I have a very simple question that I can’t seem to find the answer to. Perhaps I have already found the correct answer, but it seems too good to be true. I departed Canada several years ago and completed all of the proper departure requirements (list of properties, deemed disposition of assets, etc).
On the date of my departure I owned some Microsoft shares which I included on the T1243 form and paid departure tax on. In early 2014 I sold all of the shares at a gain. I’m just wondering if I have to file a Canadian non-resident return to report and pay tax on the gains.
I read the non-resident guide and from what I can tell, it seems like I don’t have to report them at all. It sounds like the only time anyone would ever have to report shares on a public stock exchange is if you own 25% or more of any particular class of shares (which would almost never happen) and even if it did, 50% of the value would have to be derived from real or immovable property (whatever that means), or resource and timber property.
Is my understanding of this correct? So in a fictional example, if I had a gain of $50,000 on departure (which I paid the departure tax on) and the stock increased by $200,000 after I was a non-resident of Canada; and then I sold them, I would not have to pay any tax to Canada on the $200,000? I know this would have to be included on my US return, but it just seems too good to be true that Canada would not want to tax this.
I also had some private shares on departure (which I paid departure tax on). They are not worth anything now, but if they were and I sold them, it sounds like the same 50% rule stated above applies to them as well. Is this correct? How would I even know if 50% of the value was derived from those types of property anyway? Resource and timber property seems easy enough to understand, but what does real or immovable property mean? Does this just mean real estate? If so, it would only apply if the company made money from buying and selling property?
Any insight on this would be greatly appreciated.
Non-Resident of Canada Selling Stock
Moderator: Mark T Serbinski CA CPA
The purpose of deemed disposition tax on departure from canada is to END Cdn taxation of those itiems. So, no, you do not owe anything to CRA on this sale.
The private shares remain taxable in canada, since they are not publicly traded, but I I won't be discussing that here. You would need to sell these for any loss to be available. The probably should not have been included on your T1243 form.
Of course, you do now have to pay tax in US on the microsoft, and this is where it gets tricky.
Under IRS rules, your deemed disposition means nothing. So, technically, you owe tax on the entire gain of your stock, from before and after departure from canada.
Fortunately, the most recent tax treaty fixed this, and you can now claim the deemed disposition price as your new cost basis for figuring your US tax.
There is a pretty complicated procedure to do this, and the IRS reg is shown below.
In the end, it means, in your example, that instead of owing tax on $250,000 gain to IRS, you only owe on the $200,000
http://www.garygauvin.com/WebDocs/IRS/rp-10-19.pdf
The private shares remain taxable in canada, since they are not publicly traded, but I I won't be discussing that here. You would need to sell these for any loss to be available. The probably should not have been included on your T1243 form.
Of course, you do now have to pay tax in US on the microsoft, and this is where it gets tricky.
Under IRS rules, your deemed disposition means nothing. So, technically, you owe tax on the entire gain of your stock, from before and after departure from canada.
Fortunately, the most recent tax treaty fixed this, and you can now claim the deemed disposition price as your new cost basis for figuring your US tax.
There is a pretty complicated procedure to do this, and the IRS reg is shown below.
In the end, it means, in your example, that instead of owing tax on $250,000 gain to IRS, you only owe on the $200,000
http://www.garygauvin.com/WebDocs/IRS/rp-10-19.pdf
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thanks for the quick reply, this was very helpful! I'm glad the treaty was altered to correct this. I'm guessing a lot of people in similar situations were essentially double taxed until they resolved this.
I'm a bit concerned about your comment regarding the private shares. Did I do this incorrectly? Should I go back and amend my departure return? I remember doing extensive research before completing the departure return and everything I found suggested that I should include the private share gain on the departure return. If I remember correctly, the software I used actually gave me the option to transfer the info from the schedule 3 to the T1243. I also just looked at the T1243 form and private shares are not listed as one of the exceptions. Am I overlooking anything?
I also looked at the non-resident guide again and it does mention that private shares are only taxable in Canada if 50% of the value is derived from real property, resource property and timber property. My shares are from an internet company, so I'm guessing none of my revenue is earned from these sources. In other words, if the company was in a gain position and I sold them as a non-resident, it sounds like I wouldn't have to pay any non-resident tax to Canada.
I should clarify that I didn't actually pay departure tax on them, I included them on the T1243 and schedule 3, but they were offset by my lifetime capital gains exemption. Not sure if that changes anything?
Any additional feedback on this would be greatly appreciated.
I'm a bit concerned about your comment regarding the private shares. Did I do this incorrectly? Should I go back and amend my departure return? I remember doing extensive research before completing the departure return and everything I found suggested that I should include the private share gain on the departure return. If I remember correctly, the software I used actually gave me the option to transfer the info from the schedule 3 to the T1243. I also just looked at the T1243 form and private shares are not listed as one of the exceptions. Am I overlooking anything?
I also looked at the non-resident guide again and it does mention that private shares are only taxable in Canada if 50% of the value is derived from real property, resource property and timber property. My shares are from an internet company, so I'm guessing none of my revenue is earned from these sources. In other words, if the company was in a gain position and I sold them as a non-resident, it sounds like I wouldn't have to pay any non-resident tax to Canada.
I should clarify that I didn't actually pay departure tax on them, I included them on the T1243 and schedule 3, but they were offset by my lifetime capital gains exemption. Not sure if that changes anything?
Any additional feedback on this would be greatly appreciated.
Yes, the definition of TCP has changed over the years, and it would look like these are not included in TCP.
So, review the rev proc that I suggested. should only involve the Microsoft shares this year. You do have to submit in essence a copy of your T1243 to meet the requirements of the procedure.
As I said though, you cannot claim any capital loss on the private shares until you actually dispose of them.
So, review the rev proc that I suggested. should only involve the Microsoft shares this year. You do have to submit in essence a copy of your T1243 to meet the requirements of the procedure.
As I said though, you cannot claim any capital loss on the private shares until you actually dispose of them.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing