Captial Loss on Deemed Dispostion in Canada
Moderator: Mark T Serbinski CA CPA
Captial Loss on Deemed Dispostion in Canada
In 2009 I moved to the USA for permanent employment. I had a private company in Canada which held marketable securities. I filed and paid all the departure taxes, etc. Since I am not going to return to Canada, in 2011 I have sold my stocks and liquidated the company. I was told, but I do not fully comprehend how or why, but when I received the liquidating dividend I was informed that I had created a capital loss on the shares I held in the private company which were redeemed. I know I have to pay tax on the liquidation dividend (15% has been withheld), but can I claim this capital loss resulting from the cancellation of my shares in my former company in the USA?
Your deemed dividend in your Cnd corp was triggered by ITA 84(3) , this in effect also triggered a disposition of your shares in the corp under ITA (54) so the result was not to be taxed twice the amount of the dividend is reduced from the proceeds then applied to the sale of your shares to calculate cap gain or in your case a cap loss. This is how you ended up with the cap loss you are asking about.
NO the cap loss will not be recognized in the US . You were suppose to elect on the shares when you departed Canada by making a sale no actual sale was done.
NO the cap loss will not be recognized in the US . You were suppose to elect on the shares when you departed Canada by making a sale no actual sale was done.
JG
JGCA
thx for the response. I am not sure I understand fully. Someone tried to explain to me something about a PUC in excess of FMV is what was triggering the capital loss. My orginal shares were simply $100 and the deemed dividend amount is approx. 350,000 for which I have to pay approx. $52,500 by the 15th of next month.
If you can explain this, then I would like to ask something about the departure tax I have to pay ... do I have to pay both the departure tax and the 15% withholding? As yet my accountant has said nothing about when I pay the departure tax for federal and quebec. He said something about the 15% can be applied against the federal, but not Quebec. What does this mean.
thx for the response. I am not sure I understand fully. Someone tried to explain to me something about a PUC in excess of FMV is what was triggering the capital loss. My orginal shares were simply $100 and the deemed dividend amount is approx. 350,000 for which I have to pay approx. $52,500 by the 15th of next month.
If you can explain this, then I would like to ask something about the departure tax I have to pay ... do I have to pay both the departure tax and the 15% withholding? As yet my accountant has said nothing about when I pay the departure tax for federal and quebec. He said something about the 15% can be applied against the federal, but not Quebec. What does this mean.
Thanks JGCA, I now understand how the loss was created, but I do not understand this:
JGCA writes: "NO the cap loss will not be recognized in the US . You were suppose to elect on the shares when you departed Canada by making a sale no actual sale was done." How could I have elected on a disposition that had not occurred. The deemed disposition now arises because I have no intent to return to Canada. So I do not completely understand why this capital loss will be denied in the USA unless they have some specific provision.
JGCA writes: "NO the cap loss will not be recognized in the US . You were suppose to elect on the shares when you departed Canada by making a sale no actual sale was done." How could I have elected on a disposition that had not occurred. The deemed disposition now arises because I have no intent to return to Canada. So I do not completely understand why this capital loss will be denied in the USA unless they have some specific provision.
JGCA wrote: You never actually sold the shares when you left Canada, you instaed redeemed them this is why the cap loss did not occur for US purposes. You have been advised by your accountants how this came about and you chose to do a redemption not an actual sale. .... thanks, I finally got the picture.
to change the topic somewhat. Due to circumstances beyond my control, I never verified the 2009 valuation prepared for the departure tax. I filed an election to defer the taxes due. I have three independent questions to ask:
1. if the departure tax which was based on the valuation done in 2009 was too high, can I revise this now? The accountant used a month end report and did not pick up a large disposal at a loss subsequent to the month end, but before my departure date. I would like to be able to reduce the valuation at that date.
2. My accountant told me not to worry about an over valuation on the departure tax because the withholding tax on the deemed dividend supersedes the departure tax. He claims that the 15% will be a full IRS tax credit, while the departure tax is not an IRS deduction, so he does not want to amend the departure tax filing (which he claims I won't pay anyways). Is my accountant correct .... does the 15% withholding on the deemed dividend replace the departure tax ...
3. My thinking on revising the departure tax is that I still have to pay the quebec departure tax .... I want to figure out if it is worthwhile to amend the valuation filed in 2009.
By the way thanks for your input here. I had no idea of what was going on and for the first time in two years I am beginning to understand the issues here ... so thx again for everything ....
to change the topic somewhat. Due to circumstances beyond my control, I never verified the 2009 valuation prepared for the departure tax. I filed an election to defer the taxes due. I have three independent questions to ask:
1. if the departure tax which was based on the valuation done in 2009 was too high, can I revise this now? The accountant used a month end report and did not pick up a large disposal at a loss subsequent to the month end, but before my departure date. I would like to be able to reduce the valuation at that date.
2. My accountant told me not to worry about an over valuation on the departure tax because the withholding tax on the deemed dividend supersedes the departure tax. He claims that the 15% will be a full IRS tax credit, while the departure tax is not an IRS deduction, so he does not want to amend the departure tax filing (which he claims I won't pay anyways). Is my accountant correct .... does the 15% withholding on the deemed dividend replace the departure tax ...
3. My thinking on revising the departure tax is that I still have to pay the quebec departure tax .... I want to figure out if it is worthwhile to amend the valuation filed in 2009.
By the way thanks for your input here. I had no idea of what was going on and for the first time in two years I am beginning to understand the issues here ... so thx again for everything ....
1) If your accountant missed a huge loss and you elected on a greater amount then you should ask for a revision fo sure. You said though this happened before you departed Canada so it was realized loss so I do not know if this has an impact on the FMW of this asset or other assets in any event you can use capital losses to offset cap gains so maybe what you may need to do is report the cap loss to reduce the deemed cap gain.
2)WT does in no way replace DT no way at all.
3) Quebec DT is seperate from Fed DT so if a revision is needed in part 1 above it will help you with Que too.
BE CAREFUL you have stripped out dividend income from your copr while a non resident if you ask for any revaluation of teh deemed gain and subsequently strip out didvidends and this can bee teh reason as to teh decline of teh value of the shares the cap loss is denied under stop loss rules ITA 40(3.7) I can not tell if it appies to you have your accountant check it out before you do any revaluation, This time tell him to be carefull.
2)WT does in no way replace DT no way at all.
3) Quebec DT is seperate from Fed DT so if a revision is needed in part 1 above it will help you with Que too.
BE CAREFUL you have stripped out dividend income from your copr while a non resident if you ask for any revaluation of teh deemed gain and subsequently strip out didvidends and this can bee teh reason as to teh decline of teh value of the shares the cap loss is denied under stop loss rules ITA 40(3.7) I can not tell if it appies to you have your accountant check it out before you do any revaluation, This time tell him to be carefull.
JG