Tax free Canadian Residence -

 
xxxxxxxxx xxx wrote:
Below is the result of your feedback form.  It was submitted by
xxxxxxxx xxx (xxxxxxx@xxxxxxxx.com) on Saturday, May 9, 2009 at 19:26:21
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My_question_is: Canadian-specific

question: A year ago my parents immigrated to Canada living with my family 
together in a small condo. They can not afford to buy or rent in Canada 
therefore I will be the supporter for their living cost. The current space 
is too small we are considering buying a bigger house. Instead of moving out 
with my parents together, I am wondering if I can leave the current condo to 
them as their principal residence and I will buy my own for my family to live in. 
 
However does this mean if I keep two houses at the same time, any time in 
future if I sell the current condo (planned to my parents' one) it will auto 
impose my income tax if there is a capital gain? If so there is really no 
choice two families have to live together in Canada?
I cannot find any answers from your web-site therefore if you can answer 
it is much appreciated. thanks. xxxxxxxx

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david ingram replies:

If you own two properties in Canada, there is always a tax liability on one of them.  this is true whether it is a condo your parents are living in at your expense or a waterfront cabin or a ski chalet..

If ten years from now, your condo had gone up more in value than the new house as happened a couple of times in BC and Ontario, then you would claim the condo free and pay tax on the increased value of the house.

Note that if the condo was a rental condo, you could only claim it as a tax free personal residence for 4 years under Section 45(2) of the Canadian Income Tax Act.

In fact, if you bought a condo for your parents in Yugoslavia or India or Brazil or the USA, and it went up more than your house in Canada, if it was not rented out, you could claim it tax free rather than the house in Canada.

I do not understand your comment about there is really no choice but to live together.  If you had done it ten years ago, even if you had to pay tax today, the gain in the price of your real estate would have made the ownership of that second piece of property a wise move in most parts of Canada and some parts of the USA.  This is particularly true when you take the opportunity factor into account.  You could have been paying non-recoverable rent over the same time period.

In most parts of North America, the cost of rent doubled in that same time period.

And, there is a solution.  If you put the condo in your Parents' name, then they would get their condo tax free and you would get your house tax free.

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1.    Can you sell your principal residence and then claim your recreational property as principal residence (both Canadian)?  If so, what are the capital gains implications if you then sell your recreational property (which is now your principal residence)?

Obviously, you can't go around claiming principal residence and then selling property after property without being noticed.

2.    Is there a time frame that you need to inhabit this recreational property to allow for a sale as a principal residence?

3.    Is the entire amount of increased value (purchase price to today's worth) sheltered from CG or just the portion from the day you declare the recreational property to be your principal residence?

4.    Is there a limit of land size when claiming principal residence?  I heard there was a limit of 1 acre of principal residence being sheltered from capital gains unless you can prove the necessity of the remaining land base (i.e. access to the dwelling).

5.    What are your rates for service?  Counsel for Capital Gains management  (recreational and principal residence) so that the heirs aren't left with a tax burden that forces the sale of the recreational property.

Thanks,


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david ingram replies:


1.   yes but not for the same time period.  See form T2091 to see how the CRA looks after this

 http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind/t2091-ind-04e.pdf


2.   no and yes.  It can only be designated for the time that you did not designate the other house

3.   just the portion you declare.

4.   the limit is 1/2 hectare which is 1.22 acres.  If the land can NOT be subdivided because of zoning or other laws which require 4 acres for a septic field (as an example), then the whole piece might be allowed.  Goto  www.centa.com  and read the capital gains section in the TAX GUIDE which you will find in the top left hand box  for some examples.

5.    fees are stated in the following missive.-




SUGGESTED PRICE GUIDELINES - Aug 5, 2008
 
david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325

Calls welcomed from 10 AM to 9 PM 7 days a week  Vancouver (LA) time -  (please do not fax or phone outside of those hours as this is a home office) expert  US Canada Canadian American  Mexican Income Tax  service help.
pert  US Canada Canadian American  Mexican Income Tax  service and help.
David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
 
Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,200 would be the same with one rental
 
$1,300 would be the same with one business no rental
 
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
 
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
 
A Business for $400 - Rental and business likely $550 to $700
 
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.

--
IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--

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Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com or www.garygauvin.com.  If you forward this message, this disclaimer must be included." -


 





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