Taxation of capital gains and inheritance when moving to Canada -

My_question_is: Applicable to both US and Canada
Subject:        Taxation of capital gains and inheritance
Expert:         taxman@centa.com
Date:           Wednesday December 26, 2007
Time:           08:09 PM -0000

QUESTION:

I'm contemplating a move from the US to Canada with my company.  Can you tell me if the capital gain on the sale of my U.S. primary residence and pending inheritances might be taxable in Canada?


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david ingram replies

When you arrive in Canada, your assets are all valued as of the day you arrived.

Any taxable gain or loss is calculated from that date.

If you sell the house and items in teh inheritance before you come, there is no tax.

If you come and live in Canada for five years (IN A RENTED PROPERTY) or less and rent out or leave the family home empty, there would not be any tax on the US house payable to Canada if you filed a section 45(2) election to claim the home as your family home even though you did not  live in it.  However, if you did that for more than three years, it could come up as taxable in the US because you have to have physicaly lived in it for 24 out of the last 60 month period.
If the inheritance was compose dof stocks, you can have an interesting situation since eacjh stock, securoty, mutual fund, limited partnership, bond, etc is valued separately as you come across the order.  If there are only ten stocks it is no big deal.  If you have 200, it is an accounting nightmare, expecially if you sell off part of a holding.

A simple example would be:

You arrive on July 31 with three stocks you owned for a period of time.

Coincidently, you paid exactly $10,000 for each stocj and there are 1,000 each so you paid $10.00 a share for 3,000 shares or $30,000 US.

The first complication could be different exchange rates at the time you bought them which would apply to anything you buy when a resident of Canada but in this case, we are only concerned with the exchange rate the day you came to Canda and for this purpose, I will ignore exchange.

So you arrive on Jan 31, 2008  and the day you arrive:

Stock A (you paid $10,000) is worth $5,000

Stock B is still worth exactly $10,000, and

Stock C is worth $30,000 making it all worth while.

Then a year later on Jan 31, 2009 you sell Stcok A for $10,000.  For Canadian purposes, you owe tax on $5,000 because it was only wotth $5,000 when you moved to Canada

Then a year later on Jan 31 2010 you sell B fro $15,000 and owe Canada tax on the $5,000 profit.

Then on Jan 31, 2011, you sell Stock C for $15,000 and have lost $15,000 because it was worth $30,000 when you came to Canada.  You then get to carry $5,000 of the loss back to 2009 and $5,000 back to 2010 and carry the other $5,000 loss forward agaisnt future profits.


You should go to www.centa.com and read:

1.   The US / Canada Income Tax section in the second box down on the right hand side.

2.   The October 1995 newsletter in the top left hand box.

This older Q & A might help as well.

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gillian@centa.com: Please see bottom of message if you wish to unsubscribe.
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My question is: Applicable to both US and Canada

QUESTION: Hello Mr Ingram,
   I'm an American citizen who has recently received approval for immigration to Canada.  Unfortunately, my mother died in July, and I'm now in the process of settling her estate.  She left me her house (and also, funds in her portfolio, which include annuities, an IRA, and mutual funds).  Do I have to sell the house prior to arriving in Canada (I must arrive in Canada by May, 2008) in order to avoid
Canadian taxes on the home? (Since you are confining these questions to real-estate matters, I'll be happy to get any advice here...However, for the record, my accountant and advisors in the U.S. have also told me it would be best for me to take the annuity distributions over a five-year period, in order to minimize US taxes).  Naturally, I'm concerned about Canadian taxes, as I must appear in Canada no later than May, 2008 in order to set the wheels in motion for Canadian immigration.

It is highly unlikely that I will be able to sell the house before my arrival in Canada, (Also, if each year I receive distributions from the annuities during the next five years, the possibility that I may be liable for Canadian taxes on these distributions if I reside in Canada over the next five years is also a great concern).  Do you think it would be best to liquidate all the assets now, even if it means paying additional US taxes?  Also, if I simply appear in Canada for a week or two in May, and then return to the US (with the expressed intention of returning to Canada later on in 2008), does that mean that I can be considered a Canadian resident, and thus liable for taxes from all the proceeds of the estate?  Am I actually considered a resident from the minute I land in Canada, subject to taxes on worldwide income?  I doubt that I can liquidate all the assets of the estate before my arrival in May, so this is naturally a major concern.  As I'm planning to

 move to Victoria, I
 would be looking forward to working with your firm in the future, provided, of course that I'm not going to be taxed to death!  Your answers here would be most appreciated.
    Thank you so much,
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david ingram replies:

This question came from www.jurock.com, the best real estate site in Canda and likley North America if not the world.

Your immigration to Canada does NOT make you taxable in Canada until you actually move here. 

If you come to Canada and get your PR (permanent resident) card and then return to the US, you will not be taxable in Canada on US income until you actually move here.

This is because of Article IV of the US / Canada Income Tax Treaty which will only tax you in the US on US income if that is where your home is and that is where you are for more than 183 days and that is your citizenship.

To maintain your PR card, you have to be physically present in Canada for 24 out of the 60 months after you get the card. 

If you were to spend 5 months a year in Canada and 7 months in the US for the next ten years, and did not have a Home available to you  in Canada on a year round basis, you would keep your PR card alive and Canada would NOT have the right to tax you on any of your US income.  If you worked in Canada for the five months you were here, or had investments in Canada, Canada would have the right to tax that money first and then you would report it to the US again and have to pay tax to the US.  However, any tax paid to Canada would be a foreign tax credit on US form 1116.  It would not be double taxation.

As soon as you stay in Canada for more than 183 days in a year, canda has the right to tax you on your world income.  However, canda would give you credit for any tax social security and madicare  you paid to the US federal and or state governments. 

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On November 10, 2007, David Ingram wrote:

It is very unlikely that blind or unexpected email to me will be answered.  I receive anywhere from 100 to 700  unsolicited emails a day and usually answer anywhere from 2 to 20 if they are not from existing clients.  Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject line and get answered first.  I also refuse to be a slave to email and do not look at it every day and have never ever looked at it when I am out of town. 
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However, I regularly search for the words"PAYING CUSTOMER" and always answer them first if they did not get spammed out. For the last two weeks, I have just found out that my own email notes to myself have been spammed out and as an example, as I write this on Oct 18, 2007 since June 16th (124 days), my 'spammed out' box has 34,939 unread messages, my deleted box has 11854 I have actually looked at and deleted and I have actually answered 1078 email questions for clients and strangers without sending a bill.  I have also put aside 622 messages that I am maybe going to try and answer because they look interesting. -e bankruptcy expert  US Canada Canadian American  Mexican Income Tax help
Therefore, if an email is not answered in 24 to 36 hours, it is likely lost in space.  You can try and resend it but if important AND YOU TRULY WANT OR NEED AN ANSWER from 'me', you will have to phone to make an appointment.  Gillian Bryan generally accepts appointment requests for me between 10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los Angeles) time at (604) 980-0321.  david ingram expert  US Canada Canadian American  Mexican Income Tax help.
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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.
 
 
This from "ask an income trusts tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention. Advice on bankruptcy  e bankruptcy expert  US Canada Canadian American  Mexican Income Tax help.

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