My question is: Applicable to both US and Canada
QUESTION: My wife and I are US citizens who will become landed immigrants this month. We have been living in Quebec for one year, where we purchased a home. We also have a rental home in San Francisco, that we have owned for 16 years, that has appreciated considerably. There was some serious damage to our house in San Francisco, and we are now considering repairing it and selling it. Three questions:
1) if we sell it, will we have to pay the entire capital gains in both Canada and the USA (with the obvious double taxation exemption)- or - will we get some allowance in Canada as most of the gains occurred before we became Canadian residents?
2) if we reinvest the entire assets from the sale in property purchased in the USA, will we still be liable for Canadian capital gains
3) if we reinvest the entire assets from the sale in property purchased in Canada, will we be liable for capital gains in the USA?
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david ingram replies:
1. You are taxable on your world income since you came to Canada and "applied" for your PR status. That likely means that you have to file a 2003 return for August to Dec 31 2003.
That return would include any pension, interest, dividend, wages and the rental income earned after you came to Canada.
2. For "Canadian" Capital Gain Tax purposes, the value of the San Francisco house is its value the day you took up residence in Canada.
3. If you sell within the next year or so, the house in San Francisco will be tax free if it was your principal residence up until the day you left the USA. If it was always a rental, it will be subject to California and US federal tax first. Canadian Tax second on the increased value after coming to Canada.
4. (your question 2) If you do a seciton 1031 rollover in the US, Canada will not recognize the rollover and will still want tax on teh window of gain after you came to Canada. If there was no gain on your particular property after coming to Canada, there would be no tax to Canada.
5. (your # 3) You cannot to a cross border 1030 rollover. The USA and California will want full tax.
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