QUESTION:
Dear David,
I asked the following question on three different ocassions without getting
any answer from you.I decided try one more time.
Upon immigration to US (2002) Canada levies a tax on deem dispositio of the
asset called
"departure tax". If susequently that asset is sold would IRS increase the
capital cost of the asset by the amount of tax paid to Canada? or
not.Otherwise there is possibility of double taxation upon disposal
of the asset.Please give me your opinion as to how to avoid the double
taxation.
THank you,
------------------------------------------------------------
david ingram replies:
I have already answered 2 of your questions back in 2003 and I usually do
not go more than 2. However, it is 2005 so here goes.
When you left for the US, you should NOT have paid the departure tax. You
should have pledged security so that you only paid Canada tax when you
actually sold the property. The tax you did pay to Canada has nothing to do
with the tax you will owe the US. You paid tax to Canada on the value of
the property up to some time in 2002. When you entered the US, that was the
tax paid value.
When you sell the property now, you will owe Canada tax on any increased
value form the day you left to the day you sell. That same profit will be
taxable in the US.
You will be able to claim the NEW Canadian tax as a credit against the US
tax at that time. The tax rates may be different but there should NOT be
any double taxation on the increase in value from the day you left Canada.
----------------------------------------
For the benefit of others, the tax forms needed for the deemed departure tax
and the method of not having to pay the tax are:
http://www.cra-arc.gc.ca/E/pbg/tf/t1161/t1161-04e.pdf
(failure to file this is liable to a penalty of $25.00 a day.)
http://www.cra-arc.gc.ca/E/pbg/tf/t1243/t1243-04e.pdf
(This is what you calculate the profit on)
http://www.cra-arc.gc.ca/E/pbg/tf/t1244/t1244-04e.pdf
(This is what you use to calculate the amount of tax you want to defer)
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