Losing deposit on purchase of Mexican home while making money on the foreign exchange - House for sale in Harrison Hot Springs -

Anyone thinking of buying real estate right now anywhere should read Garth Turner's Book, "the Greater Fool" - you can find a blog on it at www.greaterfool.ca -  This book points ouot what is happening with real estate around the world and in partivular North america.  Forinstance, today's blog shows graphs for Calgary.  If you get the book and I recommend you do, read the last two pages (the Afterward) first.  You will find that the author is a living in a house.  However, he is living in the 'right' house.  Garth is a former Conservative Minister of National Revenue, left politics for ten years and is now the sitting Federal Liberal Member of Halton in Ontario.
I am a graduate of UBC's Urban Land Econo,mics Course and have bought and sold over 3,000 properties.  Been there, done that.  I am NOT selling my house.  I have lived here for 39 years now and watched it grow from $42,000 to $350,000, down to $156,000 up to $500,000, down to $350,000 again and then climb to $1,200,000.  It is only logical that it should drop a couple of hundred thousand again befroe startiong to climb again.  Those who have been here (I work out of my house so some 400 clients have been here) know that it has a spectacular view, is on the edge of a forest, and every Sunday morning, I can make it to the radio station in 20 miutes without pushing it.  In 15 minutes, I can leave the house, ride my bike around Stanley Park (33 minutes) and be back home within an hour and 15 minutes.  It  has a fantastic location and fits my needs. I am looking over 100 miles at Hurricane Ridge in washinton state from my Living Room (I can't see it today becasue of the haze but on a good day)   ( you can google earth its location in Vancouver by looking at     http://maps.google.com/maps?client=firefox-a&rls=org.mozilla:en-US:official&hl=en&tab=wl (search 4466 Prospect Road, North Vancouver BC Canada  - My house is the one with the Balck 87 Cadillac Sixty Special beside it and the big tree in the back yard).
and see what i mean.
Now that I have said I love my location, you shouild also read Ozzie Jurock's book - Forget About Location, Location, Location.
You can get it at    http://www.forgetlocation.com/  -- see more about Ozzie and his real estate seminars at www.jurock.com.
Incidently, I will be speaking at Ozzie's US Land Rush seminar on Investing in Vancouver at the Marriott Pinnacle Hotel on Sept 6, 2008 and you can register for it at http://www2.jurock.com/insider/seminars/landrushusa.asp The price is $97.00 for strangers to the Jurock team and this day is devoted to Canadians investing in US Real Estate.
Ozzie has another Canadian Land Rush taking place on October 4.
Then i will be speaking at a seminar on moving to and investing in Mexico on Oct 17th in Vancouver and I think Oct 18th in Calgary but do not know the locations yet.
And Garth Turner and I will be speaking on Sept 20 at the Convention Centre in Victoria and on Sept 21st at the Convertion Centre in Nanaimo along with another four major speakers on money.  You can register free for these at www.centa.com - click on MONEY EXPO to register and while there, if you scroll down, you will find a 15 minute interview that I did with Garth Turner. If you miss the freee pre-registration, you can still pay 415.00 at the door and Fred Snyder, Host of ITS YOUR MONEY on CHBD every Sunday Morning (600AM) from 9 to 10:30 AM  and CKNW (980AM) from 6 PM to 7 PM every Sunday and Ralph Hahmann from his Victoria office.

1.  What do I do with a unexpected profit made on foreign exchange?

I was going to purchase a house in Mexico, and put down a 10% deposit (22,000).  I have been unable to sell either of my homes in BC, so I am going to back out of the deal.  I had locked in a rate of .998 US for 1.00 Can, last month when the loonie was up for a few days.  Now, I won't need the 200,000 US.  I will buy/sell on the same day and end up with a profit of over 10,000.  I guess this is income, no?

2. Anything I can do with the loss of my 22,000 deposit?  Sigh... dreams can evaporate quickly!

david ingram replies:

I know you are in Penticton and i was born in Vernon.  However, I can not even begin to consider retiring to the Okanagan.  I like the lower mainland.

For all those readers out there who are looking for a little jewel and do not want to take ferries to get there, you might want to consider this house in Harrison Hot Springs, a very cool place, two  hours from downtown Vancouver and home of the annual Sand Castle Competition.  Take a look at the top listing on Alder at

1600 square feet in a little community - beautifully maintained and for less than $350,000.  Hard to beat in this province. There is a virtual tour at this link and if you buy it, realize you are in Sasquatch Territory.

But back to your question which only involves Canadian Income tax since you have given up your US green card and did not actually take up residence in Mexico as you intended.  If you had closed the sale and sold it for a $22,000 profit, the profit would have been taxable because you still own another house and you would not have moved into it.  If you lost money on it though the loss is not deductible because it is a "personal use property" asset and falls into the summer cabin or ski chalet for personal use. You can read the archived government bulletin on the subject at - http://www.cra-arc.gc.ca/formspubs/prioryear/it332r/it332r-e.html -------

Foreign exchange profits are also taxable and you can read the government bulletin on the subject at - http://www.cra-arc.gc.ca/E/pub/tp/it95r/it95r-e.html -
My interpretation of your situation is that I would consider the foreign exchange to be a part of the Personal Use property and would put it down as two transactions on schedule 3 of your 2008 Canadian tax return with the resulting loss of about $12,000 NOT showing as a negative amount in box 158 at the end of  line number 7.  However, one line 7 would show the 22,000 loss and the second line 7 would show the $10,000 profit with the negative amount of $12,000 disappearing into the ether.


david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325

Calls welcomed from 10 AM to 9 PM 7 days a week  Vancouver (LA) time -  (please do not fax or phone outside of those hours as this is a home office) expert  US Canada Canadian American  Mexican Income Tax  service help.
pert  US Canada Canadian American  Mexican Income Tax  service and help.
David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
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. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
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 received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

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.

IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--

Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com or www.garygauvin.com.  If you forward this message, this disclaimer must be included." -




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