My husband and I are US citizens and have been living in Canada for about 4 years. Have jointly owned US rental property (which was our principal residence) and non-retirement investments in US. We moved back to the US in 2015. I did a ton of reading on this forum and it looks like the rental property and any of the investments we had before coming to Canada will not be deemed to be disposed because of the sort-term residency rules. Therefore no tax or recapture on these; at least I think...
We did however purchase some new US stocks while we were residents in Canada. I assume these will be deemed to be disposed and the ones we had on arrival will not?
My wife went back to the US in mid March and moved back into the rental property in the US (which is now our principal residence again) and I stayed behind in Canada with the kids until October. She visited us in Canada about every two weeks, so it sounds like our departure dates are both in October.
One thing confuses me about the rental property. Because the rental property was converted back to our principal residence before we departed in March, will the CRA change in use rules make us deem to dispose and pay tax on the property in Canada in March?
Short Term Resident Rules Confusion
Moderator: Mark T Serbinski CA CPA
Technically, For Cdn purposes your PR didn't change until October, so no change of use rules apply to you.
As you have found, investments held since before your arrival are not subject to deemed disposition rules.
As you have found, investments held since before your arrival are not subject to deemed disposition rules.
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
Ok thanks.
So even know the rental period stopped in March when my wife moved back in, it’s not deemed to be disposed at this point in time? Is this because I didn’t move in at the same time?
Sorry to question this further, I’m just trying to make sure I understand this correctly. CRA’s website seems to suggest that the change in use happens immediately after the rental period stops, at which point we are both still considered residents of Canada.
Any further guidance would be greatly appreciated.
So even know the rental period stopped in March when my wife moved back in, it’s not deemed to be disposed at this point in time? Is this because I didn’t move in at the same time?
Sorry to question this further, I’m just trying to make sure I understand this correctly. CRA’s website seems to suggest that the change in use happens immediately after the rental period stops, at which point we are both still considered residents of Canada.
Any further guidance would be greatly appreciated.
In my opinion, since the house is not becoming your principal residence for Cdn purposes, none of this applies. You merely stopped renting it out. You did not, in the eyes of Canada make it your principal residence, since you only left Canada in October. CRA can't have it both ways.
But, say it did apply, you would simply include a letter under 45(3) "delaying" any tax until you sell; since you are not living in Canada and the property is not in Canada, you will never pay tax on it.
I would just ignore it, personally.
But, say it did apply, you would simply include a letter under 45(3) "delaying" any tax until you sell; since you are not living in Canada and the property is not in Canada, you will never pay tax on it.
I would just ignore it, personally.
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
Ok thanks for explaining this further. We will take your advice and ignore this.
I don't think 45(3) will work for us because we claimed depreciation on it in Canada the last several years to match the tax on the US side a bit better. CRA website says you can only use it if no depreciation has been used.
So I think maybe our best bet is not mention it anywhere on the Canadian tax return and not use 45(3)?
I don't think 45(3) will work for us because we claimed depreciation on it in Canada the last several years to match the tax on the US side a bit better. CRA website says you can only use it if no depreciation has been used.
So I think maybe our best bet is not mention it anywhere on the Canadian tax return and not use 45(3)?
Hi Nelsona,
We just started preparing the T1161 and T1243 forms for our stocks. We are confused about one more thing. As mentioned, we had some stocks before we immigrated to Canada and bought some after we were here. Only the stocks that were purchased after we arrived will be deemed to be disposed because of the short-term resident rules.
Some of the shares that we purchased after we arrived were the same companies as the ones we owned before we came to Canada. Normally these are all lumped together and you take an average ACB, but what do we do in this case? The same thing, or do we basically treat them like two different classes of stock and use the ACB of the stocks we purchased after arriving and ignore the ACB we had on arrival?
Thanks for all your help with this!!
