Deferred Tax Payment of Income from Deemed Disposition

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wmwilliam67
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Deferred Tax Payment of Income from Deemed Disposition

Post by wmwilliam67 » Thu Dec 13, 2018 5:08 pm

My wife and I moved to the U.S. from Canada and performed a Deemed Disposition on our stock portfolio. We transferred our stocks from Canada to a U.S. broker

We elected at that time to defer payment of tax on the income from the deemed disposition until we actually disposed of the stocks in the U.S (Form T1244)

Every year since leaving Canada, we have received from Canadian Revenue Agency a form asking if we have sold any stocks in the tax year. We have duly filled out the form and paid the taxes owed, if any, from stock sale for that year. About 3/4 of the stocks from Canada have now been sold in the U.S. and taxes paid to CRA. Some stock still remain however.

I have heard either in this forum or somewhere else that "something happens" at year 10 of this. I for the life of me cannot remember what that "something" is but it seemed important.

Does something happen in Year 10 or am I imagining things? We are approaching year 10 and hence the question.

I apologize in advance for the vagueness of the question. I searched this forum and Googled but found nothing.

wmwilliam67
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by wmwilliam67 » Thu Dec 13, 2018 5:16 pm

Basically, could it be that that at 10 years, the remaining tax becomes due?

nelsona
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by nelsona » Thu Dec 13, 2018 6:03 pm

Quite the opposite, if you did not sell the deemed disposed stocks, you are no longer taxable on the sales at all.
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wmwilliam67
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by wmwilliam67 » Thu Dec 13, 2018 6:13 pm

Thank you for the response.

I'm sure you're correct but it does seem to be too good to be true?

Would it be due to the fact that if CRA does not collect a tax 10 years after assessing it, it can no longer pursue the tax? That I
did read somewhere on the Internet.

nelsona
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by nelsona » Thu Dec 13, 2018 9:42 pm

It is a treaty issue, which essentially states that Canada and US can only tax its former residents for cap gains (that are not real property of business property located in that country) for 10 year after leaving.
It is Article XIIi(5).
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cnytax
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by cnytax » Thu Feb 14, 2019 2:36 pm

Thanks for the referring me to Article XIII(5) of the U.S. Canada tax treaty. It does seem quite clear that taxation can occur for only 10 years following departure.

My wife and I left Canada in 2007 for the U.S. , so the 10 year limit has been passed. However, CRA still sends us a form annually asking if we have
disposed of any stocks in the previous year. In previous years, we have duly reported any sales and have paid the tax as required.

Not sure what to do now if CRA keeps sending us the form. (The point is moot since our remaining stocks will probably never be sold anyway.)

Thanks.

wmwilliam67
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by wmwilliam67 » Sun Mar 10, 2019 3:31 pm

Is it possible the CRA is not aware of the 10 year rule?

nelsona
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by nelsona » Sun Mar 10, 2019 6:23 pm

No, but they sometimes need reminding.
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cnytax
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by cnytax » Fri Mar 15, 2019 12:45 pm

Hi,

So today my wife received CRA Form RC171 asking if any stocks were sold during 2018. It is now 12 years since we left Canada so CRA is either unaware
or not concerned with Article XIII(5) of the U.S. tax treaty.

What should we do?

Send them a letter pointing out the Article XIII?

nelsona
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by nelsona » Wed Mar 27, 2019 6:10 am

I just answered this, didn't I?
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cnytax
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by cnytax » Wed Mar 27, 2019 3:33 pm

Well you pointed out the applicable Article of the US-Canada tax treaty dealing with capital gains 10 years after leaving.

I'm wondering what to do with the CRA continuing to ask if any stocks have been sold last year even though we left Canada
over 10 years ago. Since 12 years has passed, I was assuming that they would stop asking because of the tax treaty but they haven't.

So ignore the form, or inform CRA about the relevent Article? I'm not comfortable with just ignoring them on this.

cnytax
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by cnytax » Wed Mar 27, 2019 3:43 pm

Ok, ignore the above.

I saw your reply to william67 "about CRA needing reminding".

So I assume that means a letter of sorts.

Thanks.

nelsona
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by nelsona » Wed Mar 27, 2019 4:07 pm

The article is XIII(5)
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Solen
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by Solen » Thu Mar 28, 2019 9:43 pm

Just a follow up question (or 2) regarding this issue:

The Form T1244 says that if you are electing to defer the payment of tax due to deemed disposition on leaving Canada, and the amount of federal tax owing is more than $16,500 then you have to provide "adequate security" to cover the amount.

- does anyone know how much the adequate security is?
- does anyone know what happens after ten years when (according to other posts) CRA can no longer tax the deferred deemed disposition due to the Tax Treaty? (likely CRA keeps the "adequate security"?)

nelsona
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Re: Deferred Tax Payment of Income from Deemed Disposition

Post by nelsona » Fri Mar 29, 2019 10:56 am

You always have possession of the security. The security is usually the investment in question.
Nelsona Non grata. Non pro. Search previous posts. Taking period between now and June off. Will only answer sporadically.

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