Deemed Disposition - How to post security

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elgoog
Posts: 84
Joined: Thu Sep 19, 2019 9:40 pm

Deemed Disposition - How to post security

Post by elgoog »

Hi everyone,

I moved to the US earlier this year (2021) and I am getting ready for my tax returns next year.

I hold a lot of shares in a US brokerage and I know that I will have to report the respective capital gains in my deemed dispositions.

I am wondering how do I go about depositing security with the CRA owing to these deemed dispositions. The federal tax owing to the deemed disposition is going to be far more than $16,500.

I know that Nelsona mentioned that I can just use the shares as security but how do I go about actually doing this?

Do I need to give CRA a promissory note or something of that sort? Has anyone been through this before?

Thank you.
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Deemed Disposition - How to post security

Post by nelsona »

You must contact CRA to make these arrangements. THEY will tell you.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
elgoog
Posts: 84
Joined: Thu Sep 19, 2019 9:40 pm

Re: Deemed Disposition - How to post security

Post by elgoog »

Yes, I will contact them.

I was just curious if anyone has been through this before and to get an idea of what process looks like.

Any idea if I need to contact by phone, mail or using the CRA My Account? I suppose I should try phone first and then see what they tell me.
elgoog
Posts: 84
Joined: Thu Sep 19, 2019 9:40 pm

Re: Deemed Disposition - How to post security

Post by elgoog »

Just wanted to give an update for anyone else in this situation.

I contacted the CRA on their main line, was transferred between different departments and they finally gave me a phone number to contact.

I contacted the provided phone number and they provided me with the different types of security that they currently accept as well as a person that I can liaise with in order to send the forms and deposit the security. Once I send them the forms, they will then issue me a letter stating that they have received the security. I can then use this letter in my tax return when I elect to defer the tax.

These are the forms that they currently allow (from simplest to the most complicated with some of my comments):
1. Cash (this would be like a normal payment to my CRA account) - the amount to be posted is based upon how much tax you owe and your departure province
2. Letter of credit from a Canadian bank - they also have foreign banks that can liaise with Canadian banks to get this done but I am still awaiting more information on this option
3. Canadian private shares - only if all of your departure tax is due to the given shares
4. Mortgage - seems like the most complicated option and requires an appraisal plus lawyers involved

Furthermore, they mentioned that they used to allow publicly listed shares (Canadian or US based) as security but that they haven't been doing that for a few years now since they don't have a third-party that can handle these transactions anymore.

Hope this helps.

Thank you.
canadiandeserter
Posts: 58
Joined: Sun Mar 01, 2015 10:52 pm

Re: Deemed Disposition - How to post security

Post by canadiandeserter »

Thanks elgoog for sharing the details! Did you talk to somebody in CRA Collections?

I wonder what the point of cash security for a 220(4.5) election is? The deferred tax is payable once the property is sold or the resident returns, so the cash security just becomes tax paid I assume. What is the benefit compared to just paying the tax without deferral?

For the mortgage option, do you know if foreign properties are eligible? I assume the CRA just wants a lien on the property?

Weird the CRA stopped accepting publicly listed shares, considering private shares are acceptable. Seems like that would be the easiest/cheapest option in your situation (besides cash). I wonder if they would accept paper share certificates if they do not have a custodian to hold the security.
elgoog
Posts: 84
Joined: Thu Sep 19, 2019 9:40 pm

Re: Deemed Disposition - How to post security

Post by elgoog »

Hi canadiandeserter,

I believe the department I spoke with was called CRA Migrations or something along those lines.

Yes, you are right in that the cash security just becomes tax paid in that case. The benefit is that if you aren't planning on selling your securities, you don't have to pay all the tax right away. The amount that you don't have to pay right away could be upwards of $20K and that lets you keep more cash in hand and use/invest it.

For the mortgage option, I am not sure about foreign properties. Yes, it looks like CRA just wants a lien on the property. I didn't explore this option since I don't have any property in Canada and the process seems a bit complicated.

And yes, them accepting my publicly listed shares would have been the best option. It's weird that for a well funded (I assume) government organization, they aren't accepting Canadian publicly listed (e.g. TSX) shares either. I did not ask about paper share certificates but the CRA contact told me that for now, they are not taking any publicly listed shares as security.

If you plan on selling your properties in the near term, there probably just isn't much of a benefit in going with this deferral election.
canadiandeserter
Posts: 58
Joined: Sun Mar 01, 2015 10:52 pm

Re: Deemed Disposition - How to post security

Post by canadiandeserter »

Thank you elgoog for all the details! This information does not seem to be publicly available so I really appreciate you sharing it.

Do you remember the phone number of this CRA department? Sounds like it took you a lot of effort to find it.

Are you referring to the deemed security for up to $100,000 of capital gains? Form T1244 suggests that you could elect to defer just the portion of properties with capital gains under $100,000, in which case no security is required. I guess that may not work if your properties cannot be divided into one chunk with $100,000 of capital gains and another chunk with the remainder.

To post cash security, would you just make a regular tax payment from your bank account or credit card, and then ask the CRA to reallocate the payment to the security "account"?

Just seems ridiculous that the CRA would accept difficult-to-value private shares but not public shares where brokerages already provide pledged collateral accounts for. I guess governments are not known for being logical. :)
elgoog
Posts: 84
Joined: Thu Sep 19, 2019 9:40 pm

Re: Deemed Disposition - How to post security

Post by elgoog »

Hi canadiandeserter,

With regards to the phone number, I would suggest contacting the main CRA line: 1 (800) 959-8281. I tried a couple times before they gave me a number to contact. The contact at the Migrations department sent me a bunch of documents to look at, which is how I found out this information. As you mentioned, this information is not publicly available since it probably doesn't happen that often.

Yes, I am referring to deemed security for up to $100,000 in capital gains, which comes up to $16,500 in federal tax (assuming top tax bracket). For me, all my property is capital gains but I think my capital gains are over the $100,000 limit. I will know for sure once I make the calculation in the next week or two.

Yes, to post cash security, you just make a regular tax payment and then the Migrations department verifies it and gives you a letter I suppose.

Yeah, I was also surprised regarding the private shares thing. Having said that, I will mention one thing: it seems like you could probably arrange for custom forms of security (publicly listed shares would fall into this bucket for now). The process to do this seems a bit complicated.

I will check with the Migrations department again within the next month and see what form of security makes the most sense for me.
canadiandeserter
Posts: 58
Joined: Sun Mar 01, 2015 10:52 pm

Re: Deemed Disposition - How to post security

Post by canadiandeserter »

Thanks elgoog for the follow-up!

Looking forward to your updates. Good luck!
canadiandeserter
Posts: 58
Joined: Sun Mar 01, 2015 10:52 pm

Re: Deemed Disposition - How to post security

Post by canadiandeserter »

Hello elgoog!

Just curious if you have posted the security with the CRA. How was your experience with the CRA Migrations department?
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