and cancelling provincial health coverage — CRA generally treats you as non-resident.

From that point, Canada taxes only Canadian-sourced income: rental income from Canadian property, Canadian dividends, RRSP and RRIF withdrawals, CPP and OAS payments, and employment income earned in Canada. Portugal, however, taxes you on worldwide income from the date you become Portuguese tax resident.

The Canada-Portugal tax treaty allocates taxing rights between the two countries and provides mechanisms to avoid double taxation. But the treaty does not eliminate the departure tax. It does not exempt you from CRA reporting on Canadian-sourced income. And it does not automatically align the two countries' treatment of your RRSP, TFSA, or pension income.

Taxbordr coordinates the Portuguese side of this equation. The firm prepares your Portuguese IRS return and issues a Position Memo — a founder-signed written document prepared by Telmo Ramos (Ordem dos Economistas Cédula No. 16379) — that your Canadian tax preparer can rely on for treaty alignment.

The Canada-Portugal tax treaty follows the OECD model with specific bilateral provisions. Each income type is allocated to one or both countries, with credit mechanisms preventing double taxation. Employment income. If you work in Portugal for a Portuguese employer, Portugal taxes the salary.

If you work remotely for a Canadian employer while living in Portugal, the treaty's employment article determines allocation based on where the work is physically performed. Income for work performed in Portugal is Portuguese-sourced. Pensions — CPP and OAS.

Canada Pension Plan (CPP) and Old Age Security (OAS) payments to a Portuguese resident are taxable in both countries under the treaty. Canada withholds a non-resident tax (typically 15% on periodic payments, 25% on lump sums). Portugal taxes the gross amount at progressive rates and grants a credit for the Canadian withholding.

The net effect: you pay the higher of the two countries' rates. For most retirees, Portugal's progressive rate exceeds Canada's 15% withholding, so additional Portuguese tax is due. RRSP and RRIF withdrawals. Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) withdrawals are Canadian-sourced income.

Canada withholds non-resident tax (typically 25% on lump-sum RRSP withdrawals, 15% on periodic RRIF payments). Portugal taxes the gross withdrawal at progressive rates with a credit for Canadian tax withheld. The treaty article covering pensions and annuities governs these payments. TFSA. The Tax-Free Savings Account (TFSA) is not recognised as a tax-exempt vehicle in Portugal.

From the date you become Portuguese tax resident, income and gains within the TFSA are taxable in Portugal. Canada does not tax TFSA income for non-residents. This creates a one-sided tax obligation that surprises many Canadians. Dividends and interest. The treaty caps Canadian withholding at 15% on dividends (10% for substantial shareholdings) and 10% on interest.

Portugal taxes the gross amounts and grants credits for Canadian withholding. Canadian mutual fund distributions follow the dividend article. Capital gains. Gains on Canadian real property are taxable in both countries. Gains on Canadian securities are generally taxable only in Portugal as the country of residence.

The departure tax complicates this — gains deemed realised on departure were already taxed by Canada. Post-departure gains on the same assets are Portuguese-sourced. Tracking the cost base after departure tax is critical to avoid double taxation on the same gain.

Canada's departure tax is a deemed disposition at fair market value on the date you cease residency. The tax applies to most property, with specific exceptions. What is subject to departure tax. Canadian and foreign securities (stocks, ETFs, mutual funds, bonds). Stock options and equity compensation. Interests in private corporations. Foreign real property. Certain trust interests.

What is exempt. Your principal residence (if Canadian). Registered accounts (RRSP, RRIF, TFSA) — the account itself is not deemed disposed, but future withdrawals remain Canadian-sourced. Canadian real property (taxed on actual sale, not on departure). Property used in a Canadian business (if certain conditions are met). Deferral options.

You can elect to defer payment of the departure tax by posting security with CRA (commonly through the CRA deferral election process, including Form T1244 where applicable). Interest accrues on the deferred amount. This option buys time but does not eliminate the liability. Planning strategies. Trigger losses before departure to offset gains.

