As a U.S. citizen with only a U.S. source income would there be a Cnd tax liability for the year 2005 if I were to land (exercise permanent resident visa)in Canada in December 2005? Should I hold off (before visa expires) crossing the boarder until Jan/Feb 2006?
Thank You
When to Land in Canada
Moderator: Mark T Serbinski CA CPA
Your tax liability on WORLDWIDE income, will begin when you establish residential ties in canada, which could be days, months or years after you officially land. You will at that time become a tax resident of canada. You will thereafter have to report almost all income in both US (because of citizenship) and in canada.
If you have a choice, the decision on when to establish residential ties (which in essence means buying or renting a home in canada) should be based upon when you receive most or all of your foreign income before that time, to avoid having to report it in canada.
<i>nelsona non grata... and non pro</i>
If you have a choice, the decision on when to establish residential ties (which in essence means buying or renting a home in canada) should be based upon when you receive most or all of your foreign income before that time, to avoid having to report it in canada.
<i>nelsona non grata... and non pro</i>
Thank You Nelson. Another question regarding my current residence here in the USA. In lieu of selling our home we were contemplating using it as a second home and possibly renting it out several months in the year. Will the property treated as a second home or rental property offer any tax deduction opportunities under Canada Revenue rules? I read somewhere among the posted strings that most Canadians assign/release turn-over (?) rental property to a corporation to avoid Canadian taxes on rental income. I'm open to any suggetstion regarding the treatment of the property before being deemed a resident of Canada.
Thank You
Thank You
There may be reasons for handing over rental property but is generally is not for any reantal income tax advantage.
1. Cdns living outside canada must rent any homes that they have to avoid Cdn tax residency. They don't need to have a management firm to look after it, but they need someone to remit a portion of the monthly rent directly the the taxman.
2. Cdns owning renatal property in US, who don't have a green card, cannot legally manage their property (by immigration rules) so often need to farm this 'work' out to a firm. Also, if they are backk in Canada six months a year, they need some supervision of their assets. Doing this in no way alleviates Cdn (or US) tax burden on the renatl income. It does take rental income out of your poscket and puts it in the management firm's.
In your case, renting out your existing home could have SERIOUS TAX IMPLICATIONS, as you could ultimately lose the tax-free status of the gains you have made so far. If you SOLD the property, then you are doing just that: selling it; and can take your gains tax-free (in both US and Canada if done soon after moving). What you do after that is merely another investment, which really has nothing to do with it being 'your house' anymore.
My opinion, is that if you really want a second home in US, sell this one and buy another in exactly the palce where you want it. If you want renatl property, sell your home and buy rental property.
<i>nelsona non grata... and non pro</i>
1. Cdns living outside canada must rent any homes that they have to avoid Cdn tax residency. They don't need to have a management firm to look after it, but they need someone to remit a portion of the monthly rent directly the the taxman.
2. Cdns owning renatal property in US, who don't have a green card, cannot legally manage their property (by immigration rules) so often need to farm this 'work' out to a firm. Also, if they are backk in Canada six months a year, they need some supervision of their assets. Doing this in no way alleviates Cdn (or US) tax burden on the renatl income. It does take rental income out of your poscket and puts it in the management firm's.
In your case, renting out your existing home could have SERIOUS TAX IMPLICATIONS, as you could ultimately lose the tax-free status of the gains you have made so far. If you SOLD the property, then you are doing just that: selling it; and can take your gains tax-free (in both US and Canada if done soon after moving). What you do after that is merely another investment, which really has nothing to do with it being 'your house' anymore.
My opinion, is that if you really want a second home in US, sell this one and buy another in exactly the palce where you want it. If you want renatl property, sell your home and buy rental property.
<i>nelsona non grata... and non pro</i>
Thank You Nelson. By converting the property to rental property and moving to Canada do I dismiss the 2 of 5 year rule? I.E., if the property is the main or second home for 2 of the last 5 years do I lose the tax free status on capital gains (within the limits) if I rent the place the last three years within the 5 years?
