Non-Resident selling Canadian Rental

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Steve15
Posts: 75
Joined: Mon Jun 10, 2013 11:26 pm

Non-Resident selling Canadian Rental

Post by Steve15 »

I have read almost every related post pertaining to my situation and have done quite a bit of research on my own, and still can’t seem to figure this out. Looking for some help. Situation is as follows.

Canadian resident my entire life never married and no dependants. Purchased home in US and started working in US on March 30, 2012. Filed departure return with departure date of March 30, 2012. Completed T1161 for non-registered mutual funds and principal residence and T1243 for deemed disposition of non-registered mutual funds. Started renting my principal residence in Canada April 1, 2012. Filed NR6 and had agent withholding on net basis and completed S.216 return for rental income for 2012. Used small amount of CCA ($350) to reduce my net rental income to zero. Just received an offer to sell the house. Currently working on T2062, T2062A and T2091. House was purchased in October of 2009 for $180K, was worth about $220K on departure (March 30 2012) and offer is for $215K (closing date is July 30 2013). Having trouble figuring out the correct 25% withholding on the gain for the T2062 because of the principal residence exemption. For the T2062A I pay no withholding as there was a terminal loss, correct ($220K - $215K)? Not sure about the T2062. I have read that if you sell within one year of departure there is no tax. I have also read that if you sell more than 1 year after departure OR start renting, you begin to build up taxable gains. My best guess for the T2062 and T2091 is as follows:

$35,000 - ($35,000 * (1+4*)/(5**))
= $0
*2009-2012
**2009-2013

In my case, I have sold the property more than 12 months after departure (March 30 2012 to July 30 2013) and still pay no tax. Still within one calendar year of departure, but more than 12 months. Is this calculation correct? Am I missing something? Based on the way I did the calculation, if I departed in Jan 2012 and sold the house in Dec 2013 I would almost get two free years of tax after departure. Perhaps I'm supposed to use partial years (# of months) instead?

Partial year calculation would look like:

$35,000 - ($35,000 * (1+2.5*)/(3.83**))
=$3015.68
*30/48 months
**46/60 months

25% of $3015.68 = $753.92 (T2062 withholding)

Does the fact that the house was rented change these calculations?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Without looking at your numbers, you have 2 options on how your gain will be calculated.
1. One is to take the overall gain, and prorate the gain by the factor of
(months principal + 12)/(months owned). so you would report 4/45ths of your gain as taxable.

2. The other choice is to have treated your principal residence as sold on the day you left (using form T2061), and then treat everything tha thappened after that date as a rental. You would need to haver a SOLID FMV evaluaution done for form T2061 and would amend your 2012 departure return to include this. There would of course be no cap gains resulting from this on your departure return becuse of the principla residence exemption. Your renatl would have as cost vbasis your FMV at departure.


For the US, since you did not live in the house 3 years, you must use option #2, and the treaty that allows you to use your departure FMV as the cost basis going forward, for both cap gains and depreciation purposes.

You will need to recapture CCA and depreciation on your respective 2013 returns. Any withholding done as part of the sale still must be finalized witha Cdn tax return, so I would not worry too much about the exact withholding at this point (I would use the 4/45th method for now).

Hve you filed your 216 retunr for 2012 for the renatl income?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Steve15
Posts: 75
Joined: Mon Jun 10, 2013 11:26 pm

Post by Steve15 »

Thank you very much for your quick reply and insight on this matter. This forum has been very beneficial. The monthly method as you have outlined definitely makes more sense. It just didn’t seem right that I would be able to eliminate the gains more than a year after departure.

I did not have a solid evaluation on departure. I accepted the job offer and had to scramble to find a house in the US. I used an average price of the real estate listings in my area for similar sized houses. I would prefer not to have to re-file the departure return if possible; I would not have any real proof of the evaluation value.