Crystallise gains on specific assets if the departure year's tax rate is favourable. Consider the timing: a January departure means the deemed disposition falls in a year where your total Canadian income may be lower (since you will only have Canadian income for part of the year).

Review RRSP contribution room — a final RRSP contribution can offset departure tax. The departure tax return (your final Canadian return as a resident) may need to be filed by 30 April of the following year. It requires a T1 return with Schedule T2091 (principal residence designation) and Form T1161 (list of properties at departure).

CRA may also require Form T1243 (deemed disposition of property).

After departure, you file two returns: a Canadian non-resident return (reporting Canadian-sourced income only) and a Portuguese IRS return (reporting worldwide income). The two may need to align. Timeline. The Portuguese filing deadline is 30 June. The Canadian deadline is 30 April (with extension to 15 June for self-employed).

File the Canadian return first if possible — the Canadian tax assessed determines the foreign tax credit you claim in Portugal. Foreign tax credits. Portugal grants a credit for Canadian tax paid on income that is also taxable in Portugal. The credit is limited to the Portuguese tax attributable to that income.

If Canada's rate exceeds Portugal's rate on a specific income stream, the excess credit is lost. NR4 slips. After departure, Canadian payers issue NR4 slips (instead of T4/T5 slips) for pension, investment, and retirement income. These slips show gross income and non-resident tax withheld. Provide them to your Portuguese advisor for accurate Anexo J reporting.

Provincial health coverage. Severing provincial health coverage is one of the key steps in establishing non-residency. Most provinces cancel coverage after an absence of more than 3–6 months. Without this step, CRA may argue you remain resident and tax your worldwide income. Taxbordr prepares the Portuguese filing and delivers the Position Memo.

This document provides your Canadian preparer with the treaty positions applied, the Portuguese tax assessed per income type, and the credits claimed. It ensures the two returns do not contradict each other.

Canadian registered accounts create ongoing complexity for Portuguese residents. RRSP in Portugal. You typically may not contribute to an RRSP after becoming non-resident. Existing RRSPs continue to grow tax-deferred in Canada. Withdrawals are Canadian-sourced income, subject to non-resident withholding (25% lump sum, varying rates for periodic). Portugal taxes the gross withdrawal and credits the Canadian withholding.

Converting an RRSP to a RRIF at age 71 triggers mandatory minimum withdrawals. TFSA in Portugal. The TFSA loses its tax-free status for Portuguese purposes. Income earned inside the TFSA — interest, dividends, capital gains — is taxable in Portugal annually. Canada does not tax TFSA income for non-residents, creating a mismatch.

Consider whether maintaining the TFSA is worth the Portuguese reporting burden. Non-registered accounts. Canadian brokerage accounts remain open for most non-residents, but some brokerages restrict trading. Dividends and interest are subject to Canadian non-resident withholding. Capital gains on securities are generally taxable only in Portugal (post-departure).

Track your adjusted cost base from the departure tax date — this becomes your new cost base for Portuguese purposes. Canadian real property. Rental income from Canadian property is taxable in both countries. File a Canadian Section 216 election to pay tax on net rental income (rather than 25% gross withholding).

Portugal taxes the gross rental income with a credit for Canadian tax. On sale, file a Section 116 clearance certificate request before closing. For cross-border tax services for Canadians, Taxbordr handles the Portuguese side and coordinates with your Canadian CPA on treaty positions.

RRSP/RRIF: treaty and withholding interactions may need to be modeled distribution-by-distribution. TFSA: tax-free in Canada does not automatically mean tax-free in Portugal. Brokerage accounts: gains and income need category-based treaty mapping and Portuguese reporting alignment. Operationally, keep a per-account file containing yearly statements, withholding data, and treaty position notes. This is essential for coordinated CRA-Financas filing.