We just started preparing the T1161 and T1243 forms for our stocks. We are confused about one more thing. As mentioned, we had some stocks before we immigrated to Canada and bought some after we were here. Only the stocks that were purchased after we arrived will be deemed to be disposed because of the short-term resident rules.
Some of the shares that we purchased after we arrived were the same companies as the ones we owned before we came to Canada. Normally these are all lumped together and you take an average ACB, but what do we do in this case? The same thing, or do we basically treat them like two different classes of stock and use the ACB of the stocks we purchased after arriving and ignore the ACB we had on arrival?
Thanks for all your help with this!!
Thanks Nelsona, we treated them as a separate class as you suggested.
We’re having trouble with one last thing; the foreign tax credits (FTC) to claim on the Canadian side for the investments.
I read as many other posts as I could and came to the following conclusion. To figure the amount of FTC we use the amount of investment income divided by AGI line 37 (not taxable income) multiplied by total tax (not including FTC and tax withheld at source). Total tax includes all extra tax from line 44 to 73, reduced by all extra credits from the same lines.
We can claim up to 15% for dividends and claim any excess as a deduction on line 232.
Interest and capital gains can’t be claimed as a FTC at all, but can be used as a deduction on line 232.
Does this all sound correct?
For line 232 is it considered a deduction under 20(11) or 20(12) or something else? I read “US tax credit denied by Article XXIV(4) or (5)†on another post, perhaps this is what I write on line 232 not 20(11) or 20(12)?
We’re having trouble with one last thing; the foreign tax credits (FTC) to claim on the Canadian side for the investments.
I read as many other posts as I could and came to the following conclusion. To figure the amount of FTC we use the amount of investment income divided by AGI line 37 (not taxable income) multiplied by total tax (not including FTC and tax withheld at source). Total tax includes all extra tax from line 44 to 73, reduced by all extra credits from the same lines.
We can claim up to 15% for dividends and claim any excess as a deduction on line 232.
Interest and capital gains can’t be claimed as a FTC at all, but can be used as a deduction on line 232.
Does this all sound correct?
For line 232 is it considered a deduction under 20(11) or 20(12) or something else? I read “US tax credit denied by Article XXIV(4) or (5)†on another post, perhaps this is what I write on line 232 not 20(11) or 20(12)?
232 deduction only applies for US tax above 15% on US dividends, interest, and royalties. It does not apply to cap gains, etc.
The only FTC you can claim is UPTO 15% on your US dividends, and whatever US tax arises on your rental property, and her US wages.
I would assume that most if not all of these US dividends are qualified dividends, so the chance that you are paying more than 15% on these on your US tax is unlikely. So, I doubt that line 232 will come into play at all
All other US tax on investments that you would be paying in US would only be because you were a US citizen, so Canada doesn't give any credit for that tax. that includes any cap gains, US bank interest.
Depending on when the income was triggered, your recourse is on your US tax return, using the re-sourced by treaty.
Other than the tax arising from your US dividends paid to you before October, and the net rental income from before October, and her US wages upto October, there is not much else you can claim towards FTC on your Cdn return.
Any tax relief would come by using the re-sourced by treaty provision form 1116.
What income were you thinking of?
The only FTC you can claim is UPTO 15% on your US dividends, and whatever US tax arises on your rental property, and her US wages.
I would assume that most if not all of these US dividends are qualified dividends, so the chance that you are paying more than 15% on these on your US tax is unlikely. So, I doubt that line 232 will come into play at all
All other US tax on investments that you would be paying in US would only be because you were a US citizen, so Canada doesn't give any credit for that tax. that includes any cap gains, US bank interest.
Depending on when the income was triggered, your recourse is on your US tax return, using the re-sourced by treaty.
Other than the tax arising from your US dividends paid to you before October, and the net rental income from before October, and her US wages upto October, there is not much else you can claim towards FTC on your Cdn return.
Any tax relief would come by using the re-sourced by treaty provision form 1116.
What income were you thinking of?
