Is it better to depreciate rental property in canada?

shsamardar · Post by **shsamardar** » Fri Apr 25, 2008 1:05 am

Hi

We are living in California

Before moving to USA, we had condo in vancouver and it is already rented.

We are filing section 216 for Canada.

and we are depreciating the condo with IRS

The INCOME is equal to Expenses + USD DEPRECIATION amount
that means we are not having foreign tax credit in IRS for that property.

Because the IRA is demanding depreciation but CCRA makes this optional,
I would like to know your recommendation whether we have to depreciate it in CCRA or not doing it for now. My concern is about the time we want to sell the condo and what tax advantages/disadvantages overall for now and that time we have with Depreciation or not depreciation of the condo.

Thank you for your help

nelsona · Post by **nelsona** » Fri Apr 25, 2008 6:17 am

Remember that even if you can't use the Cdn tax as a credit (which is correct), you can use it as a deduction on Sched A.

More later

shsamardar · Post by **shsamardar** » Fri Apr 25, 2008 11:47 am

you are very correct, I forgot that.

Can you also please have an advice about the rest of my question.

Thank you

nelsona · Post by **nelsona** » Fri Apr 25, 2008 12:43 pm

it comes down to whether you think the 25% Cdn tax you pay now, will be less than the net cdn tax you pay on the same amount of cap gains.

If you are still in the US at the time you sell, then this is pretty obviously no. The difference between Cdn and US tax will not be that much.

If you are living in canada at the time, then you have to consider that teh gains will be added to your other income, and that you will have provincial rates to pay too. Right now, you KNOW that you are paying 25% more than you need to. Will your marginal rate rate be 50% when you sell? I doubt it will be that high.

Thus, unless you can think of soemting I'm missing, I don't see what advantage you would have in NOT depreciating in canada. It would mesh your taxes better, it would allow you to request no withholding on your rent, and would at worst be deferring Cdn tax until later.

nelsona · Post by **nelsona** » Fri Apr 25, 2008 12:45 pm

Accts sometimes advise against using CCA on rental property because of the problem it causes if you should decide later to use the palce as prinipal residence.

You can't have that problem, because you simply can't have that place as a prinipal residence while living outside Canada, and thus will always be taxable on the gains made during your time in US.

shsamardar · Post by **shsamardar** » Sat Apr 26, 2008 11:15 am

Thank you for your reply

I am still trying to digest what you wrote.

You said
[color=red]Accts sometimes advise against using CCA on rental property because of the problem it causes if you should decide later to use the palce as prinipal residence.
[/color]

Can you please explain about the problem a little more.

also for filing section 216 for non residents that also have NR6 in place, what is deadline for filing for 2007?

Regards

shsamardar · Post by **shsamardar** » Sat Apr 26, 2008 11:25 am

I found my answer about due date

Please provide example about

[color=red]"Accts sometimes advise against using CCA on rental property because of the problem it causes if you should decide later to use the palce as prinipal residence.
[/color]

Another question:

In USA , there is CCA table and we HAVE TO DEPRECIATE like table no matter we want it or not.
In CANADA, I know there is a MAXIMUM$ every year and we can CCA less than that ( even 0$ that was the question of this topic). I did the calc last year and did CCA

Now My question is wether the MAXIMUM$ is the SAME for all years or THE MAXIMUM$ changes every year like USA depreciation table.

nelsona · Post by **nelsona** » Sun Apr 27, 2008 7:50 am

The CCA in canada is a fixed percentage, but is based on a reducing amount, ie. by the amount you depreciate.

If you did this last year, why so many questions? Once your've depreciated, there is no point stopping.