Hi,
My wife and I have owned two rental properties in Canada for about 5 years. Both of our names are on the legal documents, and they were purchased after we were married. Almost all of the downpayment money came from me (money mostly earned before getting married). Since then i have claimed 100% of income from rentals, and she claims 0%. CRA told me this is ok, but if that she ever wants to claim rental income, I have to sell her a share at FMV, and then pay capital gains. Is this correct?
I have read elsewhere online that in reality things should have been split 50/50% since the beginning.
I'd like to get this fixed before claiming rental income in the USA as part of world income.
Thanks
Rental Income Spousal Split
Moderator: Mark T Serbinski CA CPA
Normally any transfer between non arms length will be deemed to go at FMV Sec 69 ITA. However there are special rules fro transfers between spouses that one can gift your share to your wife at your ACB cost so her cost will wequal your cost for teh 1/2 trfd. So this means that no capital gain or capital loss will occur at time of the sale, so the actual gain or loss will be recognized when you actually sell the property normally if you did not elect at FMV and did not pay capital gain tax on any gain then the gain would be attributed back to you on actual sale. If you have taken CCA on the property however that too will be defered until your wife actually sells the property. So in a nutshell the CRA will not deem the trf to be at FMV unless you want to.
Upon leaving for the US however you will have to realise a capital gain on the property since you are deemed to have disposed of it at FMV so the gain will be attributred back to you for your spouse but the property will remain yours and hers for rental purposes on teh world wide income you will be reporting in teh US, so it depends on the numbers you will have a deemed disposition on leaving Canada but tis was going to happen anyway so this way you have teh property in both names however the US will only recognize the income to be half your wifes if she has paid for her share you may not want to structure it as a gift in this case but as a sale.
Upon leaving for the US however you will have to realise a capital gain on the property since you are deemed to have disposed of it at FMV so the gain will be attributred back to you for your spouse but the property will remain yours and hers for rental purposes on teh world wide income you will be reporting in teh US, so it depends on the numbers you will have a deemed disposition on leaving Canada but tis was going to happen anyway so this way you have teh property in both names however the US will only recognize the income to be half your wifes if she has paid for her share you may not want to structure it as a gift in this case but as a sale.
JG
Thanks for the info. I thought about it some more and since the Canadian non-resident tax will be the same if either her or I claim the income, it doesn't make a difference. When we get taxed in the US, it will be jointly, so it also doesn't matter who gets the income, right?
Just to clarify: my understanding was that rentals/real estate is not included in any departure tax. I must declare to Canada the actual value of the properties, but I do not need to virtually 'dispose' of them for and pay tax. Isn't this right?
Just to clarify: my understanding was that rentals/real estate is not included in any departure tax. I must declare to Canada the actual value of the properties, but I do not need to virtually 'dispose' of them for and pay tax. Isn't this right?
Hi,
I checked here:http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... n-eng.html
and it says:
Deemed dispositions
If you emigrate from Canada, you are considered to have:
disposed of almost all your property at its fair market value on the day you emigrate; and
re-acquired it for the same amount right after.
This is called a deemed disposition of your property. It applies to all your property, including taxable Canadian property, except the following:
Canadian real property, Canadian resource property, and timber resource property (see the note below);
----
So it there some information that you have that supersedes this policy...?
Thanks!
I checked here:http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... n-eng.html
and it says:
Deemed dispositions
If you emigrate from Canada, you are considered to have:
disposed of almost all your property at its fair market value on the day you emigrate; and
re-acquired it for the same amount right after.
This is called a deemed disposition of your property. It applies to all your property, including taxable Canadian property, except the following:
Canadian real property, Canadian resource property, and timber resource property (see the note below);
----
So it there some information that you have that supersedes this policy...?
Thanks!
You are correct in that Real property is exempt from the deemed disposition however in your case if you wanted the sale to go to your wife at FMV as you originally stateted then there is an election possible where you would under ITA 128.1(4)(d) elect to treat the deemed disposition to occur at FMV and the real property would be taxed at FMV wheras it would not be normally as you pointed out, it depends on what you elect are you going for FMV if so you may as well elect FMV on departure.
My suggestion is you would have to see if you want to elect at FMV for canadian purposes or not before leaving Canada if you decide not to and go with ACB then you will also exclude the deemed dispositon on leaving Canada, its an elective position.
My suggestion is you would have to see if you want to elect at FMV for canadian purposes or not before leaving Canada if you decide not to and go with ACB then you will also exclude the deemed dispositon on leaving Canada, its an elective position.
JG