Overseas tax implications for New Canadian from the UK - Value on date of Immigration to Canada - Glen Kelleway Mortgage Broker


Hi David

 
I received your contact details from Glen Kelleway. I thought you might be able to help me with a capital gains tax question.
 
Here's the overview:
  • I am from the UK originally and own two houses there
  • I have been living in Canada for approx 22 months.
  • I am married to a Canadian
  • We own a house together in BC (both on the title)
  • I am fully employed in Canada and pay tax here. I haven't yet filed my tax return this year in Canada.
  • I earn $42k gross per annum plus commission on real estate sales. We haven't had any sales so I haven't had any commission payments so I'm not sure how my tax bracket in Canada will be affected when I do (expecting to soon)
I am going to sell one of my UK houses soon. I expect the "gain" to be the difference in the price I paid less the price I get for it. The price I paid on paper was 249,995 GPB. I could sell for around 290 - 295GBP. I would have realtor fees of about 4.5k GBP to pay as well as legal fees of approx 1k GBP. I have paid an initial mortgage arrangement fee of 3187 GBP and a subsequent fee of 2157 GBP (I have this in writing). I have had other annual expenses of maintenance fees for the property (like strata fees almost). I would have to pay 2% of the amt borrowed as an early repayment fee i.e. about 4k GBP. So if those all qualify as expenses, my expenses are roughly 15k but that doesn't include interest on the mortgage - it was an interest only mortgage.
 
I don't think I should be paying UK capital gains on the gains as I haven't lived there since Nov 07.
 
I'm expecting I'll have to pay capital gains in Canada. Do you think this is the case. Will it be worked out as a tax rate on 50% of the gain i.e. the profit from the sale less my expenses i.e. applicable tax rate on 50%(40k profit - 15k expense) = tax on 12.5k?
 
I'm not sure what the best option is  e.g. I can leave some of the money in the UK and then send most of it to Canada at some stage. This can be done in one amount or in separate amounts. I'm assuming if I leave all the gains money in a UK a/c that Canada will "find out about" my gains and I would still have to pay tax on the gain here.
 
Having worked with a great tax accountant previously in the UK I am looking for a possible alternative that might save me paying the tax. How do you work on these types of matters?
 
Thanks.
 
Kind regards,
 
 



 

david ingram replies:

You have discovered one of BC's great mortgage brokers in Glen Kelleway (glen@morgageitright.com - 604-476-0053)

Both houses in the UK are subject to Capital Gains Tax in Canada.

However, whether you came from England, Spain, Indonesia or the USA, the ACB (adjusted cost base) of the houses and anything else you may have of value,  will be the value the day you arrived in Canada  And, in your case, this is dependent upon the area where your houses are located.

 

As you will see in the following graph -  http://www.primelocation.com/house-price-index/

Houses in London are worth more today than they were in November 2007. (the light blue line)

Houses in the UK in general are worth less than the day you left. (the green line)

Since the green line includes London, it is fair to say that your houses are worth significantly less than the day you left.

However, you also have to deal with forex or Foreign Exchange because for Canadian tax purposes, it is the value in Canadian Dollars on the day you left the UK and arrived in Canada that matters.

I remember well when one GBP was worth FIVE Canadian dollars.  However, today it was only worth $1.73 although it was better in 2007.

On November 15, 2007, the forex for GBP to Cdn dollar was 2.0084

If somehow or other the UK house was worth 250,000 GP, that would be $502,100 Canadian dollars

Today, Dec 14, 2009, the GBP has gone down about 14% relative to the Canadian dollar and is only worth 1.72490

If you had sold the house today Dec 14, 2009, for a net of $287,500 GP, the value in Canadian dollars is / was $495,908.75 and you would have no tax to pay to Canada.

However, I do not know what use the houses were put to.  If they were rented, you need to file your UK returns RIGHT NOW. We can do that for you although you may have done so already through your UK accountant.

The rents also need to be reported on your Canadian return.

I have to say that it is usually easier to have one individual do both countries than to get two people to figure out what the other did..

Hope that this helps.

And, again, my apology to Glen Kelleway for not looking after his client sooner.

He is undoubtedly, one of the better mortgage brokers around and one of the 1 out of a 100 who truly understands how to make the interest paid on a Canadian mortgage tax deductible AND takes the time to explain it to his clients.

david ingram

 

 

 

 

 
If your question was not answered fully or you wish to go further, I am available for individual consultations by phone or email or in person for $450 per professional hour. 

If you 'really' only have a single question requiring a 'couple' of minutes, you can try phoning me for free as part of the following.

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Most Wednesday evenings, from 6 to 7 PM Vancouver (Pacific - LA, Seattle) time, I interview others and answer US Canada, Great Britain, Spain, Indonesia,  Mexico, etc.  Tax and immigration questions.  GOTO www.david-ingram.com - the North American phone number is (866) 980-0499 - the local number in the lower mainland is (604) 980-0321.-

or

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You might try calling Fred Snyder's weekly radio program for an answer. 

Fred Snyder's  "IT'S YOUR MONEY" radio show.

Fred does a show on CISL,  650 AM on the dial in Vancouver from 9 to 11:00 AM every Sunday - call 604-280-0650 or 1-877-280-0650  LISTEN LIVE IN SAUDI ARABIA AT WWW.AM650RADIO.COM (hit button in top left hand corner).

I guest on the shows on the First Sunday of each month.   November 1 and Dec 6, 2009 and then Jan 3, 2010.
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