T2062, Canadian in USA selling ex-principal-residence

Sthornington · Post by **Sthornington** » Wed Jun 06, 2012 11:49 am

Here's my situation:

Nov. 2006 - Bought a condo in Montreal, $-180k CAD
2007 - Repaired condo basement, $-10k CAD
2009 - Joined/started a lawsuit relating to a hidden defect
Sep. 2010 - Moved to NYC, couldn't sell condo due to above
Dec. 2010 - filed tax returns as a partial Canadian non-resident, declared non-residency for 2011, did not file as I had no income
Feb. 2011 - Condo appraised at $235k CAD, paying muni tax on a value of $230k CAD during 2011
Sep. 2011 - Repaired condo building, $-30k CAD
Jan. 2012 - Began renting the condo for $1k/mo, no tax witheld
Jun. 2012 - Likely settling the lawsuit by selling the condo back to my vendor, for $240k

SO...

If I understand correctly, I can file a T2062 and a T2062A as I sell this place. How do I figure the cost basis?

$235k deemed-disposition-price (though I didn't file anything) + $30k?

Or do I use PRE like this:

PRE = [ $240k - ($180k + $10k + $30k) ] * [ (4yr+1) / 6.5yr ]
= $15.3k on cap gain of $20k
= $4600 taxable cap gain, and 6 x $1000 taxable gross rental income

That sort of thing?

Cheers,

Simon.

Sthornington · Post by **Sthornington** » Wed Jun 06, 2012 11:50 am

To clarify, I didn't file a *Canadian* tax return in 2011, as I had only US income, and the Canadian rental income didn't begin until 2012.

nelsona · Post by **nelsona** » Wed Jun 06, 2012 12:19 pm

You are suppoesed to be having tax 25% withheld, so you will need to pay this at selling time, and then do a federal only section 216 return to determine your rental tax.

The proceeds are the selling price minus your selling costs. That is simple. The deemed disposition price is meaningless, since it was not subject to deemed disposition, and you did not elect to do so back then.

The cost basis is your original purchase price, and *perhaps* the 2nd 30K repair. I do not believe the first 10K can be added, since it was upkeep to your residency. The second $30K could be considered work done in order to rent, so is eligible.

Your math is a little off on how long you have owned the place: Nov 2006 to June 2012 is only 5.5 years

So, your cap gains is, as your formula laid out. Your gain is either $60K or $30K, and you are allowed to exclude (4+1)/5.5) or 91% of the gain.

This cap gain will go on a fedearl non-resident return, and you will be taxed ~23% on 1/2 of the gain, so we are talking 23% of 50% of 9% of your capital gain, so about 1% of your calculated total gain.

For US, you will have to report at most the gain from the tme you left canada (this is where your evaluaution when you left comes in) plus any depreciation that you take on your 2012 return. You will also have to report the rental income.

nelsona · Post by **nelsona** » Wed Jun 06, 2012 12:21 pm

so you will have 2 Cdn federal returns to file.

one for the rent and one for the cap gain. at most you will owe $600 for the cap gain tax, and your renatl tax will be based on the expenses you had.

Sthornington · Post by **Sthornington** » Wed Jun 06, 2012 12:37 pm

Gotcha, thanks. So, now, at the time this is being dealt with (ie: Promise to Purchase, notary at the end of the month), I should file a T2062 (with a T2091?)? Do I need to file a T2062A since I briefly rented it?

Just trying to figure out all what I need to do "in the next 10 days"...

nelsona · Post by **nelsona** » Wed Jun 06, 2012 1:14 pm

You need to submit all 3.

Sthornington · Post by **Sthornington** » Wed Jun 06, 2012 1:28 pm

Is that all, or do I need to file anything else as well? (thanks again)

nelsona · Post by **nelsona** » Wed Jun 06, 2012 2:37 pm

http://www.cra-arc.gc.ca/tx/nnrsdnts/cm ... u-eng.html

JGCA · Post by **JGCA** » Thu Jun 07, 2012 7:10 pm

Condo is located in Quebec you have to have QC witholding also done on Quebec side on the sale proceeds and along with the Federal T2062 you need to get a clearance certificate Art 1098 from QC, then you file a QC tax return only for the capital gain.

JGCA · Post by **JGCA** » Thu Jun 07, 2012 7:17 pm

BTW the QC withoding tax is 12% plus the Fed rate of 25%.

Filo · Post by **Filo** » Thu Jun 07, 2012 9:23 pm

For the US report, doesn't he have to transform the 2006, 2007, 2011, and 2012 figures by the exchange rate for each of those four years?

nelsona · Post by **nelsona** » Thu Jun 07, 2012 10:04 pm

No, becuase it was his principal residence before he left. He will not be taxed on the pre-arrival portion, only post, and only becuase he rented out.

Sthornington · Post by **Sthornington** » Fri Jun 08, 2012 10:58 am

It sounds like I might be getting a $2500 penalty for not filing a T1161 when I left. Are there any other time-bombs like this I need to be aware of?

nelsona · Post by **nelsona** » Fri Jun 08, 2012 11:37 am

You also have a per day penalaty of the forms you are currently dealing with so beware.

I'm pretty sure that if you had (a) read the emigrant guide, and (b) used software to prepare your departure return, all your deemed disposition, and reporting would have been correct.

But, CRA sees selling property as a non-resident as the final chance to get back and catch any tax/penalties that they missed, which is why they are pretty strict about these reporting mechanisms.
In your case its the failure to report that you owned the property when you left, as well as the fact that you have failed to remit rental income tax in timely manner. So make sure yopu don't drop the ball on this part at least.

jennychang · Post by **jennychang** » Fri Jun 08, 2012 12:29 pm

Hi there, I might have some problem here. Moved to US 10 years ago, have a house jointly owned with parents and now they live there. Never filed T1161, not indicate my departure date on my last year filing (2001 or 2002, cannot remember). No other property except some RRSP but reported to IRS already.

Since it is over 10 years, does it mean the penalty is $2500 open to me or more? Any action I need take right now? What's the CRA's statue of limitation?