Selling Florida house when moving back to Canada. - Section 45(2)


My question is: Applicable to both US and Canada

QUESTION: I am a Canadian Citizen but I've been living and working in the US (Florida) for the past 4 years under an H-1B visa status, which serves as "temporary residency" in the US.  I own a new house here in Florida which has been my primary residence for the past 2 years.  I'm planning to move back to Canada at some point within the next 12 months.  >From what I understand, if I sell my house before I move back to Canada then I am not liable for any Capital Gains or Foreign Tax.  If I move back to Canada without selling the house beforehand, then I am liable for a Foreign Tax.  Is this accurate and if so, what percentage am I liable for with respect to Foreign Tax (or any other tax)?  I'm trying to determine the best time to sell to avoid as much tax as possible. 
The perfect scneario would be to sell after I move back to Canada because I don't have an exact date of when I would be moving back but I would like to know what my liabilies are should I take this route.  
Thanks!
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david ingram replies:

When you move back to Canada, the Florida house is valued as of the time or day you move back.  If you buy another in Canada right away, the house in the USA will be taxable on any gains from the date you move back to the date you  sell it.  Any profit from when you bought it to when you moved back will be tax free in Canada.

For US purposes, you can claim the house tax free provided you have lived in it for 24 months out of the 80 months before you sell it.

If, you do not buy another house in Canada and rent it out for a year or two while renting in Canada, you can designate it as your principal residence for up to 4 years (plus 1) by filing an election under Section 45(2) whereby you write a letter to the CRA saying,

"I hereby elect to claim the house at XXX XXX XXXXXXXX, Florida as my principal residence even though I do not ordinarily inhabit it."  For this to be effective, you can NOT claim depreciation on your Canadian return on the rental house.

In practical terms, you can only rent it out for just under 36 months to qualify for tax free status in the US AND Canada in this situation.

If you moved back to Canada and bought a house the day you arrived and the house in Florida did not go up in value after you arrived, there would not be any tax either.
.
If the house went up in value after you arrived and you bought another house in Canada, then you would owe tax to Canada on one half of the profit.

Since that profit would be added to other income you had earned, the tax would be at the top end of your tax bracket.

The marginal brackets in Canada range from about (depends upon the province you live in) 23% on income up to about $35,000 and 43 to 53% on income over $120,000 with anywhere from three to six different brackets in between depending upon the province.

So, if your Canadian income was already $120,000 and the house went up $100,000 you would owe 43 to 53% tax on the $50,000 half that is taxed on line 127.

If your other income was $50,000 and the house went up $100,000, you would owe about 35 to 40% on the $50,000 which is taxable.
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On December 11, 2007, David Ingram wrote:

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This is not intended to be definitive but in general I am quoting $900 to $2,900 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.
 
$1,100 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

$2,900 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.
 
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 $150 to $500.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc.

Just a guideline not etched in stone.
 
 
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