CEN-TA Cross Border Services - Tax, Visas, Immigration: selling house after transfer - David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians fro

QUESTION: We bought a home in Kamloops in 1997 in a transfer with my job from Ontario to BC. I had a five year contract. My five years ended in September 2002 and after we tried to sell the home, but were unsuccessful, we rented it with the intention of moving back when my job allowed. We found out that I could never get back to Kamloops so sold the home in 2007. Do my wife and I have to pay Capital Gains on this property or do the special circumstances referred to in T4037 apply to us and the disposition of this property? Thank you,

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david ingram replies:

As described, you could have rented the house out for 2002, 2003, 2004,2005 and 2006 with no tax if you filed an election under Section 45(2)of the tax act. An exception would apply if you left Kamloops withanother job transfer with the same company. Then you can betransferred and the house is tax free for as long as you continue towork for the same company.

This would really only apply if you did not buy another house where youmoved when you left Kamloops.

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this older q & a might help

My question is: Canadian-specific

QUESTION: Hi David,

Please help.

I bought a Calgary condo in Oct 2003, and lived in the condo untilMarch 2005, when I bought my present house.

The condo was rented from April 2005 to August 2006, and I sold it inNov 2006, at a gain.

My question: Would I qualify for the Principal Residence exception andbe exempted from Capital Gains tax for the condo sale?

Thanks.

Best Regards,

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__________________________________________________________________
david ingram replies:

I am too busy for this but hope you get something from the following:

>>
>> QUESTION:
>>
>> Hi,
>>
>> Last year, we rented out our condo in Vancouver. The
>> plan then was to have the rent cover our mortgage
>> payments for the 12 months that we would be away. A
>> short term solution.
>>
>> Now, we are planning to be away from BC for a longer
>> period of time (approx. 2 years) and wish to sell the condo
>> in the middle of the year, as we are unable to rent the
>> condo for any longer due to strata council by laws.
>>
>> 1) If we sell the condo when there has been a tenant living
>> in it for 12 months, will we pay capital gains?
>>
>> 2) What are our best options to avoid paying this tax?
>>
>> 3) If capital gains would be owed, for how long would we
>> have to make the unit our principal residence again before
>> we can sell it and not pay CGT?
>>
>> Thank you,
_________________________________________________________________

david ingram replies:

If you filed a section 45(2) election with your first year's rental,you
can rent the condo out for up to 4 years (plus 1 in the calculation)
without incurring capital gains tax if you have not bought another
residence that you are living in.

If you have bought and lived in another house, you have to choose oneor the other as your tax free residence for the time you owned both.

See Below:

My question is: Canadian-specific

QUESTION: Dear Mr. Ingram,
I bought a house in the December of year 2000, lived there till the endof December 2000 (3 weeks) and started to rent it out on January 1,2001. I filed the election 45(2) to claim the house as my primaryresidence for years 2001, 2002, 2003 and will do it for 2004.
I do not claim a depreciation for those years.
I want to sell the house now. Do I need to move in house first in orderto avoid the payment of the capital gain taxes. For how long I have tostay there to be eligible for not paying the capital gain taxes on soldhouse if I need to move in.

Thank you in advance for you help,
----------------------------------------------------------
david ingram replies:

First I am going torepeat your old question from last July and my answer.

My question is: Canadian-specific

QUESTION: Hi, David!
I would like to know is it possible to use the election under thesection 45(2) again if the old house is sold and the new one is bought.Can it be used unlimited number of times by the condition that it isused for each house only once.

Thank you
---------------------------------------------------------------------------
David Ingram replies:

Section 45(2) isintended to allow people to try something out. This means that if youmove to a rented condo for a couple of years and rent your house out,you can move back into the house without suffering a capital gains taxunder section 45(2).

Since it was passed onJune 17, 1972, (32 years ago now) I have never seen it used more thantwice by one person.

Does not mean it hasnot been used more than twice in thirty years, it just means it isunlikely.

There is no numericrestriction but if you are moving in and out of houses, the CRA willtreat you as a trader and tax you at full rates.

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Now, to answer thisquestion. Section 45(2) is NOT something you can plan to use. Inother words, your living in the house for three weeks and renting itout and filing a section 45(2) election does NOT make it tax free ifyou bought the house to rent and not to live in as your personalprincipal residence.

Your question indicatesto me that you are trying to beat the system and did not buy the firsthouse to live in and unless you can show the tax office that you movedevery stick of furniture in and really intended to live there, the CRAwill not allow it to be sold tax free.

This year, a new policyof the CRA is that they wish form T2091 to be filed with every taxreturn where a personal house was sold during the year.

If it was yourresidence and you genuinely intended to live there and were transferredof suddenly got married or could not stand your neighbour or lost yourdriver's licence or suffered some other disaster that caused you to"HAVE TO" move suddenly, filing section 45(2) will make it tax freeprovided you did not also own another house that you did live in. Ifyou did own another house that you actually lived in, claiming thehouse you have filed the 45(2) election for as tax free, will MAKE THEHOUSE YOU ACTUALLY LIVED IN TAXABLE.

If you have a genuine45(2) election, you do not need to move back in. If it is not agenuine 45(2), moving back in will TRIGGER a tax bill as you move in.

You need a consultationwith someone who knows the rules before you make a mistake. I amavailable in person or by phone at a fee of $350.00 minimum for an hourbut not until November now.

As many know, I chargethis for US / Canada tax an immigration advice as well. I am not alonethough.

If you have a tough USimmigration question to ask or one that I cannot deal with (remember Ido Immigration AND tax) Joe Grasmick is the place to go for a telephoneconsultation. His fee is $295.00 per HALF hour and you can get hold ofhim at http://s1.amazon.com/exec/varzea/ts/exchange-glance/Y01Y4838730Y0462867/104-8053170-6203936

I have sent two out oftown people to him in the last month where it was obvious to me thatthe people needed a lawyer as opposed to a consultant..

If you want a freeanswer for a couple of minutes, remember

Answers to this andother similar questions can be obtained free on Air every Sundaymorning.

Every Sunday at 9:00 AMon 600AM in Vancouver, Fred Snyder of Cartier Partners and I will behosting an INFOMERCIAL but LIVE talk show called "ITS YOUR MONEY"

Those outside of theLower Mainland will be able to listen on the Internet at

www.600AM.com

Local phone calls to(604) 280-0600 - Long distance calls to 1-866-778-0600.

Old shows are archivedat the site.

This from ask an incometax immigration planning and bankruptcy expert consultant guru orpreparer from www.centa.com or www.jurock.com or www.featureweb.com. CanadianDavid Ingram deals daily with tax returns dealing with expatriate:
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