selling canadian Property while a resident of the US

My question is: Applicable to both US and Canada

QUESTION: My friend is selling one of her properties here in Canada. It is elected as her PPR and she will be exempt from any capital gains tax. However, she also currently resides in the US as is worried about any tax implications this sale may have.
Are her worries unwarranted? She is a Canadian and British citizen with landed immigrant status in the US. Thanks.

david ingram replies:

Your friend can NOT have a tax free Principal residence in Canada if she is a resident of the United States unless she has continued to file a Canadian return as a resident and rep[orted her world income to Canada each year.

If she did that, and does not own and live in another home in the US, she may claim it as a tax free pricipal resident provided it has not been rented while she has been gone.

If she has become a US tax resident (automatic if she has a green card), then the house can be tax free (up to $250,000 US profit since she entered the US) IF she has occupied it as her residence for a full 24 months out of the last 60.

Obviously, you should not make any decisions based upon this email.

If she has moved to the US and has rentals in Canada, she should have filled out forms NR-6 with a Canadian tax agent for the rentals and that agent should be filing an NR4 by march 31st each year to report the rent collected in her name. Just as the HSBC or B of M, or Scotiabank would deduct 10% tax on any interest paid to a non-resident and send the non-resident an NR4 slip rather than a T-5 slip to report the interest.

When your friend left Canada, (assuming she has not been filing Canadian returns as a resident), she should have filed Canadian form T1135 to report the value of her assets when leaving.  This would include her personal residence, mutual funds, stock accounts, and any other real estate holdings.

If any perceived profits are calculated because of the deemed sale and reacquiistion of capital assets when leaving Canada (Departure Tax), she should have filed forms 1243 and 1244 to defer the tax.

The taxation in the US is determined by paragraphs Article XIII(6) and (7)

6. Where an individual (other than a citizen of the United States) who was a resident of Canada became a resident of the United States, in determining his liability to United States taxation in respect of any gain from the alienation of a principal residence in Canada owned by him at the time he ceased to be a resident of Canada, the adjusted basis of such property shall be no less than its fair market value at that time.

7.  Where at any time an individual is treated for the purposes of taxation by a Contracting State as having alienated a property and is taxed in that State by reason thereof and the domestic law of the other Contracting State at such time defers (but does not forgive) taxation, that individual may elect in his annual return of income for the year of such alienation to be liable to tax in the other Contracting State in that year as if he had, immediately before that time, sold and repurchased such property for an amount equal to its fair market value at that time.

Paragraph 6 deals with the principal residence which was tax free up to the date of departure.

Paragraph 7 refers to the taxable profits calculated and deferred on forms 1243 and 1244 and allows other properties to have their cost price adjusted for US tax purposes to the values on the date of emmigration/immigration.
So, if she is treating herself as a resident of the US an dhas another house in the US, she will be taxable in Canda and the US on any profit or gain in valuse from the date she moved to the US.

If she is still taxing herself as a resident of Canada and does not own and live in a home in the US and lived in the Canadian house for 24 out of the 60 months before sale, the house is tax free in both couintries.

If she is taxing herself as a resident of Canada and has a home in the US, she has to decide which house she is going to claim as her tax free residence for Canadian tax purposes because she can only have one.  If she elects to claim the Canadian house tax free, then she will owe CANADIAN tax on the US house even if she bought it after moving to the US.

Your friend needs to talk to someone who knows what to ask and what to do and we do provide that service.   You can see charging details in the following pricing guidelines.