Overseas tax implications for New Canadian from the UK - Value on date of Immigration to Canada - Glen Kelleway Mortgage Broker

Hi David

• I am from the UK originally and own two houses there
• I have been living in Canada for approx 22 months.
• I am married to a Canadian
• We own a house together in BC (both on the title)
• I am fully employed in Canada and pay tax here. I haven't yet filed my tax return this year in Canada.
• I earn $42k gross per annum plus commission on real estate sales. We haven't had any sales so I haven't had any commission payments so I'm not sure how my tax bracket in Canada will be affected when I do (expecting to soon)

david ingram replies:

You have discovered one of BC's great mortgage brokers in Glen Kelleway ([email protected] - 604-476-0053)

Both houses in the UK are subject to Capital Gains Tax in Canada.

However, whether you came from England, Spain, Indonesia or the USA, the ACB (adjusted cost base) of the houses and anything else you may have of value,  will be the value the day you arrived in Canada  And, in your case, this is dependent upon the area where your houses are located.

As you will see in the following graph -  http://www.primelocation.com/house-price-index/

Houses in London are worth more today than they were in November 2007. (the light blue line)

Houses in the UK in general are worth less than the day you left. (the green line)

Since the green line includes London, it is fair to say that your houses are worth significantly less than the day you left.

However, you also have to deal with forex or Foreign Exchange because for Canadian tax purposes, it is the value in Canadian Dollars on the day you left the UK and arrived in Canada that matters.

I remember well when one GBP was worth FIVE Canadian dollars.  However, today it was only worth $1.73 although it was better in 2007.

On November 15, 2007, the forex for GBP to Cdn dollar was 2.0084

If somehow or other the UK house was worth 250,000 GP, that would be $502,100 Canadian dollars

Today, Dec 14, 2009, the GBP has gone down about 14% relative to the Canadian dollar and is only worth 1.72490

If you had sold the house today Dec 14, 2009, for a net of $287,500 GP, the value in Canadian dollars is / was $495,908.75 and you would have no tax to pay to Canada.

However, I do not know what use the houses were put to.  If they were rented, you need to file your UK returns RIGHT NOW. We can do that for you although you may have done so already through your UK accountant.

The rents also need to be reported on your Canadian return.

I have to say that it is usually easier to have one individual do both countries than to get two people to figure out what the other did..

Hope that this helps.

And, again, my apology to Glen Kelleway for not looking after his client sooner.

He is undoubtedly, one of the better mortgage brokers around and one of the 1 out of a 100 who truly understands how to make the interest paid on a Canadian mortgage tax deductible AND takes the time to explain it to his clients.

david ingram