T2062 & Tax on sale of Canadian property
Moderator: Mark T Serbinski CA CPA
Sorry one other small correction. I think I said the tax would initially be identical, I meant to say the taxable income. This also assumes that you used the exemption for the principal residence on the T2062; otherwise they will obviously be different because your taxable income will be lower on the non-resident return as a result of the exemption compared to what was claimed on the T2062.
Thanks for the additional feedback Nelsona. Yes you are right, I should not have complicated matters be mentioning the recapture, but wasn’t sure if he rented the property or not; so thought I would mention it just in case.
Just to comment further on what Nelsona said about Multiple Jurisdictions. Multiple Jurisdictions is only applicable if you have other Canadian source income in Canada in addition to the sale of the property (such as employment income). Otherwise you use a simple T1 General Non-Resident return. In particular you use Schedule 1 at 15% tax on line 55 and 48% surtax directly underneath this line.
Please note that if you are filing by paper you must write in the 48% surtax line yourself on the Schedule 1 form and manually calculate this amount (the normal Schedule 1 form does not have this line on it). If you are using software the 15% tax line will change from line 55 to line 56 and they will add the 48% surtax on line 54 automatically for you (at least this is how my software does it). This will take place as soon as you change your residency status to non-resident on the software.
I submitted a half dozen of these last year just using the normal T1 General Non-Resident return, and know for certain that you don’t need to use multiple jurisdictions unless you have other Canadian source income such as wages that are taxed using provincial rates and not the 48% surtax.
Just to comment further on what Nelsona said about Multiple Jurisdictions. Multiple Jurisdictions is only applicable if you have other Canadian source income in Canada in addition to the sale of the property (such as employment income). Otherwise you use a simple T1 General Non-Resident return. In particular you use Schedule 1 at 15% tax on line 55 and 48% surtax directly underneath this line.
Please note that if you are filing by paper you must write in the 48% surtax line yourself on the Schedule 1 form and manually calculate this amount (the normal Schedule 1 form does not have this line on it). If you are using software the 15% tax line will change from line 55 to line 56 and they will add the 48% surtax on line 54 automatically for you (at least this is how my software does it). This will take place as soon as you change your residency status to non-resident on the software.
I submitted a half dozen of these last year just using the normal T1 General Non-Resident return, and know for certain that you don’t need to use multiple jurisdictions unless you have other Canadian source income such as wages that are taxed using provincial rates and not the 48% surtax.
One more thing navb. Please note that unless 90% or more of your worldwide income was earned in Canada, you will not be able to claim certain credits on the T1 General Non-Resident return; such as the basic personal exemption. So unless your income in the US is very low, you likely won't be able to claim the basic exemption.
Hi
My situation is explained earlier in this thread: i sold my house in Canada last year and paid taxes to CRA this year on the capital gains. Thanks to Nelsona & other in guiding me through the process which made it easy for me to file my 2015 canadian tax returns.
Would appreciate answers to following queries regarding taxes in the US related to the sale of the same property:
1) Since I filed my return and paid taxes to CRA this year for my 2015 capital gains, I will not be able to apply the credit on my US tax return until next year?
2) How do I derive the capital gains for US taxes - I take the cost basis for when I left Canada and subtract that from the sale amount to come up with the capital gains. If so, what exchange rates would I use, for cost basis would it be the average rate for the year I left canada or it would be the rate for the day i left?
Similarly do I take the average for year in which i sold the house i.e. 2015 or it would be the exchange rate for the day when i sold the house?
3) Can I get credit on 2015 US return for paying mortgage insurance & house taxes in canada? If i can, i assume it would be for what I paid in 2015? I haven't been claiming this credit on my past US returns, I assume for past years I would have to adjust my past returns? Again what exchange rate would I use for these calculations?
Thank you in advance!
My situation is explained earlier in this thread: i sold my house in Canada last year and paid taxes to CRA this year on the capital gains. Thanks to Nelsona & other in guiding me through the process which made it easy for me to file my 2015 canadian tax returns.
Would appreciate answers to following queries regarding taxes in the US related to the sale of the same property:
1) Since I filed my return and paid taxes to CRA this year for my 2015 capital gains, I will not be able to apply the credit on my US tax return until next year?
2) How do I derive the capital gains for US taxes - I take the cost basis for when I left Canada and subtract that from the sale amount to come up with the capital gains. If so, what exchange rates would I use, for cost basis would it be the average rate for the year I left canada or it would be the rate for the day i left?
Similarly do I take the average for year in which i sold the house i.e. 2015 or it would be the exchange rate for the day when i sold the house?
3) Can I get credit on 2015 US return for paying mortgage insurance & house taxes in canada? If i can, i assume it would be for what I paid in 2015? I haven't been claiming this credit on my past US returns, I assume for past years I would have to adjust my past returns? Again what exchange rate would I use for these calculations?
Thank you in advance!
1. 1116 is best filed on an ACCRUED tax basis rather than paid tax. If you do the paid basis, you will have no 2016 foreign income to write off against and would have to do a carry-back, which is quite complicated. Always keep your tax/tax credit/income in the same years.
2. For ALL investments bought and sold in a foreign currency, the costs and proceeds MUST be determined based on the exchange rate when the cost/proceeds occured, not an average.
3. You can get credit for mortgage insurance and for property tax, as well as the interest you paid on the mortgage, and you must itemize, of course on schedule A. For past years follow the rules for amending returns. As always, the exchange rate in effect for the time the expense was incurred is used (for recurring expenses an average for the year can be used.)
2. For ALL investments bought and sold in a foreign currency, the costs and proceeds MUST be determined based on the exchange rate when the cost/proceeds occured, not an average.
3. You can get credit for mortgage insurance and for property tax, as well as the interest you paid on the mortgage, and you must itemize, of course on schedule A. For past years follow the rules for amending returns. As always, the exchange rate in effect for the time the expense was incurred is used (for recurring expenses an average for the year can be used.)
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Hi Nelsona
For the Canadian taxes I paid in 2016 for the 2015 capital gain, am I able to somehow use it as itemized deduction to reduce my US taxes?
Due to the weaker CAD at the time of sale of property in comparison to the time of cost basis, my overall gain on the sale of Canadian property is more of less nothing so it would not benefit if I took it as a foreign credit for accrued tax?
Thanks again!
For the Canadian taxes I paid in 2016 for the 2015 capital gain, am I able to somehow use it as itemized deduction to reduce my US taxes?
Due to the weaker CAD at the time of sale of property in comparison to the time of cost basis, my overall gain on the sale of Canadian property is more of less nothing so it would not benefit if I took it as a foreign credit for accrued tax?
Thanks again!
You can use taxes PAID as a a deduction only in the year the payment was made. So your choice is to get credit in 2015 or deduction in 2016.
It is a legitimate tax, so is eleigible for deduction. As you correctly concluded it is not useful as a credit, unless you expect to have future Cdn income.
It is a legitimate tax, so is eleigible for deduction. As you correctly concluded it is not useful as a credit, unless you expect to have future Cdn income.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing