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Hi David. First off, I very much appreciate the valuable information you provide in this forum.
My wife and I (both Canadian) bought a condo in BC back in May 1995, and only lived in it for a year before moving south of the border in May 1996.
We did not sell the unit, but rather turned it into a rental unit, and have had renters in it ever since. We have been filing NR6 returns and filing our section 216 return faithfully every year. To date, we have always paid our estimated tax with the NR6, and then claimed enough CCA to get the tax back to $0 so we get the money refunded after each section 216. We have been declaring the rental income and expenses on our US return, and with
depreciation, have always ended up with a "net loss" which has offset our US income. Hopefully, nothing is unusual to this point.
Now our renter has asked us if we are interested in selling the unit to her.The timing for us (from a personal perspective) is great, because we are wanting to sell our current residence (in the US) and move to a larger house (in the US), and the equity from our Canadian condo unit would help us with the down payment (even though the exchange rate is not so favorable). Also, we could reduce, or even eliminate, the need for real estate agents.
However, I am unsure of the tax implications. I do not know if there is any advantage/disadvantage to disposing of the property while we are still in the US, and in fact, we expect to be in the US for several years to come, so we would probably have to hold it for a LONG time if we wanted to wait till we returned to Canada. Are there any other complications (besides tax-related issues) that we should be aware of?
Some quick points that may or may not be relevant:
-> We did not get a fair market appraisal done at the time we moved out of our condo unit, but did "estimate" the FMV when we did the taxes back in 1996.
-> The property value took a huge hit right around the time we moved out (we bought into a bubble), and we estimate that the value of the unit is less than we paid for it back in 1995, and perhaps only marginally more than when we moved out in 1996.
-> We had $4000 worth of costs in 2003 as part of a special levy, of which not a single penny went towards our unit. We only net about $2000/year on the rental (before CCA is taken into account), so we cannot even write off the full amount of the expenses (and there is no carry-forward according to
CCRA). Can we offset this expense against any gains we might have (if we sell it this year)?
I will gladly provide you with any other relevant information upon request. ANY feedback is greatly appreciated.
Regards,
DXXXXXXXX
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david ingram replies:
1. Selling it now or when you come back to Canada does not matter. Your decision should be made upon whether or not, you can use the funds to better use.
2. If you sell, you will have a capital gain or loss (as the case may be) between its FMV the DAY YOU MOVED OUT in 1996, and the day you sell it, even if you sell it for less than you actually paid for it in 1995.
3. If you have not paid the $4,000 levy, leave i for the purchaser and sell it for less. This is what is happening with leaky condos all over BC and Seattle.
4. If there is a profit, you will pay tax to Canada on 50% of the profit at your ordinary tax rates. Therefore, only $1,000 of a $2,000 profit would be taxed. Assuming the profit is less than $60,000 and the property is in BC, your tax on a $2,000 profit would be about $230.00
5. If you have been claiming Capital cost Allowance (depreciation) on the building and you sell it for at least as much as you started with, you will also have to pay tax on the amount of CCA you are recapturing back. It sounds to me that you would owe about 23% tax on whatever amount of CCA (depreciation) you have claimed over the years.
6. Unfortunately, your operating loss is not deductible against other profits. Of course, another solution would be to capitalize your $4,000 special assessment and add it to the ACB (adjusted cost base of the building). HOwever, $4,000 added to thge ACB and $2,000 claimed as a actual deduction have exactly the same tax consequences.
Hope this helps. We are a licenced real estate company as well (although not heavily advertised) and have two lawyers in our building who are used to dealing with offshore sales and the relative withholding taxes, etc. You will also want to dfile a T2062A BEFORE you transfer the property.
Find the T2062A at: http://www.ccra-adrc.gc.ca/E/pbg/tf/t2062a/t2062a-01e.pdf
I am not proposing that we act as realtors in the sale to your tenant. However, you will need an opinion as to the value of the property the day you moved and you will need the tax returns prepared for this purpose. We can look after all of that for you plus handle the lawyer's work at the same time.
David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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 in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
Be ALERT, the world needs more "lerts"
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