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
Read you could claim tax on cap gains on line 232 as per this post.
http://forums.serbinski.com/viewtopic.p ... ilarly+cap
I have capital gains and the following from a 1099-DIV (approximate values for simplicity):
1a: Ord Div $5000
1b: Qual div $2500
2a: Cap gain dist’n $5000
10: Exempt Int $1000
11: Bond Int $750
I converted to CDN $ and taxed all of these at 100% on the T1 general, because I don’t think I get preferential treatment on the Canadian side for this income. I only included the 1a amount of $5000 as I know the 1b amount of $2500 is included in the 1a total. The amounts above are all from before departure.
AGI is $172,600, total tax is $29,612. For 1a my calc is $5000/$172,000 * $29,612 = $861. Was going to take $750 as FTC (15%) and remaining $111 on line 232.
For 2a my calc is $5000/$172,600 * $29,612 = $858. I was going to take $858 on line 232 and do the same calc for 10 and 11.
Had about $8K of capital gains of which $4K was taxed on T1 General. Was going to take $4K/$172,600 * $29,612 = $686 on line 232.
http://forums.serbinski.com/viewtopic.p ... ilarly+cap
I have capital gains and the following from a 1099-DIV (approximate values for simplicity):
1a: Ord Div $5000
1b: Qual div $2500
2a: Cap gain dist’n $5000
10: Exempt Int $1000
11: Bond Int $750
I converted to CDN $ and taxed all of these at 100% on the T1 general, because I don’t think I get preferential treatment on the Canadian side for this income. I only included the 1a amount of $5000 as I know the 1b amount of $2500 is included in the 1a total. The amounts above are all from before departure.
AGI is $172,600, total tax is $29,612. For 1a my calc is $5000/$172,000 * $29,612 = $861. Was going to take $750 as FTC (15%) and remaining $111 on line 232.
For 2a my calc is $5000/$172,600 * $29,612 = $858. I was going to take $858 on line 232 and do the same calc for 10 and 11.
Had about $8K of capital gains of which $4K was taxed on T1 General. Was going to take $4K/$172,600 * $29,612 = $686 on line 232.
Perhaps you missed my last comment in that post, the position evolved a little:
But I will grant you that by the treaty, not all income that is eligible to be re-sourced by treaty for tax credit purposes mentionned in 4(b) and 5(c) is also granted the "extra" benefit of Cdn "deduction in computing income" from Para. 5.
Its just in the rare cases that the deduction is taken on other types of income, I've never heard of a denial. Probably becuase the limiting factor is rarely the 15% limit that kicks in, (actually only dividends are 15%, interst is 0% and royalties is 10%), it is the taxpayers calculated effective US tax rate.
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Only 1a and 1b are eligible, in my opinion, and since you would report both to CRA (the portions earned before leaving)
Dividends tax is calculated separately on the 1040, so you would use the number you got for that more specifically, not the gross effective rate.
Cap gains and other items are not eligible for FTC since they were based on citizenship, and 232 can't be used for those amounts. You would use the re-source by treaty 1116
If you choose to ALSO add these to 232 go ahead, but you should take into account the preferential treatment accorded dividends and gains on 1040, when determining their tax rate. If you wish you can use a different effective rate for the other normally taxed items after you've segregated divs and cg"s.
But I will grant you that by the treaty, not all income that is eligible to be re-sourced by treaty for tax credit purposes mentionned in 4(b) and 5(c) is also granted the "extra" benefit of Cdn "deduction in computing income" from Para. 5.
Its just in the rare cases that the deduction is taken on other types of income, I've never heard of a denial. Probably becuase the limiting factor is rarely the 15% limit that kicks in, (actually only dividends are 15%, interst is 0% and royalties is 10%), it is the taxpayers calculated effective US tax rate.
