Hi there,
I am very confused by the answers I have received this morning from CRA help line.
I am non-resident of Canada since January 2005. I have a house in Canada.
For the first 4 months in 2005 the house was on the market available for rent. After that we signed off the lease for 1 year.
So my first question was:
1. Can I deduct as rent expenses utilities, mortgage interest, management fees, etc in form T776 for this period while house has been vacant, and ready for use, but was not rented?
I called to CRA to clarify this point, but the answer was "No, you can deduct expenses only for months when there was rental income".
However, in the Rental Income Guide it says that I can deduct any reasonable expenses I incur to earn rental income.
So the question is who is correct?
Another question I've asked CRA was:
2. Shall I complete Area C in form T776 if it is my first year of renting the house?
And the answer was "No you should not if you not going to claim CCA".
But this made me confused as well.
As I understand Canada's Rental Income guide T4036 I shall complete aria C even if I am not going to claim CCA. And as far as I understand I shall do it because there was change in use of property from personal to rental. Is that right?
Also I have a question about dividing cost of land and cost of building for calculation of depreciation. I can't find any splits of cost in my documents on house. I am not going to claim CCA for CRA this year, but I have to determine "basis for depreciation" for US tax. The lady from CRA help line suggested me to call to real estate Appraisal Company to determine FMV of house and land separately. But I was shocked when I found how much it would cost me.
Do I really have to divide those costs if it is regular house with small backyard?
thanks,
Rental Income in Canada
Moderator: Mark T Serbinski CA CPA
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Mark T Serbinski CA CPA
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In Canada you will need to file two returns for 2005:
a) Your regular return up to the date of your departure in January. This includes world income to the date of your departure from Canada. In addition you need to declare the deemed disposition of all capital assets held (anywhere in the world) at fair market value as of the date of departure.
b) Sec. 216 return for your rental property from the date of departure to December 31, 2005. This return includes a T776 showing rental transactions only. You may use an RRSP contribution to reduce your rental income on this return.
In order to be able to deduct expenses, you must have established that you have a rental property. Whether it is actually rented or not is not relevant, as long as it is actively being marketed for rental and is used for no other purpose. (Your subsequent rental of the property helps to establish this.)
You can use a reasonable split to establish the values of land vs. building on your property. This can be based on such things as sales of vacant lots in your area at the time of your acquisition of the property, etc. I would not go to an appraisal at this time.
a) Your regular return up to the date of your departure in January. This includes world income to the date of your departure from Canada. In addition you need to declare the deemed disposition of all capital assets held (anywhere in the world) at fair market value as of the date of departure.
b) Sec. 216 return for your rental property from the date of departure to December 31, 2005. This return includes a T776 showing rental transactions only. You may use an RRSP contribution to reduce your rental income on this return.
In order to be able to deduct expenses, you must have established that you have a rental property. Whether it is actually rented or not is not relevant, as long as it is actively being marketed for rental and is used for no other purpose. (Your subsequent rental of the property helps to establish this.)
You can use a reasonable split to establish the values of land vs. building on your property. This can be based on such things as sales of vacant lots in your area at the time of your acquisition of the property, etc. I would not go to an appraisal at this time.
Mark
Mark's comment that "In addition you need to declare the deemed disposition of all capital assets held (anywhere in the world) at fair market value as of the date of departure." was an over-simplification, especially considering the topic you were discussing.
Not "all" assets are subject to deemed disposition. Your Cdn real estate, for example, will ALWAYS remain taxable in Canada, thus the deemed disposition rules do not apply to it. Consult the "Emigrants" guide, which you will use for your 2005 return, to see what is and is not included under deemed dispo.
Not "all" assets are subject to deemed disposition. Your Cdn real estate, for example, will ALWAYS remain taxable in Canada, thus the deemed disposition rules do not apply to it. Consult the "Emigrants" guide, which you will use for your 2005 return, to see what is and is not included under deemed dispo.
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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Mark T Serbinski CA CPA
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For those who would like the "non simplified" version.. here goes...
The properties that are exempt from the deemed disposition are those are listed in subparagraphs 128.1(4)(b)(i) through (v), and can be summarized as follows:
(i) real property situated in Canada, Canadian resource properties and timber resource properties,
(ii) capital property used in, eligible capital property in respect of, and inventory of, a business carried on by the individual through a permanent establishment in Canada,
(iii) an excluded right or interest (defined in subsection 128.1(10) and described in more detail below),
(iv) where the individual is not a trust and was resident in Canada for 60 months or less during the 120 month period ending at the time of emigration, property owned by the individual when the individual last became resident in Canada, or property inherited during the period of Canadian residency, and
(v) in those cases where the individual returns to reside in Canada, property in respect of which the individual makes an election to “unwind†the deemed disposition that occurred on the emigration from Canada.
Excluded rights or interests (see (iii) above) include the individual's rights under most pension and deferred income plans, including registered pension plans, retirement compensation arrangements, registered retirement savings plans, registered retirement income funds and foreign retirement arrangements. Excluded rights or interests also include rights to receive payments under annuity contracts or income-averaging annuity contracts, rights to receive benefits under the Canada Pension Plan, the Québec Pension Plan, the Old Age Security Act and the Saskatchewan Pension Plan, and rights to benefits under foreign social security arrangements. Employee stock options and interests in life insurance policies (other than segregated fund policies) are also excluded rights and interests.
All property other than that listed above, including other forms of taxable Canadian property, are subject to the deemed disposition rule of paragraph 128.1(4)(b). As noted, the deemed disposition will give rise to a capital gain or loss, or ordinary gain or loss, depending on the nature of the property. Under paragraph 128.1(4)(c), each property subject to the deemed disposition is deemed to have been reacquired by the individual at its fair market value.
The properties that are exempt from the deemed disposition are those are listed in subparagraphs 128.1(4)(b)(i) through (v), and can be summarized as follows:
(i) real property situated in Canada, Canadian resource properties and timber resource properties,
(ii) capital property used in, eligible capital property in respect of, and inventory of, a business carried on by the individual through a permanent establishment in Canada,
(iii) an excluded right or interest (defined in subsection 128.1(10) and described in more detail below),
(iv) where the individual is not a trust and was resident in Canada for 60 months or less during the 120 month period ending at the time of emigration, property owned by the individual when the individual last became resident in Canada, or property inherited during the period of Canadian residency, and
(v) in those cases where the individual returns to reside in Canada, property in respect of which the individual makes an election to “unwind†the deemed disposition that occurred on the emigration from Canada.
Excluded rights or interests (see (iii) above) include the individual's rights under most pension and deferred income plans, including registered pension plans, retirement compensation arrangements, registered retirement savings plans, registered retirement income funds and foreign retirement arrangements. Excluded rights or interests also include rights to receive payments under annuity contracts or income-averaging annuity contracts, rights to receive benefits under the Canada Pension Plan, the Québec Pension Plan, the Old Age Security Act and the Saskatchewan Pension Plan, and rights to benefits under foreign social security arrangements. Employee stock options and interests in life insurance policies (other than segregated fund policies) are also excluded rights and interests.
All property other than that listed above, including other forms of taxable Canadian property, are subject to the deemed disposition rule of paragraph 128.1(4)(b). As noted, the deemed disposition will give rise to a capital gain or loss, or ordinary gain or loss, depending on the nature of the property. Under paragraph 128.1(4)(c), each property subject to the deemed disposition is deemed to have been reacquired by the individual at its fair market value.
Mark