Governments get you coming and going![:)]
Thanks again
Governments get you coming and going![:)]
Thanks again
My understanding is that if you only rent it out all for the three years you will not lose the capital gains exemption, but you will not be allowed to exclude the depreciation that you will have taken over these three years.
If you let it sit empty (as your 2nd home), you can sell it in three years and still claim the entire home capital gains exemptions, because you will satisfy the "2 in last 5" rule.
However, there will be capital gains tax in Canada based on the increase in value between the day you move and the day you sell, <b>regardless </b> of what you do with this property. Any rental income will be taxed in canada too, of course.
You will be best served to get an accurate market evaluation of your house close to the time you move for Cdn tax purposes.
Note that while depreciation is manadatory for IRS on rental property, it is not mandatory in canada.
<i>nelsona non grata... and non pro</i>
If you let it sit empty (as your 2nd home), you can sell it in three years and still claim the entire home capital gains exemptions, because you will satisfy the "2 in last 5" rule.
However, there will be capital gains tax in Canada based on the increase in value between the day you move and the day you sell, <b>regardless </b> of what you do with this property. Any rental income will be taxed in canada too, of course.
You will be best served to get an accurate market evaluation of your house close to the time you move for Cdn tax purposes.
Note that while depreciation is manadatory for IRS on rental property, it is not mandatory in canada.
<i>nelsona non grata... and non pro</i>
Thanks nelson. An appraisal of the property's value just before the move is a good idea. If I understood correctly whether the property is rental or second home only the difference in captial gains (assuming a higher sale price)will be taxed by Canada?
I'm so grateful that this forum exist but more importantly that you are there to for all of us.
Thank You! Thank You
I'm so grateful that this forum exist but more importantly that you are there to for all of us.
Thank You! Thank You
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">If I understood correctly whether the property is rental or second home only the difference in capital gains (assuming a higher sale price)will be taxed by Canada? <hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Basically correct.
Your US taxable gain will end up being whatever depreciation you <i>must </i> claim if it becomes a rental.
Your Cdn taxable gain tax will be any post-arrival gains; plus any depreciation you <i>may</i> claim if it becomes a rental.
<i>nelsona non grata... and non pro</i>
Basically correct.
Your US taxable gain will end up being whatever depreciation you <i>must </i> claim if it becomes a rental.
Your Cdn taxable gain tax will be any post-arrival gains; plus any depreciation you <i>may</i> claim if it becomes a rental.
<i>nelsona non grata... and non pro</i>
I Thank You for the response Nelson,
I understand that rental income expense (including interest expense) are deductable under CRC rules up to rental income as it is under IRS rules for a second home that is rented out and used by owner (14 days or >10% of rental days) the same tax year. As a US citizen with U.S. source income (annuity and rental income) with permanent residence established in Canada, will CRC tax income that is otherwise not taxable by the IRS? E.g., mortgage interest on a second home; Mortgage interest on investment (rental property) real property,and annuities.
Have A Good Day and Thanks to everyone contributing to this forum.
I understand that rental income expense (including interest expense) are deductable under CRC rules up to rental income as it is under IRS rules for a second home that is rented out and used by owner (14 days or >10% of rental days) the same tax year. As a US citizen with U.S. source income (annuity and rental income) with permanent residence established in Canada, will CRC tax income that is otherwise not taxable by the IRS? E.g., mortgage interest on a second home; Mortgage interest on investment (rental property) real property,and annuities.
Have A Good Day and Thanks to everyone contributing to this forum.
Interst paid on Mortgage on any non-rental poperty is not tax deductible in Canada. Interst on renatl propert is part of your rental expenses, and is deducted from rental income.
Interst paid on loans used to borrow for investing is tax deductible in Canada.
Annuities will be taxed to the same extent they are in US.
<i>nelsona non grata... and non pro</i>
Interst paid on loans used to borrow for investing is tax deductible in Canada.
Annuities will be taxed to the same extent they are in US.
<i>nelsona non grata... and non pro</i>