PART II - Reducing capital gains for Canadian citizen /

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As regular readers of this newsletter will notice I love it when someone points out what I missed or ads to the mix.  Ross McDonald is an old partner who along with Betty Scott has Lighthouse Realty in Abbotsford, BC and also still prepares tax returns under the CEN-TA  BANNER.
His addition follows:
 
-----Original Message-----
From: Ross McDonald [mailto:[email protected]]
Sent: Wednesday, January 28, 2004 7:50 AM
To: [email protected]
Subject: RE:  Reducing capital gains for Canadian citizen / USresident - tax question about selling the family house. 2.5 years later. Section 216(4) rental tax return for non-resident of Canada - Income Tax Planning Expert
Hi David
Re: Sale of the House.
One other point that will have to be considered is that unless a T2062 is filed in advance of the sale there will be withholding tax by CCRA at the time of the sale.  Without the T2062 the withholding tax is 33% of the gross selling price and is remitted by the lawyers at the time of the sale.  Filing the T2062 (and it takes 8 weeks to get it processed) will reduce the withholding tax to 25% of the gain (in this case $12,500 or $6,250 per taxpayer).  CCRA will only process the T2062 if all the rental returns are done and assessed first.  If they have not been done, they can only be filed now under Sec 216.1 and must be filed within a 2 year window or the rental income will be assessed at a flat rate of 25% of the gross rents. These people should see you right away because as you can see this is a very tricky area and any mistakes could cost them a lot of money.
Ross McDonald
-----Original Message-----
From: [email protected] [mailto:[email protected]] On Behalf Of [email protected]
Sent: Tuesday, January 27, 2004 11:47 PM
To: CENTAPEDE
Subject:  Reducing capital gains for Canadian citizen / USresident - tax question about selling the family house. 2.5 years later. Section 216(4) rental tax return for non-resident of Canada - Income Tax Planning Expert
 
My wife and I own a house in Canada that is currently being rented.  We are residents of the US (for 2.5 years).  We want to sell our home in Canada .  When we left it was worth $385,000 and now it is worth about $435,000.  I work in the US and make approximately $110,000.  My wife does not make an income.  Is there anything I can do in advance of selling my house to reduce the amount of Canadian tax I will pay on capital gains (transfer it to my wife, etc.)?  How is the gain treated in the US?  Can I reduce the taxes in the US?
Thanks,  BXXXXXXXXX
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david ingram replies:
When you went to the US, your house was revalued at the fair market value which you quote as $385,000.
You should have been filing two returns to report the rental on Schedule 776 on your Canadian returns which would have been filed under Section 216(4)  of the Canadian Income Tax Act.
When you sell, your wife and yourself will have to file a return each to report this year's rental and your shares of the $50,000 capital gain of which only half is taxable.
So you will report $25,000 gross and your wife will report $25.000 Gross sale and $12,500 taxable on line 127 of your Canadian Tax return.  Neither of you will get any personal exemptions.
Your tax will be about 23% of $12,500 each or about $3,000 each.
The same figures will then be converted to US dollars and entered  on Schedules 4797(sale of business property) and E (rental schedule) and 1116 (foreign tax credit) of your US tax return.  
The Family house is the "ONLY" capital asset which is revalued at market value for US purposes when you cross the  border to live in the  USA.  All other capital assets are valued at your original cost price for US purposes.
     David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
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Res (604) 980-3578 Cell (604) 657-8451
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[email protected]
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This from ask an income tax immigration planning and bankruptcy expert consultant guru or preparer  from www.centa.com or www.jurock.com or www.featureweb.com. Canadian David Ingram deals daily with tax returns dealing with expatriate:
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David Ingram of the CEN-TA REALTY  Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
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North Vancouver, BC, CANADA, V7N 3L7
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