Principal residence exemption when moving in and out of Canada

[szbjsh]

I departed Canada on Jan 1st, 2021 and became a US resident on the same day. I am a little confused about the tax implications of my property in Canada. Your advise is greatly appreciated!

Background: I acquired the property back in October 2018 and it has been my principal residence from then to March 2020. I started renting it out from April 1, 2020 and I plan to rent it out long-term until I move back to Canada in 5 years.

• Since I am still a resident of Canada for tax year 2020, I plan to file 45 (2) election. I understand that I won’t be eligible to 45(2) anymore from 2021 and onwards since I will no longer be a resident of Canada, correct?
• When I file my taxes for tax year 2021 before April 30th, 2022, I will need to declare my departure date from Canada, which is Jan 1st, 2021. But is there anything I need to declare or file (such as an election) regarding this property?
• I do decide to move back to Canada at some point, say, in 5 years and reclaim this property as my principal residence again. At that time, is there anything I need to declare or file (such as an election) regarding this property due to change of use?
• Once I move back to Canada eventually and reclaim this property as my principal residence, the principal residence exemption will be based on below formula, correct?

([1 + number of years designated as PR]/number of years owned) x gain

[nelsona]

You will probablt have to pay some cap gains when you convert back to principal residence, primarily because you will alos most likely have to depreciate on your Cdn 216 return, since you must depreciate in US, in order to messh the taxes in both countries.

[szbjsh]

Thanks nelsona. is there a way to get around this? such as not claiming CCA for the Canadian rental property on my Canadian 216 return while I am a US resident.

[nelsona]

Yes, but by doing this, you may end up paying more Cdn tax than you should and having far too much Cdn tax to use as a credit on your US return.

Personally, I would not even do the election to begin with. Most people who are leaving canada to US don't bother.

[szbjsh]

1) oh interesting. you mean you won't even bother with 45(2) to begin with? Is it because "a home would be considered your PR if it has been ordinarily inhabited by you and your family AT ANY TIME during the calendar year."?

For me, the home was my PR until the end of March 2020 before it was converted into a rental from April 1st, 2020. If I file 45(2), I will be able to designate the home as my PR for the whole 2020 tax year. So essentially there is no difference because of the "AT ANY TIME during the calendar year" rule cited above?

2) Regarding "Yes, but by doing this, you may end up paying more Cdn tax than you should and having far too much Cdn tax to use as a credit on your US return.", but it may be worth it because this won't trigger a capital gain tax when I come back to Canada and convert it back to my PR as you informed? Would you mind telling what are the best course of actions for Canadians that go to the US to work for a few years, but plan to eventually come back to the property?

[nelsona]

Since you will ALWAYS have to pay tax on your house on the portion of the time your were in US, you might as well save the tax now, in my opinion, by using CCA. This makes 45(2) moot. There is another thread going right now, where the I give the same advice.