When I left Canada I deferred the departure tax on my shares of a CCPC. I was told I could not apply deemed dividend on wind-up of CCPC against this departure tax. However I am reading guide T4056-Emmigrants and Income tax, and under section : PROPERTY DEEMED DISPOSED OF ON DEPARTURE : this is how it reads:
"It may be possible to reduce to reduce your tax payable for the year you emigrated from Canada if one, or more, of the following applies:
- you are subject to tax another another country on the actual disposition (subsection 126(2.21) of the Canadian ITA)
Shouldn't the above condition apply since I am disposing of my shares in the CCPC via a taxable deemed dividend that is subject to tax in the USA?
Can anyone clarify this for me?
Property Deemed Disposed of on departure by Canadian to USA
Moderator: Mark T Serbinski CA CPA
No, this is referring to selling the shares after departure.
US/canada fixed this issue, so now demmed disposition resets tax basis in US.
US/canada fixed this issue, so now demmed disposition resets tax basis in US.
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
nelsona wrote: "No, this is referring to selling the shares after departure. "
I was referred to this information bulletin: IT-395R2
"If there has been a deemed disposition of property, any resulting capital gain or capital loss is allocated to Canada rather than to a foreign country,
regardless of the geographic location of the property at the time of the
deemed disposition. For example, where a taxpayer has ceased to be resident in Canada, a taxable capital gain resulting from a deemed disposition of property under paragraph 128.1(4)(b) is considered to be Canadian-source income, which therefore cannot be included in the numerator FNBI in paragraph 1(b) for purposes of a foreign tax credit under subsection 126(1). ...NOTE WHAT FOLLOWS:
(The resulting "pre-departure" Canadian taxes may, however, be reduced by a foreign tax credit, under subsection 126(2.21), for a portion of any "post-departure" foreign taxes resulting from a subsequent actual disposition of the property.) .... isn't a wind-up an actual disposition of the property ....
Honestly, this thing is driving me crazy .... one person tells me one thing, another tells me know and then I read this stuff and I have no idea of who is right or wrong ..... FYI: I do research in theoretical particle physics and cross border transactions appear to parallel sub-atomic particles whereby a particle can travel between two points by a possible infinite number of different paths, and where each of these paths have their own assigned probability factors, meaning the chances of getting an answer that fits a particular model often has a very low probability factor
I was referred to this information bulletin: IT-395R2
"If there has been a deemed disposition of property, any resulting capital gain or capital loss is allocated to Canada rather than to a foreign country,
regardless of the geographic location of the property at the time of the
deemed disposition. For example, where a taxpayer has ceased to be resident in Canada, a taxable capital gain resulting from a deemed disposition of property under paragraph 128.1(4)(b) is considered to be Canadian-source income, which therefore cannot be included in the numerator FNBI in paragraph 1(b) for purposes of a foreign tax credit under subsection 126(1). ...NOTE WHAT FOLLOWS:
(The resulting "pre-departure" Canadian taxes may, however, be reduced by a foreign tax credit, under subsection 126(2.21), for a portion of any "post-departure" foreign taxes resulting from a subsequent actual disposition of the property.) .... isn't a wind-up an actual disposition of the property ....
Honestly, this thing is driving me crazy .... one person tells me one thing, another tells me know and then I read this stuff and I have no idea of who is right or wrong ..... FYI: I do research in theoretical particle physics and cross border transactions appear to parallel sub-atomic particles whereby a particle can travel between two points by a possible infinite number of different paths, and where each of these paths have their own assigned probability factors, meaning the chances of getting an answer that fits a particular model often has a very low probability factor
There is a difference between the wind-up of the CCPC and the deemed disposition of the company. CRA has confirmed this.
The property being discussed here is the shares of the CCPC.
What price did you deem dispose of these shares in canada, and what price did you actulaly dispose of them in US?
The property being discussed here is the shares of the CCPC.
What price did you deem dispose of these shares in canada, and what price did you actulaly dispose of them in US?
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
But, for the sake of explaining what was meant by the various statements you quote, this is a provision that allows the taxpayer to claim a tax credit (on the return filed in the year of departure -- ammended maybe several years later) whereby any tax that was levied by the foreign country (the US) on the portion of gains that were already taxed in canada by virute of the deemed disposition could reduce said dememed dispo tax.
In 1999 you bought a shae for $20 and in 2001 you moved to US withshare worth $25. You paid deemed dispo tax on $5.
In 2008, you sold the share for $40. US, by it rules, makes you pay tax on $20 (40-20), not $15. They didn't recognize the deemed dispo.
Because canada recognized that their deemed dispo rules were not in step with most other taxing authorities, the y allow the taxpayer to re-open his 2000 tax return and claim a credit for the 5/20ths of the tax he paid in US on the actual disposition.
