Hi David,
I was wondering if you could briefly cover real estate purchases in Canada
by US citizens? My husband and I would like to purchase a country home in
Canada that we'll use sparingly for getaways and such. What type of capital
gains taxes would apply if we end up selling it again for a profit? Any tax
if sold at a loss? Any penalty for selling it short term (not in our plans,
but personal disasters can and do happen)? Any benefit to having the home in
both names versus one name? Are there any special fees/taxes that would
apply at time of closing since we're non-Canadians? How often can we cross
the border to stay there and is there a maximum amount of time we can stay?
and here's a wild one.. which way is the Canadian dollar going to go against
the US?
Thank you.
_________________________________________________________________
david ingram replies:
Too many for now. Too busy.
The Canadian Dollar is going UP o at least 90 cents and maybe more.
However the following prior answer may help:
QUESTION:
I am a US citizen and have owned a small
house and property in Canada for about
12 years. If sold now I would realize a
capital gain of about 60,000 Cdn. Am I
obligated to pay a capital gains tax to both
the USA and Canadian government and
what would the approximate amount of
that be? If I must pay both governments
how does the tax credit work if there is
one? Thank you kindly.
=========================================
david ingram replies:
Your first tax liability is to Canada if 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 withholding.
http://www.ccra-adrc.gc.ca/E/pbg/tf/t2062/t2062-01e.pdf
If the property was a rented property, you also need to file a T2062A with
the T2062.
http://www.ccra-adrc.gc.ca/E/pbg/tf/t2062a/t2062a-01e.pdf
If the property was rented, you should have been filing Canadian returns
under Section 216(4) Form T1 plus T776) to report the rental income to
Canada and Schedule E to report the income to the US on your 1040 EVEN IF IT
WAS LOSING MONEY.
After paying the tax to Canada, you will calculate the gain again for US
purposes and if there is a calculated tax (schedule D), you will claim a
foreign tax credit for the tax paid to Canada on US form 1116.
Please note, that if they were rented, You will also have to repay the tax
on any CCA (Capital Cost Allowance or depreciation) you have claimed against
the rental income in Canada and would file a 4797 in the US to deal with the
capital gain of sale of a business property.
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 from province to province as well.
If you do not send in the T2062 and T2062A forms (which are suddenly taking
longer to process for some reason or other), the purchaser must withhold 25%
of the gross sale price. You will get a refund then when you file the tax
returns.
And watch out about the rentals. We just filed a T2062 for a British client
who clearly told me that the property was not rented. He did say they were
selling it to friends who had stayed there many times but that it was not
rented. The CRA phoned the purchaser to check on the sale and the "friends"
told the CRA representative that they had been renting the house for several
years. "TILT". The CRA is now demanding back several years of rental
returns and does not need to allow any rental expenses for taxes or mortgage
interest and repairs for more than two years back. In Canada, the penalty
for not reporting rental income to Canada is a minimum of 25% to a maximum
of 44% of the gross rent with no expenses allowed. (In the USA, the reverse
penalty for a Canadian with a rented Condo is 30% of the gross rent with no
expenses allowed). And, I find it embarrassing to have filed an improper
form. It takes away from my credibility with the tax department.
When filling in the T2062, real estate commissions may not be used in the
calculation but can be when the actual return is filed so there is always an
incentive to file the return.
And yes, we can look after the Canadian, Provincial, US Federal and state
and city returns for you.
===================================
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