Tax Implications of Vancouver Island,

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My_question_is: Applicable to both US and Canada
Subject:        Tax Implications of Lot Sale
Expert:         [email protected]
Date:           Sunday July 04, 2004
Time:           10:39 AM -0700
We live in the United States but are Canadian citizens and will retire =
on Vancouver Island.
We purchased a lot last year with the intention of building within the =
next three years.  The builder may have a better lot available in which =
case, we would have to dispose of the current lot and buy the new one.  =
The builder and his lawyer handle the transaction so no real estate =
agent is involved.
What are the tax implications when we flip the original lot which has =
appreciated in value significantly?  We have frozen all assets in Canada =
at this time so my concern is that the generation of capital gains will =
complicate US tax filing.
david ingram replies:
1.  Your first tax liability is to Canada as the property is in Canada.  =
You will calculate and pay tax to Canada on a T1 return with Schedule 3 =
filed to report the Capital gain. The purchaser will withhold 25% of the =
GROSS sales price unless you get a Form T2062 approved for reduced =
Filing form T2062 allows you to calculate the profit after deducting =
legal and other costs of the purchase and any improvements to the =
property such as a fence, septic field and tank, culvert fence, electric =
hookup, etc.
The CRA will approve the T2062 and give the purchaser (which is likley =
the original developer in this case, to remit 25% of the profit rather =
than the gross sale price.
In April 2005, you will file the T1 return and pay a little more or get =
a small refund back.
2.    Then you (or us if you want us to look after it all) will convert =
the Canadian figurtes to US dollars and put the amounts on schedule D of =
your US return.  Since you have made a profit, there will have been tax =
paid to Canada and you will claim a foreign tax credit on your US return =
by filling in US Form 1116.
And yes, we can look after the Canadian, Provincial, US Federal and =
State returns for you by email, snail mail, fax or courier.
.  =
Answers to this and other similar  questions can be obtained free on Air =
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wizard - David Ingram's US/Canada Services
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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 & =
the author and any and all non-contractual duties are expressly denied. =
All readers should obtain formal advice from a competent financial, or =
real estate planner or advisor & appropriately qualified legal =
practitioner, tax or immigration specialist in connection with personal =
or business affairs such as at If you forward this =
message, this disclaimer must be included."
Depending upon the profit, you can expect to pay a Canadian Tax of 11 to =
23% of the profit with 11% up to $60,000 of profit, three more rates up =
to $200,000  and 23% on any profit over $200,000 Canadian in one =
person's name.  The rate has minor variations form province to province =
as well.
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