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QUESTION:
I have not lived in Canada for 6 years and have worked and lived internationally for that time. When I left Canada in 2002 I received a letter from Revenue Canada stating that I was a "deemed non-resident". I owned a house which I still own and rent out to a third party. I do all of my renting through an agency as well. When I return to Canada I plan to move back into the same house. Is there any tax on appreciation of the property during my absense. I am currently paying non resident income tax on rental revenues and I file an income tax return each year.
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david ingram replies:
The minute you move in, you have created a deemed disposition and owe
tax on the increased value on the Canadian tax return for that year.
The amount would be calculated on schedule 3 and the result put on line
127 of the return.
If you have claimed CCA (depreciation or capital cost allowance) you
must pay recapture tax on that amount on form T776. the recapture would
be included in the final rental statement and show up on line 126.
That is the answer if you claimed CCA.
If you did NOT claim CCA, there is no recapture and you can defer
paying tax on the capital gain by filing an exemption under Section
45(3) of the tax act. This must be in writing and you would put the
same amount you had on line 127 on line 256 and subtract it. The CRA
keeps track of this amount and when you do sell teh house in the
future, you will owe the tax at that time.
This situation does not exist in the USA.
These older questions will help and of course, you know where we are at
the time.
Hi David,
Just to refesh your memory, I'm a Canadian teacher living/working in
xxxxxxxxxxxx, who spent an afternoon with you at your house last
summer.
I own 2 condos in Vancouver. Haven't lived in Canada nor paid any tax
there for 15 years. Bought my condos 3-4 years ago.
They are worth a lot more now than then. What if I moved back to
Vancouver & lived in one of my condos? Would I avoid the Capital
Gains tax on that condo?
For how long do I need to actually occupy a place in order to fulfill
residency rules & not pay the Capital Gains?
Please advise. Thanks.
--------------------------------
david ingram replies:
The second you move in, you would owe tax on the increased value
because of the legislated deemed disposal. these older questions will
give you the idea.
Dear
David,
I
am a Canadian citizen. I was a factual resident in Finland for 10 years and have returned
to Canada
- 2007. The house that I own in Canada has been rented the
entire time when owning it, from 1990 until now. I have never lived in
this house.
I
spoke to a CCRA employee about capital gains tax when selling a house
when living in Canada
or living in Finland.
She happened to mention that there might have been an amendment in the
Canadian 2007 Federal Budget. She read somewhere that when the capital
gain is less than $350,000 CAD, there would be no tax. This would even
pertain to me when never living in the house.
I
contacted the Department of Finance 3 times to find out the true
answer. No answer yet. I’ve checked their website also. I’m not anxious
about moving into this house and get stuck in it for 2 years. Culture
shock has taken place and it will also remain. This is a fact. Some day
in the near future, I wish to return to Finland and live there.
Furthermore,
I am seriously considering getting a Finnish citizenship. Deadline is
May 2008. Very much easier and cheaper to do this in Canada than in Finland.
But, I don’t know if both countries can tax me, when having a dual
citizenship during retirement.
What
should/can I do before retiring? Sell the house in Canada or when living in Finland,
or …? I don’t even know anything about the amendment idea. If there was
an amendment, I would simply continue to rent the house and not have to
live in it. The house of course would be a so-called ‘mattress’ to fall
back on when moving back to Finland and then have to return to Canada
for some unknown reason.
This
scenario no doubt looks like a ‘cobweb’. What are your thoughts about
this?
Br,
---------------------------------------------------------
david ingram replies:
There is no such thing as a $350,000 capital gains exemption on a house
and never has been.
If you have never lived in the house and sell it, it is subject to
capital gains tax in Canada. If you were to move into it, IT WOULD BE
A DEEMED DISPOSAL AND is is subject to capital gains tax the day you
move in although if you never claimed CCA (capital cost allowance or
depreciation) when you move in you can defer the capital gains tax
until actual sale by filing an election uder section 45(3) OF THE
INCOME TAX ACT.
.I am going to ignore the rest of the question. If these things are a
problem, you need to do a consultation with me or someone like me.
There ae too many specific "what ifs" that will not or never apply to
my general audience to deal with in this free forum.
I hope that you have been filing your rental returns under Section
216(4) while out of the country. That would involve forms 1159 and
T776.
This older question might help a bit.
----------------------
My question is: Canadian-specific
QUESTION: Hi David,
I am a Canadian citizen. However, from March 2000 to Nov 2004, my
family and I became non residents while I worked overseas. During the
period that we were overseas we rented our home in a long term lease
agreement. When we returned to reside in Canada we purchased another
home to live in and we have continued to rent our original house. Could
you please explain how capital gains will be handled? Do we need to
file anything forms with CRA prior to selling the rental house? Also,
how would capital gains be handled if we sell our current personal
residence and move back into the rental house?
Best regards,
________________________________________________________________
david ingram replies:
The first house has incurred capital gains tax from the moment you left
the country. Although it is possible to rent a house out for 4 years
and claim it capital gains tax free by filing an election under section
45(2), this does NOT apply to non-residents. We have had a couple of
cases lately where the capital gains tax on the house is more than the
tax saved bt becoming a non-resident for three or four years because
the houses went up so much in value.
I am assuming here that the second house you are living in has
increased in value more than the rental since you returned and it
should be your principal residence for that time because it would have
been possible to declare the rental capital gains tax free after your
return by filing the election.
Deemed Disposition!
Moving in to a rental house 'triggers' the capital gains right now
although it does not have to be paid right now. The capital gains is
calculated on schedule 3 an dthe amount put on line 127 of the T1
General Canadian Tax return. You then make an election to defer
payimng the tax until actual sale under section 45(3) and deduct the
line 127 amount on line 256.
