This situation is in regard to a Cdn citizen living in the U.S. under green card status selling their house in Canada.
Person details
a) Cdn citizen, 49 years old
b) Moved to US on work VISA Dec 24 2008
c) U.S. permanent resident since August 11, 2014
d) Single, never married, no kids
e) Completed last Cdn tax return for 2008. No Cdn tax return completed since then
f) Please note that in 2008 Cdn income ended in December. In 2009 U.S. income commenced in January. No partial year income from either country.
g) Generated no Cdn income since Dec 2008 except for small bank account interest on Cdn savings account which was declared on U.S. tax returns 2009 thru 2015.
h) Contacted twice by Revenue Canada re. tax returns while living in U.S. Answered about working in U.S. and submitted tax returns to IRS. Not informed of anything else or had any follow up from Revenue Canada.
i) Live in South Florida since late December 2008 to present. Have rented a house there the entire time.
j) Work for a company, NOT self- employed so have filed 1040EZ returns for 2009 thru 2015 with no deductions except for health care and 401k contributions.
House details
1) Bought Oct 6th 1995 for $157,000
2) Sold October 24th, 2016 for $267,000. Closing date November 23rd 2016. Sole ownership for the 21 years.
3) Replaced roof shingles June 11th 2012 for $6800 (of any use for capital gains calculations?)
4) Single detached home located in London Ontario
5) Mortgage paid off prior to Dec 2008 (probably paid off around 2004)
6) From Jan 2009 until present, house used twice a year for a total of 1 month a year by the owner. The house was never rented, it just sat empty.
7) Paid property tax for 2009 thru 2015 that was not claimed on Cdn or U.S. income tax submissions
Questions
Referencing Cdn Income Tax Information Circular IC72-17R6
Item 26 “Treaty-Protected and Treaty-Exempt Property†… if all of the income or gain derived from the disposition of that property is exempt from tax under Part I of the Act, due to a provision in a tax treaty that Canada has with the country of residence of the vendor…
Question 1: Would this property be exempt due to the tax treaty with the U.S.? If so per item 29 under “Tax Treaty Exemptionsâ€, what tax treaty provision would be applicable to help complete form NR301? Should the purchaser be provided with a completed form T2062C to sign depending on your answer to the initial question?
Item 73 “General Comments†… tax or security required may be reduced accordingly where the gain is reduced by the principal residence exemption….
Question 2: Regarding the person and house details furnished above, would a successful principle residence exemption be likely after submitting form T2091 (IND)? It appears that this request would invalidate and must not be used if NR301 is submitted? Which route is best considering the facts provided or is there anything other information required to make an informed reply?
Question 3: With no accounting background to offer, how do capital gains work? Using the house details above, would the $157k 1995 price be adjusted to 2016 dollars equaling approx. $230K (utilizing the Revenue Canada inflation calculator)? Then the 37K difference (267K-230k) between the two equal the capital gain? Or would the first 14 years as a Cdn resident +1 year be capital gains exempt, then a house valuation be calculated for the 2010 year, and the gains be calculated as the difference between the $267k and the 2010 value?
Question 4: What is the protocol with the house purchaser and their lawyer? It is close to the end of the year, so the tax withheld from the sale would be figured out on a Cdn tax return for 2016. Failing any of the treaty and/or principle residence exemption criteria, should the 25% just be withheld from the sale? If form T2062 is to be submitted ASAP before the house sale closes, what is to be used as security (possibly a considerable sum) when one would use the proceeds from the sale to provide the security?
A cross border tax professional will ultimately be engaged for this what seems to be convoluted process, but as a novice, the details need to be at least understood. Thank you in advance for all insight offered and please indicate if any more information is required.
U.S. Perm Resident Cdn Citizen selling House in Canada
Moderator: Mark T Serbinski CA CPA
Post is way too long.... keep it shorter in future.
Cdn real estate is never exempt from Cdn taxes. The treaty only allows non-real property to be exempted (which is partly why you report deemed disposition for all other investments when you left canada, but not real estate.
The real estate taxes could have been claimed every year on your schedule A, but it doesn't look like you itemized in any event.
So, for Canada when you report the sale (which you should be or have already filed a non-resident compliance form T2622.)
Then you will have the cap gains, which will essentially be the entire gain (with cost base adjusted for allowable expenses that raise the cost basis) prorated by the number of years it was you principal residence plus one year. so in your case roughly $100K*(1 -(13+1)/21) = $33K, which will be reported on a 2016 non-resident tax return. You're looking at about $4K of taxes.
Part of the proceeds will need to be withheld to cover the presumed taxes. Probably a lot more than $4k will be withheld.
For US, you will pay cap gains tax on the gains since you left US, so you will need a rock solid fair market eval from Dec 2008. btw, you can opt to calculate the Cdn taxable cap gains that way if it works out less than the method I showed above. The Cdn tax you owe can be used as a credit on your US return using 1116.
You don't really need an expert to do your Cdn tax next spring, but you should NOW consult someone familiar with cross-border non-resident selling of property to make sure that you are compliant with the reporting aspects as well as the withholding and calculation of your cap gains. When you report in spring you will get any excess withholding back.
Then next spring the Cdn taxes should be simple. The US taxes should also be simple, presuming you
Cdn real estate is never exempt from Cdn taxes. The treaty only allows non-real property to be exempted (which is partly why you report deemed disposition for all other investments when you left canada, but not real estate.
The real estate taxes could have been claimed every year on your schedule A, but it doesn't look like you itemized in any event.
So, for Canada when you report the sale (which you should be or have already filed a non-resident compliance form T2622.)
Then you will have the cap gains, which will essentially be the entire gain (with cost base adjusted for allowable expenses that raise the cost basis) prorated by the number of years it was you principal residence plus one year. so in your case roughly $100K*(1 -(13+1)/21) = $33K, which will be reported on a 2016 non-resident tax return. You're looking at about $4K of taxes.
Part of the proceeds will need to be withheld to cover the presumed taxes. Probably a lot more than $4k will be withheld.
For US, you will pay cap gains tax on the gains since you left US, so you will need a rock solid fair market eval from Dec 2008. btw, you can opt to calculate the Cdn taxable cap gains that way if it works out less than the method I showed above. The Cdn tax you owe can be used as a credit on your US return using 1116.
You don't really need an expert to do your Cdn tax next spring, but you should NOW consult someone familiar with cross-border non-resident selling of property to make sure that you are compliant with the reporting aspects as well as the withholding and calculation of your cap gains. When you report in spring you will get any excess withholding back.
Then next spring the Cdn taxes should be simple. The US taxes should also be simple, presuming you
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 