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Only 1a and 1b are eligible, in my opinion, and since you would report both to CRA (the portions earned before leaving)
Dividends tax is calculated separately on the 1040, so you would use the number you got for that more specifically, not the gross effective rate.
Cap gains and other items are not eligible for FTC since they were based on citizenship, and 232 can't be used for those amounts. You would use the re-source by treaty 1116
If you choose to ALSO add these to 232 go ahead, but you should take into account the preferential treatment accorded dividends and gains on 1040, when determining their tax rate. If you wish you can use a different effective rate for the other normally taxed items after you've segregated divs and cg"s.
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
Yes I did miss your last comment or more likely didn't understand it correctly.
Ok I think I get it now. I kind of thought that I had to use the "specific" effective tax rate for the div's and cap gains as they are taxed differently. I'm guessing the effective rate will be less than 15%, as your originally suspected, so there will likely not be a need for 232.
Based on your comment I'm confused about calculating the credit for the dividends. Do I include both 1a and 1b on my Canadian return? I thought 1b was included in 1a? I guess this makes sense as 1a goes on 9a 1040 and is taxed at general rates and 1b goes on 9b and is taxed at special rates and added to total tax. If so, then I guess I use gross effective rate for 1a div's and the separate special effective rate for 1b dividends?
Ok I think I get it now. I kind of thought that I had to use the "specific" effective tax rate for the div's and cap gains as they are taxed differently. I'm guessing the effective rate will be less than 15%, as your originally suspected, so there will likely not be a need for 232.
Based on your comment I'm confused about calculating the credit for the dividends. Do I include both 1a and 1b on my Canadian return? I thought 1b was included in 1a? I guess this makes sense as 1a goes on 9a 1040 and is taxed at general rates and 1b goes on 9b and is taxed at special rates and added to total tax. If so, then I guess I use gross effective rate for 1a div's and the separate special effective rate for 1b dividends?
Yes, 1b is included in 1a.
so, in your case, $2500 is taxed one way and $2500 is taxed another, but the $5000 in dividends that you report on the Cdn return will have one amount of US tax assigned to it. Only if this amount is more than 15% must you limit the FTC and take the excess on 232. and then claim the overage on a re-soured 1116.
You face the same situation on your US-sourced interest income. Since some was 0 taxed, and some ful taxed, the total is below 15%, you get NEITHER the FTC nor 232, but you do get to reduce the US tax on the interest to zero using re-sourced 1116.
Remember to only include in your Cdn income tax return income from BEFORE the move, so payouts near year-end don't even come into play on the Cdn side.
so, in your case, $2500 is taxed one way and $2500 is taxed another, but the $5000 in dividends that you report on the Cdn return will have one amount of US tax assigned to it. Only if this amount is more than 15% must you limit the FTC and take the excess on 232. and then claim the overage on a re-soured 1116.
You face the same situation on your US-sourced interest income. Since some was 0 taxed, and some ful taxed, the total is below 15%, you get NEITHER the FTC nor 232, but you do get to reduce the US tax on the interest to zero using re-sourced 1116.
Remember to only include in your Cdn income tax return income from BEFORE the move, so payouts near year-end don't even come into play on the Cdn side.
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
Ok great thanks. Yes, I only included the income before departure.
If 1b is included in 1a I feel like the qualified dividend portion 1b is double taxed on the 1040. Once at your normal graduated rates on line 9a with everything else and again at a reduced special tax on 9b on the dividend worksheet? What am I missing? Sorry, this is the last thing tripping me up.
If 1b is included in 1a I feel like the qualified dividend portion 1b is double taxed on the 1040. Once at your normal graduated rates on line 9a with everything else and again at a reduced special tax on 9b on the dividend worksheet? What am I missing? Sorry, this is the last thing tripping me up.
Yes, what you are missing is that your re-calculated tax will be LOWER by the amount that shouldn't be taxed at regular rates, by using the worksheet for line 44.
Your software should be able to handle that part easily.
Your software should be able to handle that part easily.
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