QUESTION:
My wife and I are planning to sell our home in Nova
Scotia, which we have owned for six years. We are both
residents of New York State and are American citizens (my
wife, however, was born in Canada and still has a
Canadian passport, and her mother still lives in Nova
Scotia). Question: do we have to pay capital gains or any
other taxes on the disposition from the sale? I understand
there are exemptions from taxes if the home is a primary
residence (which, as far as Canada goes, it certainly is) or
under tax treaty with the U.S. Would we qualify on either
of these counts or would we have to pay the punitive 25 %
tax? thank-you
____________________________________________________________________________
david ingram replies:
The home is taxable in Canada because you are not residents of Canada.
When you have a sale arranged, file forms T2062 and T2062A to get the tax reduced from 25% of the gross sale price to 25% of the actual capital gains realized on the sale.
When filing the T2062 and T2062A you can not deduct any legal or real estate costs so more tax is usually dedcuted than will be calculated on the actual tax return.
Then in March or April of Next year you will both file a T1 return to report the sale and you can then claim any sales costs and will get a refund at that time.
You will report the sale again on your US 1040 schedule D and your New York IT-201. You claim the tax paid to Canada as a tax credit on US form 1040.
Depending upon the profit, You will have paid Canada 23 to 44% on 1/2 of the profit. If the profit is less than $100,000 your actual tax will be about 12%. At the same time, the US tax will be 15%.
Form 1116 will/should give you full credit for the tax paid to Canada on your US federal return unless the rest of your US income is very very low.
Filling in these forms is what we do and we are happy to look after the Canadian New York and 1040 at the time if your accountant does not understand them which is quite likely. You can send them by fax, email, snail mail or courier. If you did not want to deal with us, Steve Peters in Halifax with KPMG is also more than capable of helping you but more expensive. Gary Gauvin in Dallas Texas can also do them. I do not know of anyone in New York who deals with cross border issues.
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