Us resident getting married to Canadian resident

JM · Post by JM » Thu Jul 12, 2007 3:27 pm

-Will we have to claim her income earned in Canada before she became a resident of the US on our joint 1040? Or do we just pay CDN income tax on it?

-When we file our NR-6 do we have to put both our names on it and that it is 50/50 ownership?

Thanks again for all your help!!

nelsona · Post by **nelsona** » Fri Jul 13, 2007 5:14 am

If you file a joint 1040, which would give YOU the better tax rate, you must include all her 2007 income. You then use either 2555 to exclude her CDn wages and/or 1116 to get credit for Cdn tax.

i'll get back top you on NR6, better yet, you call CRA and report back.

JM · Post by JM » Tue Aug 07, 2007 3:11 pm

Another question for you. If we have my wife's sister (canadian resident) move in to our condo and not charge her rent only pay utilites, will we have to pay capital gains tax when we sell the condo? This would be her principal residence. Would we have to report this to CRA? Looking at options to reduce capital gains tax, as we expect the property to increase in value over the next year, and also do her a favor. Thanks.

nelsona · Post by **nelsona** » Wed Aug 08, 2007 1:45 pm

having a home that you 'rent' or give to your family is considered to maintain you as a cdn resident.

Its not the end of the world, since the treaty will then allow you to exclude your uS income from Cdn taxation, but it makes things more tricky.

But, from the point of view of taxation on your house, you will be considered to have given up that house as principal residence on the day you leave for uS. By normal rules, you will be able to sell it tax-free (jn Canada) for upto one year after you leave. After that, *some* of the overall gains made on the house will be taxable.

JM · Post by JM » Wed Aug 08, 2007 3:37 pm

Ok so if my soon to be wife comes to the US in October we have one year from then to sell the house and the gains become tax free? And if I understand correctly, after that one year we will have to pay 50% of half the capital gains from then on. So if in 2008 it appreciates $10000 we would have to pay $2500 in capital gains tax? What kinds of records do we need to keep and show CRA to prove how much it is worth?

nelsona · Post by **nelsona** » Wed Aug 08, 2007 9:52 pm

There are 2 methods of calculating the taxable gain, neither of which you have correctly described.

you will pay whichever is the smaller of:
1.on the gains from the day you left Canada, or
2. a percentage of the total gains, from puchase to sale, based on the ammount of time you owned the home, and the tim it as our principal residence (plus one year). In other wors if you owned the home 5 yers, and it was your principal residence 3 years, ou would get 4/5th of your total gain non-taxable :(3years +1)/5 years. That is where the 'one yar after departure' rule comes into play.

So you need a market eval about the time you leave Canada, to accurately determine option 1.

JM · Post by JM » Thu Aug 09, 2007 12:21 pm

So depending on how many years we keep it for we can make our decision at that time, either option 1 or 2. Thanks for the advice on getting a market evaulation. I will contact a real estate agent to get one done. Is there a special form they need to fill out for CRA? Thanks again for all your help.

nelsona · Post by **nelsona** » Thu Aug 09, 2007 3:36 pm

You need to complete all the required forms to report your holdings when you leave canada, as outlined in the "Emigrants" guide from CRA.

You will then need to file 2 or 3 forms just BEFORE you sell the property asa non-resident.

JM · Post by JM » Mon Aug 13, 2007 12:30 pm

We should only need to fill out form T1161 to report our property, and not have to report deemed dispositons of property? It is my wife's personal residence up until the time she leaves for the US, so before then it has no capital gains.

nelsona · Post by **nelsona** » Mon Aug 13, 2007 2:34 pm

Even if your real estate was taxable (say you owned a rental), you would not generally report it as a deemed disposition when leaving canada, you would be allowed to wait until actually disposing of the property, since it is always taxable in canada. you would only report it on T1161.

JM · Post by JM » Wed Aug 15, 2007 1:56 pm

At the time of departure the form states to provide a FMV for the property. If we got a market evauation by a realator is that good enough? Or is CRA pretty firm on reporting this number in another matter?

nelsona · Post by **nelsona** » Wed Aug 15, 2007 2:25 pm

The realtor eval is good enough.

JM · Post by JM » Wed Sep 05, 2007 11:47 am

Hello again,

We have found a renter for our condo in Canada starting October 6th. My wife is leaving for the US a few weeks after that (staying at her mom's). So we dont have to send in a NR-4 and cheque for October rent since she is still a Cdn resident? After see arrives in US we can file a NR-6 to reduce withholdings, but until then and starting in November we need to send in a NR-4 with 25% of gross rent? Then we will file under section 216 in the spring for our rental income? Just want to make sure I have everything in order. Thanks.

nelsona · Post by **nelsona** » Wed Sep 05, 2007 4:49 pm

If you are already non-resident, isn't some of this income yours? If so this would seem to indicte that at least some of the renatl income should be considered NR, subject to withholding.

JM · Post by JM » Thu Sep 06, 2007 10:33 am

Which means I should send in a NR-4 with 25% of half the gross rent amount?