American selling Montreal Property needs Income Tax Help with forms T2062 T2062A T2091 and TDF 90-22.1

I am hoping you can answer a tax question for me. I am a US citizen with my primary residence in Florida. I bought a condo in Montreal 6 years ago and would like to sell it now. I have been renting the condo on and off for the past six years with short vacation stays there myself in between. I have been reporting my income and expenses on a schedule E 1040 US tax form - always as a slight loss over the past six years. I have never reported any income or loss with the the Canadian IRS as my accountant said that was fine as long as I didn't have a surplus income from renting the property. 
My question is am I just liable for the capital gain in the US or do I also have to pay capital gains in Canada when I sell the property and if so, how would I calculate the amount? 
I appreciate any advice you could give to minimize the tax liability in this situation. 

david ingram replies:

I do not have good news for you -  You have a big problem.

I do not know what you have received for rent but at the moment you owe 25% of the GROSS rent plus penalties and interest for each year you did not file a Canadian Income tax return as a foreign person.

If you had filed a return, the expenses would have canceled any tax if the expenses exceeded the income.

It is obvious that your accountant has no experience with international tax because if he or she had the experience, he or she would realize that in the reverse situation,  the USA penalizes a Canadian 30% of the gross rent plus fines $1,000 to $10,000 per year when a Canadian fails to report the  US rent to the IRS.  Knowing about these US penalties, he or she would make a point about seriously finding out what the Canadian rules are.

In addition, I am sure that your accountant failed to answer question 7 on the bottom of your US Schedule B (part of 1040) to report your Foreign Bank accounts.  Although, you may not have had more than $10,000 in Canadian Foreign accounts for the last 5 years, you 'did' (although maybe only for a microsecond,)  have more than $10,000 in a Canadian Foreign account the year that you bought the property.  The minimum US penalty for failing to file the form T D F 90-22.1 is $10,000 and the maximum is $500,000 plus 5 years in jail.

Although I have never seen a $500,000 penalty, I have seen $10,000, $60,000 and $100,000 penalties and 6 month jail sentences.  I have never seen a person fined who filed these forms retroactively so make sure that is done for the account six years ago.

AND All is not lost in Canada either.

Canada will regularly penalize you if they find out about the rental before you  report it.

If you come forward with a voluntary disclosure, the CRA has always (in my experience) accepted these late filed returns without penalty if there is no tax owing "ONE TIME".

In other words, do not be late again afterwards.

AFTER catching up with the rental returns, if you sell the unit, there WILL BE Canadian capital gains tax.  However, the tax paid to Canada can be claimed as a foreign tax credit on your US 1040 by filling in US form 1116.

1.   You need to file US form TDF 90-22.1 for at least the year you bought the property and every other year your foreign accounts totaled more than $10,000.

2..    So, you need to file 6 back years of Canadian returns.  This would include form T1159 and T776 for each year.

3.   If and when you sell, you need to file Canadian Forms T2062 and T2062A within 10 days of the sale to avoid a $25.00 a day penalty. These forms calculate the withholding tax on the sale and the last few months of rental.

4.   Then you need to file two actual tax returns (four if you and spouse own the property) for the year of the sale. 

One is a section 216(4) return with forms T1159 and T776 which would also show any recapture if you claimed depreciation in Canada -  this return ties in with the information on the T2062A above.  (two returns if two owners).

The second return would be a Section 116 T1 return to report the actual capital gains with schedules 1 and 3 attached.  This return corresponds to the T2062 above -  Most of the figures are the same but on the T1 you get to claim the real estate and legal fees as a deduction which means that you ALWAYS get a refund when you file the return. (two returns if two owners).

The Third return would be your US 1040 with a schedule E for the rent and a 4797 to report the capital gain on the sale of business property,.

And maybe a fourth State return needs to be filed as well.

We, of course would be happy to look after these for you.
This older question and answer contains links to the forms you need and  may give you other food for thought.



I'm not sure how to proceed in terms of providing
necessary information to the Canadian government
regarding the sale of my house in Canada.  I am a US
citizen working in Oregon. I had partially retired so was
living in Canada (primary residence was the house in
Canada).  I originally bought the house with US$ after the
sale of a home in the US. Now that I've sold the Canadian
house, the attorney is holding 25% of the sale amount in
trust until the capital gains tax can be determined.  I'm
not certain what I need to provide, what I need not
provide, etc.  If I purchase another home in the states with
the profit, do I have to pay Canadian capital gains tax?

david ingram replies:

If you were a legal resident of Canada at the time, all or part of the capital gains should be free of Canadian Capital gains tax.

If you were not a legal resident but merely a visitor, then 50% of the gain is taxable at a rate running from  22.57% (up to about $37,000 of taxable profit which means $74,000 of actual capital gains) ) to 42.92% on amounts over about $119,000. with two progressive jumps in between.

If this house was your only residence and you lived in it for 24 out of the last 60 months before sale, up to 250,000 is tax free on your US return.

You should have filed Canadian Form T2062 to notify the CRA of the sale and
have a reduced withholding tax.  This is the kind of thing that we can do for you or your attorney.

The T2062 must be filed within 10 days of the actual sale or there is a $25.00 per day penalty.


There is no rollover provision in Canada unless the property has been expropriated by a government authority for the common good.  This usually means it was expropriated for a bridge approach, a highway or the Burnaby library parking lot.  The US did allow the rollover for family houses up to 1997 and still does allow a rollover for investment properties under section 1031.  However, the US does NOT allow that rollover if the property is in different countries (although it did until 1986).


This older Q & A will help as well.

 QUESTION: I have moved to the US since 2000 and current a green card holder. I still have a property in Canada and currently listed as second home in the US tax return. I am planning to sell this property in the near future. Do I need to pay capital gain tax in both US/Canada and how much?

david ingram replies:

It sounds like the second home in Canada has being sitting empty.

When you sell it, the purchaser's lawyer is going to withhold 25% of the gross sale price as Canadian Withholding Tax - UNLESS - you file f
orm T2062 within 10 days of the sale.  .

T2062 -

The purpose of the T2062 is that it will identify the value of the house the day you crossed the border and the purchaser will only have to withhold tax on 25% of the difference in value between the day you left and the day you sold it.You can NOT claim real estate commissions and other costs of sale on this form which means when the return is actually filed there is always a refund..

THIS IS NOT THE TAX RETURN, it is merely a withholding tax form.


You will then have to file a tax return to report the sale next year.  This return will tax you on 50% of the gain by using schedule 3 and 1.  You can claim the real estate sales commissions, lawyers fees and other costs of sale at this point.  File a T1 tax return with Schedule 3 and Schedule 1.


Schedule 3 - Capital Gains -

Non-Resident Schedule 1 -

All these figures are then converted to US dollars and put on schedule D of the US return.  taxes paid to Canada are claimed on US schedule 1116.


If the property was rented, you also have to file form T2062A and make sure that your T1159 and T776 forms were filed for each year the property was rented.

T2062A -

T1159 -

T776 - (fillable)

If rented, make sure the T776 rental figures were converted to US dollars and put on schedule E.  Any taxes paid to Canada would go on the schedule 1116 you used for the capital gains tax paid.

Schedule E -

Schedule 1116 -

Note that the T2062 and T2062A forms will likely be the same from year to year.  However, the US and Canadian schedules shown above are all 2006 forms and you will need to get hold of the equivalent 2007 or 2008 forms when you actually make the sale.

And, of course, we can look after all of it for you when the time comes. That is what we do.
david ingram's CEN-TA Group - Income Tax Help when you need it.


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