Canadian capital gains

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
RonB
Posts: 5
Joined: Fri Apr 18, 2008 3:34 pm

Canadian capital gains

Post by RonB »

Is there any way to avoid double taxation on Canadian capital gains earned by a US citizen resident in Canada?
nelsona
Posts: 18677
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

The same way you get relief on all non-wage income: form 1116.

As a Cdn resident, all your cap gains are considered Cdn-sourced, even if held in US, so there is no relief possible on Cdn return.

For US purposes, the gains are all considered foreign (and those that were US-based are 're-sourced' as foreign) so you can use 1116 passive income.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
RonB
Posts: 5
Joined: Fri Apr 18, 2008 3:34 pm

Canadian capital gains for a US citizen resident in Canada

Post by RonB »

In Canada, only 50% of capital gains are taxed while 100% are taxed in the US. So, less tax is paid in Canada, less is available for an offset on 1116, leaving tax owing to the US. Is there any way to recover the extra tax or avoid it?
cfn2007
Posts: 73
Joined: Sun Nov 25, 2007 9:14 pm

Post by cfn2007 »

"For US purposes, the gains are all considered foreign (and those that were US-based are 're-sourced' as foreign) so you can use 1116 passive income."

So wouldn't you use 1116 "re-sourced by treaty" as opposed to 1116 "passive income"?
nelsona
Posts: 18677
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

You would use both. Only the gains from US real or resource property would be re-sourced.

To Ron: Once Canada has taxed you on cap gains, your only recourse is the US tax return. However, you are limited by (a) your US effective taxrate and (B) the foreign tax you paid or accrued.

Generally the US effective rate limits your credit; in your case, it may be simply that the Cdb taxrate is lower than the US. Nothing can be done about either situation.

Foreign tax crdits, while paying lipservice to eliminating double taxation, genarally do not. that is why lower non-resident flat taxes in treaties are so beneficial.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
RonB
Posts: 5
Joined: Fri Apr 18, 2008 3:34 pm

Post by RonB »

Thanks
mlee0313
Posts: 1
Joined: Tue Apr 22, 2008 12:18 pm

Post by mlee0313 »

I was thinking about starting a corporation, of which sole purpose is real estate investment. Can the purchse of a piece of real estate be considerred as invenstory and the sale of the property be regarded as sales? The gains will just be company profit after all the expenses. You pay the taxes based on the taxable income. Will that work for a company as a whole? Thank you.
Post Reply