Sent: Tuesday, January 17, 2006 11:03 AM
To: taxman at centa.com
Subject: Selling Home / Rental Property
Greetings!
We are US citizens moving to Canda. We are trying to decide if we should
keep our home in
California as a rental property. In the US we can keep our home for three
years as a rental without having to pay capital gains tax.
Can you advice us on what kind of Capital gains tax (including percentage)
we would have to pay in
Canada, if we sold the home after moving to Canada, in say
- two year or
- twelve year, time frame from our move.
Will we also have to pay taxes in the US in addition to Canada if we sell
after twelve years.
Thanks.
===============================================================\r
david ingram replies:
If the capital gains tax rates stayed the same for 12 years which has not
happened in either country for the last ten years, I might try for that but
I cannot even begin to guess.
For instance, our new Prime Minister elect (as of yesterday) has suggested
that he will allow something like a 1031 rollover in Canada which means that
you might not have any tax at that time in either country if you sold the
rental in California and ought one in Washington State.
Canada allows a house that you lived in to be rented out for four years so
if you did NOT buy another house in Canada for the first four years and made
the proper election, it could be tax free if sold within the next three
years as far as both countries are concerned.
However, if you bought another house here, you would have to decide "which"
house was going to be tax free, the one you lived in or the one your rented.
If the rented one had gone up more than the one you lived in, it would be
tax free, but you would have an accrued tax that you would have to pay when
you eventually sold the house you lived in.
Basically, Canada would add 50% of the profit to the rest of your income on
a graduated scale ranging from 25% at under $35,000 (total income) to up to
45% (depending upon the province of residence) on amounts over $115,000.
When you do sell 12 years from now, any tax paid to the US would be a tax
credit against tax you might owe to Canada. Personally, I find both
countries moving to do away with capital gains tax which is really a tax on
inflation. England, for instance, only taxes the profit which exceeds
inflation.
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