I’m a bit confused about method number 2. Would method number 2 not potentially require more tax to be included on the Canadian side? It eliminates the extra year of tax free gains on departure. Or is this ultimately reconciled with the T2091 when the non-resident return is completed to include the sale of the house. In other words, would my T2091 calculation be the same for the T2062 as it would be for the non-resident return, or would I need to alter it to account for the fact that it was a rental (change the calculation to expose another 12 months of gains)? From what I understand, I would include this on schedule 3 (this time with selling costs) and include the T2091 again. I’m just trying to figure out how to do this without refilling the departure return.

Yes I filed S.216 return for 2012. My rental expenses (excluding CCA) were almost enough to reduce my net income to zero; so I decided to depreciate the house. I used a starting CCA value of $220K (value on departure). I only needed to use about $350 of CCA to reduce my net income to zero. So because I sold the house for $215K, I would actually have a terminal loss of $4650 ($215,000-$220,000-$350), correct? In which case no withholding requirement for the T2062A? Or did I do this incorrectly and should have used the $180K original purchase price as the starting point for CCA?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

The only time you would use #2 is if you had a drop in value -- which is exactly what you said you had. Otherwise the #1 method is the prefered method.

I misspoke slightly on the US taxation, you meet the TWO year residence minimum (its not 3 years)so could use the standard method that all other US taxpayers use when they rent out what was their home. But you also have the treaty clause that allows you to use the value at departure as your new cost basis.

I'm afraid that more for this reason you will need a solid eval from your departure date. This is available retroactively, contact your broker.

Choosing method 1 will result in some Cdn tax, while #2 will result in no Cd tax, if yopu can secure a favourable evaluation.

As to your statement about the various T forms, these are merely estimates. You will have to file a tax return on which you report only the sale. That will determine your tax. Non-residents just have the added burden of having CRA make sure they get some upfront money becuase of the possibility of not being able to collect from you later.

You don't re-file your deperture return if you elct to demed sell the house when youy left, you simply amend the return to add the election. Not complicated at all once you have the eval.

Your CCA could only be to reduce your net to zero,m so it doesn't really matter what your starting point was, your CCA is $350. You will aso have a 216 return for this year, and of course all of this is going on your US retunr as well for both years.
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

Post by nelsona »

For now, I would make this as simple as possible:

File for complaince letter, and use T2091 to calculate your gain, which will be minimal (you are taliking less than $1000 being withheld -- i wouldn't micrometer the issue at this point, time is ticking). You just want to avoid having a lot of funds tied up waiting for the compliance letter. This should have been filed as soon as you went under contract.

Then at some point between now and tax time next spring, try to get an eval for when you left. I think you will need this for either US or canada or both, so it will not be a waste.

Then at tax time decide which method you want to use in Canada and US, with the goal of paying the least TOTAL tax oin the transaction when you add the CRA and IRS (and state) taxes on the gain.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Steve15
Posts: 75
Joined: Mon Jun 10, 2013 11:26 pm

Post by Steve15 »

Yes I did have a drop in value, so method #2 would work perfect (providing I get the evaluation). I kind of figured not having the evaluation might create a problem at some point. I was actually worried that CRA was going to ask for it when I completed the T2062 and T2062a; so I mind as well get it now just in case.

Yes I suppose I should get going on this ASAP. I just read that the certificate process can get back logged and sometimes take a couple of months; which may create a temporary cash flow problem. I think I will just stick with method #1 for now; just so I can get the ball rolling on this as fast as possible. With some luck, method #1 will probably work out ok for the Canadian side of things. Because when I include my selling costs on the actual non-resident return, it should eliminate even more of the gain. So I guess all I may be giving up is the approximate $1000 withholding until I file in the spring. It looks like I might get most of this back anyway. Having said that, as you mentioned, I will likely need the evaluation for the US side anyway, so it’s not going to hurt to get it regardless.

Thanks again you have been very helpful ï￾Š
numiju
Posts: 1
Joined: Fri May 21, 2021 4:09 am

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Post by numiju »

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