Taxation on sale of primary residence prior to departure

sonaliagrawal · Post by **sonaliagrawal** » Tue Sep 29, 2015 8:49 am

I am emigrating from Canada (Toronto) to live with my kids in California. I live in Canada, am a Canadian passport holder, have been a resident here for over 10 years now. I have owned and lived in my primary residence - house in Toronto - for 12 years now.

I am hoping to get some feedback on below timeline from tax purposes from this forum. I do have a meeting with a tax lawyer later in the week as well.
- Closing of house - February (net gain of over $1M Canadian)
- Immigrant Visa appointment in Montreal - February
- Point of Entry to USA - March

So for tax year 2016, I would not have lived in Canada for over 183 days. My specific question is - does this mean that the sale of my primary residence before my departure could trigger tax on the gains from the sale of my primary residence?

Thank you for your input.

nelsona · Post by **nelsona** » Tue Sep 29, 2015 10:05 am

You will never be taxed in canada or US on the gain made before you leave canada, regardless of when you sell it.

Tax residency ion canada is NOT based on number of days in canada, it is based on tiies. Once you move to US, you will no longer be a Cdn tax resident, as of that specific date (March 2016 in your case), and will file a departure return in spring of 2017.

Even if you only sell after you have left, the regs prevent taxation of the gains made before you left, plus one year. You would have a form or two to file at the time of sale, but no tax will be withheld, and none will be owing later, unless that sale is more than a year after you move, in which case there *might* be some tax on the post-departure gains (minimal). You would want a solid market value appraisla done at the time you left.

For US, the treaty protects you from US txation on gains on your prncipla residence before you became US green card holder. IRS rules would prevent taxation for three years after (assuming you did not rent out your Cdn house during that period).

So you don't have any tax worries whether you sell your house before or months after you leave, in either tax jurisdiction.

sonaliagrawal · Post by **sonaliagrawal** » Tue Sep 29, 2015 10:11 am

Nelsona - this is highly helpful , and vaildates my multiple searches on this forum. Thank you!

What is the place to read this official law? I read the CRA emigrant guide but there is little discussion of property (primary residence) sale gain. If you know of another resource, pls do share.

nelsona · Post by **nelsona** » Tue Sep 29, 2015 10:13 am

I'm sure you will find it. Form T2062 has some explanation.

But focus on the sale of your house and moving. The tax issue is not a big deal.

sonaliagrawal · Post by **sonaliagrawal** » Tue Sep 29, 2015 10:18 am

Thanks nelsona.

I also have investments worth ~$5M. I am planning to gift a chunk of this to my daughters for US estate planning purposes. Market situation aside, is there any difference for me from US/Canada tax perspective to liquidate these funds in 2015 vs 2016 prior/post departure?

nelsona · Post by **nelsona** » Tue Sep 29, 2015 10:29 am

Since all your assets will be considered sold (and therefore taxed) on the date you leave, liquidating before will not cause any extra tax burden.

However, You might want to be judicious in what you actually sell to give to her, sicne you will most likely not want to pay the deemed disposition tax when you leave, rather keeping them as depsits against that tax. Cdn mutual funds can't be transferred to US, while other investments can. I would be divesting the mutual funds before anything else.

Just to clqrify, if you sell any investment for a gain, then you owe CRA tax on your next return, as normal. But if your gain is only as a result of deemed disposition at deperature , you can ask to delay payment until you actually sell the investment in question. Stocks that are transferred to US broker are not considered to have been sold. In fact, if you come back to canada with those investments intact (or if you do not sell them for 10 years after departure), CRA will unwind the deemed diposition.

Also, Do not gift anything after becoming US tax resident (not after 1/1/2016 to be safe) as this can result in US gift tax.

sonaliagrawal · Post by **sonaliagrawal** » Tue Sep 29, 2015 10:31 am

Thank you! This is good info. I have a meeting with tax lawyers later this week, and this is excellent input to help with that meeting. If anything new is learned in that meeting, I will surely share it back here.

nelsona · Post by **nelsona** » Tue Sep 29, 2015 12:15 pm

I doubt that anything new will be learned, for us at any rate. This is pretty standard departure stuff.