In 1999 you bought a shae for $20 and in 2001 you moved to US withshare worth $25. You paid deemed dispo tax on $5.
In 2008, you sold the share for $40. US, by it rules, makes you pay tax on $20 (40-20), not $15. They didn't recognize the deemed dispo.
Because canada recognized that their deemed dispo rules were not in step with most other taxing authorities, the y allow the taxpayer to re-open his 2000 tax return and claim a credit for the 5/20ths of the tax he paid in US on the actual disposition.
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
nelsona wrote:
What price did you deem dispose of these shares in canada, ... $216,000 in Canada in 2009
and what price did you actulaly dispose of them in US? --- while US resident proposed November 30, 2011 shares to be disposed via wind up at 175,000 (decrease due to reduction in value of marketable securites held).
are you saying wind-up is not a disposition?
What price did you deem dispose of these shares in canada, ... $216,000 in Canada in 2009
and what price did you actulaly dispose of them in US? --- while US resident proposed November 30, 2011 shares to be disposed via wind up at 175,000 (decrease due to reduction in value of marketable securites held).
are you saying wind-up is not a disposition?
As I said earler, the treat ywas changed t oallow the taxpayer to use the deemed dispo value for any future US tax determination, thus making the provision to take the credit on one's cdn departure return no longer necessary.
CCPC's present a certain difficulty, because while the shares are ALWAYS subject to deemed disosition, they only MAY also be subject to Cdn tax upon actual disposition, depending on the nature of the business.
There is also the cap gains exemption on businesses you have to consider.
As ialluded to above, your shares had certain value when you left, and a certian value when you disposed of them, which has nothing to do with winding down the comapnty (other than to make your shares worthless).
CCPC's present a certain difficulty, because while the shares are ALWAYS subject to deemed disosition, they only MAY also be subject to Cdn tax upon actual disposition, depending on the nature of the business.
There is also the cap gains exemption on businesses you have to consider.
As ialluded to above, your shares had certain value when you left, and a certian value when you disposed of them, which has nothing to do with winding down the comapnty (other than to make your shares worthless).
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
So you had deemed disposition in 2009 tax on 219,000 ... and no tax in US (you get a 44K cap loss to use).
So where is the foreign tax you need to pay? And canada is not viewing your CPCC as TCP, thus they don't care that you lost money afterwards (just like they wouldn't if you sold shares in ABC that tanked after you left.)
So where is the foreign tax you need to pay? And canada is not viewing your CPCC as TCP, thus they don't care that you lost money afterwards (just like they wouldn't if you sold shares in ABC that tanked after you left.)
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
On a wind up you did not have a deemed disposition you had a deemed dividend and the resulting capital loss on the retration of the shares is not considered as a loss for US purposes. You have no basis for any FTC unless you actually disposed of the shrs, in your case no sale was made so end of story, Nelsona is correct no diposition occured at deemd departure this only applies for people who dispose of shrs subsequently you have no shrs to dispose they were reddemed.
JG
nelsona wrote: "So you had deemed disposition in 2009 tax on 219,000 ... and no tax in US (you get a 44K cap loss to use)"
JGCA wrote: "On a wind up you did not have a deemed disposition you had a deemed dividend and the resulting capital loss on the retration of the shares is not considered as a loss for US purposes."
all info provided has been great ..... now as per above, who is correct?
JGCA wrote: "On a wind up you did not have a deemed disposition you had a deemed dividend and the resulting capital loss on the retration of the shares is not considered as a loss for US purposes."
all info provided has been great ..... now as per above, who is correct?
If the shrs were redeemed while you were a US redident then the dividend should have been subject to witholding tax and yes you could claim this tax as a FTC, but you are missing the point this has nothing to do with departure tax its the witholding tax on the dividend just like any other investment income, you were asking about credit on departure tax its not the same as you were told its not applicable in your case to reduce departure tax.
JG
OK I think I have big picture ..
Nelsona wrote : So you had deemed disposition in 2009 tax on 219,000 ... and no tax in US (you get a 44K cap loss to use). ... o clarify: departure tax is based on FMV on date of departure. Deemed disposition is actual disposition at date of wind-up anticipated in 2011 ....
So where is the foreign tax you need to pay? ... foreign tax that has to be paid is 15% withholding on deemed dividend on wind-up anticipated in 2011.
Nelsona wrote : So you had deemed disposition in 2009 tax on 219,000 ... and no tax in US (you get a 44K cap loss to use). ... o clarify: departure tax is based on FMV on date of departure. Deemed disposition is actual disposition at date of wind-up anticipated in 2011 ....
So where is the foreign tax you need to pay? ... foreign tax that has to be paid is 15% withholding on deemed dividend on wind-up anticipated in 2011.