QUESTION: I moved to Canada 3 years ago, and have a house in El Salvador,
that I want to sell to buy one here in Canada. At the moment I am renting
the house. My question is: do I have to pay taxes here because I have to
pay 13% backhome...
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david ingram replies:
If the house is a rental in El Salvador, you should have been reporting the
rent on Schedule T776 of your Canadian tax return for the past three years.
The house was revalued as you entered Canada and was given a "cost" base of
its fair market value when you crossed the border. However, Canada allows a
resident to move out of their residence and rent it out for up to four years
without paying capital gains tax to Canada if they file an election with the
first year of rental and do not own another house.
This seems to apply to you but you likely did not report the rent and I am
sure you did not file the election.
You should amend the last three years to report the rent (and deduct
expenses) and make the election under section 45(2) with the first
amendment. Then when you sell the house, you will fill in Canadian form
T2191 to claim it tax free.
Hope this helps.
If it turns out that the above does not apply for some reason (if, for
instance it was a rental BEFORE you came to
Canada), then 1/2 of its increase in value since you came to Canada is
taxable and we would use the 13% paid to El Salvador as a tax credit in
Canada so there should not be any double taxation.
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