Non-Residents in Australia property capital gains tax obligations section 45(3) Form T2091 -

My_question_is: Canadian-specific
Subject:        Non-Residents property capital gains tax obligations
Expert:         [email protected]
Date:           Tuesday February 12, 2008
Time:           11:21 AM -0000

QUESTION:

We bought a property in Vancouver in 2003 and lived in it as our principal residence for approx 6 months. We then transferred to Australia and are now non resident and have since rented the property out. If we now sold the property what is our capital gains tax obligation? If we returned to Vancouver and lived in the property again would this obligation change?
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david ingram replies:

The property was tax free while it was your residence but has been taxable while you were a non-resident of Canada.

I presume that you have been filing your Canadian returns all this time.

If you were to sell today you would owe tax at standard rates on 50% of the profit and at standard rates on any recaptured depreciation. Roughly that would mean that if there was a $200,000 profit you would owe between $24, and 29,000 depending upon whether it was in two names or one.  After $200,000, you would pay about 22% tax on the gross profit.

If you were to come back to Canada and move into it, you would owe tax right now on the capital gains and recaptured depreciation if you have claimed CCA or depreciation on the Candian Section 216(4) retal tax returns you filed.

If you did not claim depreciation or CCA onthe rental schedules, you still trigger a tax as a deemed disposition when you move into it.  However, after calculating the profit on form T2091 and schedule 3 and putting the taxable amount on line 127, you get to deduct it on line 256 and attach a separate letter elcting to defer paying the tax until the actual sale under Section 45(3) of the tax act.  Any increased value after you move in would be tax free again.

These other older questions give the same information


When you move into the former rental, it is considered a deemed disposal and re-acquisiton.  Capital Gains tax is due and payable on any increase in value at that time.

 UNLESS

If while renting, you did NOT claim CCA (Capital cost Allowance) or depreciation on the T776 (rental schedule), you can defer paying the tax at that time.

When you do move in, calculate the increase in value and report Half on schedule 3 of your return and half on schedule 3 of your husband's return That schedule will, in turn, result in one half of the half being put on line 127 of your return as taxable income. 

You can now write a letter to the Tax office stating: " I hereby elect to defer opaying the tax triggered by my moving into my rental property under Section 45(3) of the income tax act."

You then write the amount on line 127 on line 256 where it is subtracted from taxable income.  Write - see election letter  beside line 256.

These older Questions are in the same vein.



My question is: Canadian-specific

QUESTION: We in the process of purchasing a house in Penticton and will rent it out, retire (in about 4 years)and  move into it ourselves.  If we live there for 2 or more years are we liable for capital gains for the period we collected rental income?  What type of home insurance is best for a rental property?  What are your thoughts re the real estate market in the Okanagan in the next five years - steady growth or a slump after "2010"?  Many thanks, Jacalin

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I think the Okanagan AND the lower mainland markets are already overheated and think the prognosis is for little or no growth for the next five years but I have been wrong before.

That does not mean you should not buy because if I am wrong, it will cost so much more to buy six or seven years from now that you will be cursing me all the way to the mortgage broker.  If you buy and it goes down a bit, it does not matter because you are buying it to live in and that gives you the property in the future at today's price which is historically lower.

david ingram

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