Deemed Disposition and Capital Losses

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worryfreeinvestor
Posts: 144
Joined: Thu Mar 24, 2005 6:17 pm
Location: Seattle, WA

Deemed Disposition and Capital Losses

Post by worryfreeinvestor » Thu Apr 07, 2005 5:50 pm

Before we move to the U.S. (by the end of the month), we expect that we will have to sell those securities which would trigger a capital gain under CRA's deemed disposition rules. Our expected net capital gain is about $42,000. However, we are planning NOT to sell some of those securities on which we have, to date, lost money.

Our reasoning is that we can offset the deemed disposition capital gain with these capital losses when we file our Canadian exit tax return AND also apply these capital losses to any capital gains that we might have in the U.S. brokerage account we will be establishing.

It seems to us that, just as we would be penalized by double capital gain taxes if we didn't sell our winners before we leave Canada, we would be rewarded by double capital loss offsets if we hold on to our losers.

Are we wrong about any of this? If we are, what should we be thinking and doing?

nelsona
Posts: 16551
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Thu Apr 07, 2005 11:00 pm

Actually, your winners, even if you don't sell them, will be allowed to take on the deemed value as their new cost basis with respect to IRS.
This is part of a side agreement from Sept 18 2000, and though not yet in treaty, is in effect.

Besides, even if you don't sell your winners, and such provison did not exist, CRA has always had a provision to 'refund', even years later, any foreign tax you pay on that portion of gains that was deemed when you left.

But now, thewre is no need to sell any winners before leaving Cnada, and in fact, there is an advantage to keeping your losers, as you are allowed to use the original cost, rather than the deemed dispo value, if it is to your advantage.


So, the motto, when leaving Canada to go to US is keep your losers until after you leave, and do what you want with your winners.

Remember too, that this may be moot if you should decide to be taxed FULL-YEAR in US, as then you would have to report all transactions that occur in the year anyways, even if they occured before arrival.
<i>nelsona non grata... and non pro</i>

worryfreeinvestor
Posts: 144
Joined: Thu Mar 24, 2005 6:17 pm
Location: Seattle, WA

Post by worryfreeinvestor » Mon Apr 11, 2005 11:56 am

Thanks, Nelson!

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