Returning to Canada & Change in use of rental property

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mvt926
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Joined: Tue Jan 29, 2008 10:21 pm

Returning to Canada & Change in use of rental property

Post by mvt926 »

Hello:
I am a Canadian citizen who has been working in the US for about 7 years and have just returned to Canada. My Canadian residence was rented during my absence and I am planning to reoccupy it later this year. However, it now appears that I may face a capital gains tax liability if I reoccupy the property, as I will be deemed to have sold and then repurchased it at fair market value at the time of re-occupation. My understanding is that I can elect (under section 45(3) of the Income Tax Act) to defer the reporting of the gain until the actual sale of the property, but this would be possible only if I have not taken any Capital Cost Allowances (CCA) during the time the property was rented. Unfortunately I have been taking the CCAs during this time.

I am wondering if there is any other way to defer or reduce the capital gains tax liability. For example, would it be possible to refile the previous section 216 returns without the CCA and pay the additional taxes before making the election?

Any advice would be appreciated.

Thanks,

mvt926
nelsona
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Location: Nowhere, man

Post by nelsona »

I'm sorry to hear that. That is one of the risks of holding former principle residence while non-resident.

Before you try (and I believe you would need to ask permission), something to consider:

As it stands, you will always be on the hook for SIX of the seven years that you were out of Canada. If you are allowed to make the election, you will merely be delaying the payment of the gain and *might* (or might not) benefit from the prorating effect of spreading the 6 years over the entire lifetime of your house, rather than only up until now.
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
mvt926
Posts: 11
Joined: Tue Jan 29, 2008 10:21 pm

Post by mvt926 »

Thanks for the response. The other option would of course be to sell the house and discharge the liability now. However, I agree that spreading it over the lifetime of the home would likely be better.

If I were to try to make the election, what would be the chances of success and what would be the best way to approach the matter i.e. should I use a professional?

Another question - now that I am back in Canada, do I need to notify the CRA so that they will not expect to receive withholding tax cheques (since I will now presumably be including the rental income in my T1 form)?

Thanks,

mvt926
mvt926
Posts: 11
Joined: Tue Jan 29, 2008 10:21 pm

Post by mvt926 »

Sorry - one more question. The t4036 form seems to indicate that, if the election is made successfully, the home can be designated as my principal residence for up to 4 years prior to reoccupying it. If so, then I would be on the hook for only the three years from 2006 to 2009. Is this an accurate interpretation or have I misread it?

Thanks,

mvt926
nelsona
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Post by nelsona »

You need only notiofy CRA on your tax return, making sure that you still file a 216 return, and have remitted withholding for the months up until you returned. You will essentailly report your rent split on 2 returns in your year of arrival, just like you did in your departure year (if you rented it out that year).

As to the success of such a request, given that one of the conditions for getting the 4 years (instead of the normal one year) is no CCA, I'm thinking that CRA is going to be pretty dstrict on this.

Also, I'm not sure if the 4 year rule is open to non-residents.
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
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

I can confirm that, even if you were allowed the election, you would NOT be able to claim the 4 years, since you cannot claim this for any period you were non-resident of Canada.

So, yo uare, at some point, going to pay 6 years worth of cap gains.
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
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