This older question will likely help you understand it.
QUESTION:
We have moved out of country for job reasons and now look to return to
Canada. Before leaving we tried to sell our home and were unable.
For the
last 10 years we have been renting it. We plan to move back into and
then
sell it. What must we do in order to avoid paying capital gains tax.
Dan
PS We did not know that we could have declared it our principal
residence
as we moved for job reasons and thus, did not do that!
====================================================================
david ingram replies:
When you moved out of Canada, you should have done a departing Canada
return and filled in either a T1161 or the former form (number escapes
me at the moment) to declare assets left behind.
At any rate, if you became a non-resident of Canada from your job move,
there is no exemption from capital gains tax on the increased value of
the house unless you were a deemed or factual resident of Canada while
you were gone. A deemed or factual resident status can apply to people
who are working on CIDA projects, are members of the armed forces, are
members of a Canadian Diplomatic mission, working for the United
Nations and a couple of other esoteric items covered by Regulation
3400.
Your Belgian email address makes most of these possibilities unlikely.
In addition, you would have had to report your earned income to Canada
every year and I presume that you did not do that but did file a
Section 216(4) rental return to report the rent received.
A further complication is that if you returned to Canada and bought
another house which you moved into, there would not be an immediate tax
bill but if you move into the rental house, it is deemed to have been
sold and you (and your spouse if joint) owe tax on the increased value.
Fortunately, under section 45(3) of the Canadian Income tax act, you
can notify the CRA (Revenue Canada when you left 10 years ago) that: I
hereby elect under section 45(3) of the Income Tax Act to defer the
payment of tax on the residence at XXX your street, until the actual
sale. Attach a proforma Schedule 3 to calculate the profit and then
pay it when you
actually sell the house.
In other words, if your intention was to move in for a short time to
try and make it tax free, you are just doubling your moving expenses
and increasing your accounting and legal fees.
If the idea is to move into a new house on your return, you are better
off to sell the one you have first and buy the new one
before you come back so that you have the most capital freed up to buy
the next house and move directly.
- Incidentally - If you decided to keep the old one as a rental and
borrow money against it to use to purchase the new one, the interest on
the borrowed money is NOT deductible against the rental income even
though the mortgage is registered against the rental house because the
money was USED
to buy the personal residence you are about to occupy.
You can learn more about this by reading CRA Bulletin IT-533 at:
http://www.cra-arc.gc.ca/E/pub/tp/it533/it533-e.pdf
You can find out more about interest as a deduction by reading my
November 2001 newsletter by going to www.centa.com,
clicking on newsletters in the top left box, click on 2001 and click on
November.
-------------------
Answers to this and other similar questions can be obtained free on
Air every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a
permanent guest on Fred Snyder of Dundee Wealth Managers' LIVE talk
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Those outside of the Lower Mainland will be able to listen on the
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Interest deductible.
-------------------------------------------------
On February 11, 2008, David
Ingram wrote:
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However, I regularly search for the words"PAYING
CUSTOMER" and always answer them first if they did not get spammed out.
For the last two weeks, I have just found out that my own email notes
to myself have been spammed out and as an example, as I wrote this on
Dec 25, 2007 since June 16th, my 'spammed out' box has
47,941 unread messages, my deleted box has 16645 I have actually looked
at and deleted and I have actually answered 1234 email questions for
clients and strangers without sending a bill. I have also put aside
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Therefore, if an email is not answered in 24 to
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You can try and resend it but if important AND YOU TRULY WANT OR NEED
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Gillian Bryan generally accepts appointment requests for me between
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Disclaimer:
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This is not intended to be definitive
but in general I am quoting $900 to $3,000 for a dual country tax
return.
$900 would be one T4 slip one W2 slip
one or two interest slips and you lived in one country only (but were
filing both countries) - no self employment or rentals or capital gains
- you did not move into or out of the country in this year.
$1,200 would be the same with one
rental
$1,300 would be the same with one
business no rental
$1,300 would be the minimum with a
move in or out of the country. These are complicated because of the
back and forth foreign tax credits. - The IRS says a foreign tax credit
takes 1 hour and 53 minutes.
$1,600 would be the minimum with a
rental or two in the country you do not live in or a rental and a
business and foreign tax credits no move in or out
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and
you moved in and out of the country.
This is just a guideline for US /
Canadian returns
We will still prepare Canadian only
(lives in Canada, no US connection period) with two or three slips and
no capital gains, etc. for $200.00 up.
With a Rental for $400, two or three
rentals for $550 to $700 (i.e. $150 per rental) First year Rental -
plus $250.
A Business for $400 - Rental and
business likely $550 to $700
And an American only (lives in the US
with no Canadian income or filing period) with about the same things in
the same range with a little bit more if there is a state return.
Moving in or out of the country or
part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the
first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to
$100.00 each.
18 RRSPs would be $900.00 - (maybe
amalgamate a couple)
Capital gains *sales) are likely
$50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the
Canadian return as a guide for seven years at a time will be from $150
to
$600.00 per year depending upon numbers of bank accounts, RRSP's,
existence of rental houses, self employment, etc. Note that these
returns tend to be informational rather than taxable. In fact, if
there are children involved, we usually get refunds of $1,000 per child
per year for 3 years. We have done several catch-ups where the client
has recieved as much as $6,000 back for an $1,800 bill and one recently
with 6 children is resulting in over $12,000 refund.
This is a
guideline not etched in stone. If you do
your own TDF-90 forms, it is to your advantage. However, if we put them
in the first year, the computer carries them forward beautifully.
This from "ask an income trusts tax service and
immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax
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