Arriving in Canada: the Cost Base Step-Up to Fair Market Value on Immigration

Published 3 November 2026 by Steffan Kharmaaiarvi, founder

A client who moves to Canada with a portfolio built elsewhere does not bring their original cost with them. Under section 128.1(1) of the Income Tax Act, most property is treated as sold and bought back at fair market value the moment before residence begins, so the value on arrival becomes the Canadian cost base for every later gain. Gains made before the move are outside Canadian tax; gains after it are not. The catch is evidence: the broker's book cost is the wrong number, and the right one has to be recorded by someone. This note sets out the rule, what to record, the knock-on effects for T1135 and a later departure, an illustrative worked example and what Borderfolio shows. It is decision support, not tax advice.

The rule

Where a taxpayer becomes resident in Canada, s. 128.1(1)(b) deems them to have disposed of each property they own, immediately before arrival, for its fair market value, and s. 128.1(1)(c) deems them to have reacquired it at a cost equal to those proceeds. For an individual, the main exception is taxable Canadian property (s. 128.1(1)(b)(i)), along with inventory and certain property of a business carried on in Canada. Listed shares and ETFs held abroad are the typical property that steps up.

CRA's page for newcomers completing a return puts it plainly: the CRA considers the newcomer to have sold the property and immediately reacquired it at its fair market value on the date they became a resident, and they should keep a record of that value, because it becomes their cost.

What to record

• The arrival date. The date residence began, which the client and their tax preparer settle on facts; everything else hangs on it.
• Units held that day, per account and security, from a statement for that date.
• Fair market value that day, in the security's currency: the closing price × units.
• The exchange rate for that day. An amount in another currency is converted to Canadian dollars at the relevant spot rate for the day it arose (s. 261(2)(b)), by reference to the Bank of Canada's rates.

The value recorded on arrival does not change later: a move in the exchange rate after arrival is part of the Canadian gain or loss.

T1135 in the first years

An individual who first became resident in Canada in a year does not have to file the foreign income verification returns, including T1135, for that year (s. 233.7). For later years, CRA's T1135 questions and answers say the cost amount of foreign property owned on arrival is its fair market value at the time the client first became resident. A portfolio that has grown abroad can therefore cross the CAD 100,000 threshold on its arrival value even though its original cost was lower. See Form T1135 for Canadian advisers.

If the client leaves again: the 60-month rule

On departure, property the client owned when they last became resident (or inherited since) is excluded from the deemed disposition if they were resident in Canada for no more than 60 months in the 120 months before leaving (s. 128.1(4)(b)(iv); CRA's page on dispositions for emigrants). A client on a posting of five years or less who keeps the portfolio they arrived with may leave without departure tax on it. Property bought after arrival is not covered. See departure tax when a client leaves Canada.

A worked example (illustrative)

A client moves from the UK and becomes resident in British Columbia on 1 September 2026. They hold an Irish-domiciled world equity ETF in a general account. Round, illustrative figures and an illustrative rate of 1.85 CAD per GBP on the arrival day:

• Canadian cost: 120,000 × 1.85 = CAD 222,000, not the GBP 80,000 paid.
• Canadian gain on the sale: 240,000 − 222,000 = CAD 18,000. The GBP 40,000 that accrued before arrival is outside Canadian tax.
• T1135: no filing for 2026, the year of arrival. For 2027 the cost amount is CAD 222,000: above CAD 100,000, so a T1135 is due, and below CAD 250,000, so the simplified method applies.
• Using the broker's book cost instead (GBP 80,000, perhaps CAD 148,000 at the arrival rate) would overstate the gain by about CAD 74,000.

The UK side of the move (how the UK treats the departure year) is a separate review; a US citizen's US cost basis does not reset at all.

What Borderfolio shows

• Value on arrival, entered once. For a client resident in Canada (or Australia, which has a similar rule), the Cross-Border tab lists the holdings held on the profile's "resident since" date, with the units from the transactions. The adviser enters each value from the statement for that date, in any currency; it is converted at that day's reference rate and replaces the earlier cost in every cost screen: cost basis, departure tax, T1135 and the cost of a switch in Scenarios. Values are kept per arrival date and applied only for that residence and date.
• Never guessed. Until a value is entered, the cost reads "value on arrival" and totals that depend on it are withheld.
• Two systems where they differ. For a US person living in Canada, the cost-basis finding shows the Canadian cost (stepped up) beside the US cost (original, first in, first out), each purchase at its own date's rate, and flags holdings with a gain in one and a loss in the other.
• The 60-month rule is applied in the departure estimate from the "resident since" date.

Not modelled: taxable Canadian property and business property (outside the accounts on file), assets other than the confirmed accounts, and whether the client's residence start date is right, which is a question of fact for the client and their tax preparer. See the cross-border documentation and relocation.

Frequently asked questions

What is the cost base of investments when someone immigrates to Canada?

Their fair market value on the day the person became resident. Section 128.1(1) deems the property sold and reacquired at that value, so gains before arrival are outside Canadian tax.

Which property does not get the step-up on arrival?

For an individual, mainly taxable Canadian property, such as Canadian real estate, along with inventory and certain property of a business carried on in Canada.

Does a newcomer file Form T1135 in the first year?

No. An individual who first became resident in Canada in a year does not have to file T1135 for that year (s. 233.7). For later years the cost amount of property owned on arrival is its fair market value at arrival.

Which exchange rate applies to the value on arrival?

The spot rate for the day the amount arose, by reference to the Bank of Canada's rates (s. 261(2)(b)), so the rate on the arrival date.