Question about principal residence conversion

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
oakweather
Posts: 27
Joined: Thu Oct 15, 2020 1:00 pm

Question about principal residence conversion

Post by oakweather »

Consider the following hypothetical scenario -

I'm a non-resident of Canada but purchased an apartment in January 2020 in Canada which I am renting out to an unrelated party.

I plan to move to Canada in February 2023 but will be living in a friend's basement. My apartment in Canada will be rented out till June 2023 when I will officially move in.

a) Let's say that I sell the apartment in January 2026 while still a resident of Canada or pass it on as an inheritance. Is it correct that the capital gains tax is payable EITHER from the real appreciation from January 2020 until June 2023, OR from a time-based pro rata portion of the total capital gains from January 2020 to January 2026?

b) Let's say that instead of selling the apartment, I keep it, but become a non-resident of Canada again in January 2026 and rent the apartment out again. Is it correct that the departure tax will tax the capital gains from February 2023 until January 2026?

If a) and b) are true, then it seems that I will need to get appraisal of the value of the apartment TWICE, once when I move to Canada (February 2023), and once when I officially move into the apartment (June 2023). Is that correct?

Thank you!
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Question about principal residence conversion

Post by nelsona »

a) Yes, plus you get to add a year to the time you made it your PR.
b) No. There is no departure tax (deemed disposition) on Cdn property until you sell it. You may however elect to declare the deemed disposition for US tax reasons, but it is rarely best to do this.

There would be no need to get an appraisal on arrival in Canada, only when it becomes your residence.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Question about principal residence conversion

Post by nelsona »

One thing to watch for is change of use rules.

As you have been filing your section 216 return in Canada, if you have depreciated (as you must in US) you may have to pay gains tax as soon as you convert to Principal residence, upon your return to Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Post Reply