QUESTION: Hi
I am a BC resident. I am looking to invest in a real estate development in
BC in the next few weeks.
Q1: In few months I may be moving to the US. The development will complete
in about two years. How will that work from tax perspective US and
Canadian):
- during the two years development: assuming there is some interest is paid
out to me
- After the development, when I will sell the unit
Q2: I may be returning to Canada, say in 4 years,. What is the most
advantagous from tax perspective.
1- Okay to sell the unit just after the development end while I am still in
the US
2- wait and not sell the unit until I retun to Canada
Thanks so much for your help.
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david ingram replies:
There is no answer I can give you that would be official or for sure.
However, in general:
When you leave Canada you have to fill out form T1161 and report the
existence of this investment at its Fair Market value the day you leave. If
it has already gone up in value, it will be subject to capital gains tax on
your departing return unless you fill out forms 1243 and 1244 and post
security for the tax owing.
Since you are calling it an investment and asking when best to sell, I have
to believe that you are actually looking to flip this unit.
You are NOT buying it to live in.
You are not Buying it as a long term investment.
IF you are buying it to flip - i.e. make a profit on the buy and sell, any
profit is straight income so Canada will want tax dollars on the total
profit.
The states is a little different. When you fill out your schedule D, if you
have owned it for more than a year, you will get a special capital gains tax
rate. If you sell it within a year, it will be subject to straight tax, In
your case, it sounds like you will have held it for more than a year and
should be subject to US capital gains tax rates.
When and if that happens, you will be able to use the tax paid to Canada as
a dollar for dollar tax credit in the US by filing form 1116.
Of course, at that point, you should be sending the returns to us.
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