Sale of Home in BC while living in WA - Divorce,

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QUESTION:
This is a very complicated question, hence the challenge for us as a
lay-persons.
Here are the facts I think important:
1) Land was a gift to x-husband ~1972
2) Wife & x-husband build home in 1972.
3) Wife move to AB in 1999.
4) Wife moved to WA in 2001,
5) Husband took 60% share of home in 2001 by consent order on a value @
110,000. ~76,000.
6) Daughter moved into house in 2002
7) Wife sold house for 180,000 while living in WA.
CCRA want's us to pay 25% on the total value minus construction costs.
Extra thoughts are:
1) Wife has never declared any other property as principal residence.  My
house is a 'seperate estate in legal title'.
2) The monies paid to x-husband are not something we should pay tax on!
3)The reason my wife kept the house so long as a fallback, intent was always
to be able to return, I am 14 years younger than her and only now does felt
safe to sell it.
It seems to me that worst case we should be paying taxes only on the net
value increase in the house durring the periods where it was rented.  That
periods where where the home was owned jointly my wife should be responsible
for only 40% ( x-husband had 60% share) of the tax.
I think that since the intent was never as an investment it truely was her
personal home and in a best case senario there should be no tax.
====================================================
david ingram replies:
Any Canadian property owned by a non-resident is subject to 25% withholding tax on sale.  A non-resident of Canada can NOT have a principal residence free of income tax in Canada.
However, it would appear that she lived with her husband until 1999 in that house. If that was the case, the house would be capital gains tax free up till that point plus up to four additional years of rental by filling out form T2091.  
If the house was rented all that time, it is definitely taxable.
However, a husband and wife could have a house each in Canada until Jan 1, 1982 (this was part of the Nov 12, 1981 Budget Speech).
I do not know when you were married but from the date you were married, either her home or your home was subject to capital gains tax from Jan 1, 1982.
There was also a possible deemed disposition when the daughter moved in if the daughter did not pay a market rent.
I need more information to comment further and will not comment further on a "free basis". 
However, the 25% is only a withholding tax and the actual tax will be calculated when the 2004 tax return is filed.
Also, she should expect a $2,500 penalty for failure to file form T1161 when she left Canada as she left with more than $25,000 worth of assets.
And, last of all, if she paid 60% of the value to her husband, it may or may not be a write-off for capital gains tax.  In a divorce situation they have a choice of her taking it over at the historical cost base or the present fair market value.  The property settlement papers will decide that for you.
We can help by phone fax, email or courier.  I would estimate our charge to be around $700.00.  Remember, the sale also has to be dealt with on your joint or her MFS 1040 by schedule D, Schedule E (if rented) and Schedule 1116 for the foreign tax credit.
Hope this helps
David Ingram's US/Canada Services
US/Canada/Mexico Tax Immigration & working Visa Specialists
US / Canada Real Estate Specialists
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North Vancouver,  BC, CANADA, V7N 3L7
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