Non-Residents in Australia property capital gains tax obligations section 45(3) Form T2091 -

My_question_is: Canadian-specific
Subject:        Non-Residents property capital gains tax obligations
Expert:         taxman@centa.com
Date:           Tuesday February 12, 2008
Time:           11:21 AM -0000

QUESTION:

We bought a property in Vancouver in 2003 and lived in it as our principal residence for approx 6 months. We then transferred to Australia and are now non resident and have since rented the property out. If we now sold the property what is our capital gains tax obligation? If we returned to Vancouver and lived in the property again would this obligation change?
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david ingram replies:

The property was tax free while it was your residence but has been taxable while you were a non-resident of Canada.

I presume that you have been filing your Canadian returns all this time.

If you were to sell today you would owe tax at standard rates on 50% of the profit and at standard rates on any recaptured depreciation. Roughly that would mean that if there was a $200,000 profit you would owe between $24, and 29,000 depending upon whether it was in two names or one.  After $200,000, you would pay about 22% tax on the gross profit.

If you were to come back to Canada and move into it, you would owe tax right now on the capital gains and recaptured depreciation if you have claimed CCA or depreciation on the Candian Section 216(4) retal tax returns you filed.

If you did not claim depreciation or CCA onthe rental schedules, you still trigger a tax as a deemed disposition when you move into it.  However, after calculating the profit on form T2091 and schedule 3 and putting the taxable amount on line 127, you get to deduct it on line 256 and attach a separate letter elcting to defer paying the tax until the actual sale under Section 45(3) of the tax act.  Any increased value after you move in would be tax free again.

These other older questions give the same information

Dear Mr. Ingram,

I moved with my family to the UK halfway through 2003, stayed for three 
years, and moved back to Calgary halfway through 2006.  We became non-
residents when we left (at the advice of CCRA).

While we were away we rented out our home, and then moved back in 
when we returned.  There's the problem.  We are deemed to have sold 
and then re-acquired our property, and so we must pay capital gains 
on the appreciation.  Not knowing what I was doing I tried to file 
all my taxes myself and claimed CCA - it seemed like that's what the 
form wanted.  I've been advised now that I should have claimed a 45-2 
and designated the home my principal residence while we were away, 
and definitely NOT have claimed CCA.  HELP!

Can I go back in time and fix this?  How can I designate my principal 
residence to have been in Edmonton when I'd made myself a non-
resident?  Can I file one of these 45-2's retroactively?  Can I undo 
the CCA?

My question, I suppose, is what SHOULD I have done in the first 
place, and can I go back and fix anything now?

Crying in Edmonton,
 
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david ingram replies:
 
When you leave the country, you can NOT file a section 45(2) and declare the house as your principal residence if you  also declare non-residency AND do not report your UK income to Canada.
 
If the house had stayed level or gone down in value, you would not have a problem.  However, the amazing price increases have left you taxable at this time because ofrficially, you only have 90 days to change a deduction for capital cost allowance and your times for the 2004 and 2005 returns are long past. 
 
Yiur problem is not because you were in England. Your problem is the CCA claimed.  Even if you had moved to Regina or Vancouver or Red Deer or just tried living in an apartment down the street in Edmonton, you would be paying capital gains tax now if you moved back into the residence after claiming CCA.
 
In other words, and to repeat myself, it was not the out of country situation which is causing you the trouble.
 
I am afraid that I can NOT give you any answer to solve this.  You could try filing T1-ADJ forms for the years to try and get the CRA to reverse the CCA deduction for the time you claimed it.  However, I do not give you much chance of success.  If you did succeed, it would be the first one I have heard of since June 17, 1971 when Capital Gains tax was announced.
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These older questions and answers address the issue.
 
My question is: Canadian-specific

QUESTION: Hello
My husband and I have recently bought a mobile home on an acre in Nelson to move to in a few years when we find work there, or much later when we retire.  We currently live in a rented apartment near Vancouver as we work in town.  Our mobile home is rented out to tenants and we intend to let them stay until we would like to move to Nelson.  It is the only home that we own but it is rented out until we can move there. Can you let us know how that would affect us in terms of Capital Gains?  I know that each year we will have to claim the rental income and write off our costs for the mobile home / land against it.  Thank you very much for your feedback.

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david ingramn replies:

When you move into the former rental, it is considered a deemed disposal and re-acquisiton.  Capital Gains tax is due and payable on any increase in value at that time.

 UNLESS

If while renting, you did NOT claim CCA (Capital cost Allowance) or depreciation on the T776 (rental schedule), you can defer paying the tax at that time.

When you do move in, calculate the increase in value and report Half on schedule 3 of your return and half on schedule 3 of your husband's return That schedule will, in turn, result in one half of the half being put on line 127 of your return as taxable income. 

You can now write a letter to the Tax office stating: " I hereby elect to defer opaying the tax triggered by my moving into my rental property under Section 45(3) of the income tax act."

You then write the amount on line 127 on line 256 where it is subtracted from taxable income.  Write - see election letter  beside line 256.

These older Questions are in the same vein.



My question is: Canadian-specific

QUESTION: We in the process of purchasing a house in Penticton and will rent it out, retire (in about 4 years)and  move into it ourselves.  If we live there for 2 or more years are we liable for capital gains for the period we collected rental income?  What type of home insurance is best for a rental property?  What are your thoughts re the real estate market in the Okanagan in the next five years - steady growth or a slump after "2010"?  Many thanks, Jacalin

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david ingram replies:

You are liable for capital gains income tax for the period you rented it out.  In fact "When you move into the house", you will trigger a capital gains tax because of a change in use from a business use to a personal use.
The good news is that you can make an election under Section 45(3) of the income tax act to defer paying the tax until you actually sell the property. To make the calculation, fill in schedule 3 and put the taxable profit on line 127 of your T1.  then deduct the same amount on line 256 under Section 45(3).  Note that under section 45(4) you can NOT make the election to defer the tax if you claimed CCA (capital cost allowance or depreciation) on teh unit.

I think the Okanagan AND the lower mainland markets are already overheated and think the prognosis is for little or no growth for the next five years but I have been wrong before.

That does not mean you should not buy because if I am wrong, it will cost so much more to buy six or seven years from now that you will be cursing me all the way to the mortgage broker.  If you buy and it goes down a bit, it does not matter because you are buying it to live in and that gives you the property in the future at today's price which is historically lower.

david ingram

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On February 11, 2008, David Ingram wrote:

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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.
 
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 recieved as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

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.
 
This from "ask an income trusts tax service 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 service and help .

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