XXXXXXXXXXXXXXXX wrote:
David,
A Canadian friend of mine has been working in the U.S. for the last five (5) years. They purchased a new home in the U.S. and rented out their prior Canadian residence which has been shown and deducted on their U.S. tax return. Just recently they sold their Canadian rental (former residence). How does that get reported on their U.S. tax return?
Thank you,
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david ingram replies:
Hopefully, your Canadian friend has been filing his Section 216(4) rental returns in Canada. He will then be filing his forms T2062 and T2062A forms to reduce the tax withheld. Next, he will file his Canadian tax return to report the sale (the T2062 is NOT a tax return) and he will get a refund and know what the final tax will be.
Now, he can report the sale on his US tax return on schedule D and 4797 and claim credit for the tax paid to Canada on US form 1116.
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this older question may help.
My question is: Applicable to both US and Canada
QUESTION: My friend is selling one of her properties here in Canada. It is elected as her PPR and she will be exempt from any capital gains tax. However, she also currently resides in the US as is worried about any tax implications this sale may have.
Are her worries unwarranted? She is a Canadian and British citizen with landed immigrant status in the US. Thanks.
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david ingram replies:
Your friend can NOT have a tax free Principal residence in Canada if she is a resident of the United States unless she has continued to file a Canadian return as a resident and reported her world income to Canada each year.
If she did that, and does not own and live in another home in the US, she may claim it as a tax free principal resident provided it has not been rented while she has been gone.
If she has become a US tax resident (automatic if she has a green card), then the house can be tax free (up to $250,000 US profit since she entered the US) IF she has occupied it as her residence for a full 24 months out of the last 60.
Obviously, you should not make any decisions based upon this email.
If she has moved to the US and has rentals in Canada, she should have filled out forms NR-6 with a Canadian tax agent for the rentals and that agent should be filing an NR4 by march 31st each year to report the rent collected in her name. Just as the HSBC or B of M, or Scotiabank would deduct 10% tax on any interest paid to a non-resident and send the non-resident an NR4 slip rather than a T-5 slip to report the interest.
When your friend left Canada, (assuming she has not been filing Canadian returns as a resident), she should have filed Canadian form T1135 to report the value of her assets when leaving. This would include her personal residence, mutual funds, stock accounts, and any other real estate holdings.
If any perceived profits are calculated because of the deemed sale and reacquisition of capital assets when leaving Canada (Departure Tax), she should have filed forms 1243 and 1244 to defer the tax.
The taxation in the US is determined by paragraphs Article XIII(6) and (7)
6. Where an individual (other than a citizen of the United States) who was a resident of Canada became a resident of the United States, in determining his liability to United States taxation in respect of any gain from the alienation of a principal residence in Canada owned by him at the time he ceased to be a resident of Canada, the adjusted basis of such property shall be no less than its fair market value at that time.
7. Where at any time an individual is treated for the purposes of taxation by a Contracting State as having alienated a property and is taxed in that State by reason thereof and the domestic law of the other Contracting State at such time defers (but does not forgive) taxation, that individual may elect in his annual return of income for the year of such alienation to be liable to tax in the other Contracting State in that year as if he had, immediately before that time, sold and repurchased such property for an amount equal to its fair market value at that time.
Paragraph 6 deals with the principal residence which was tax free up to the date of departure.
Paragraph 7 refers to the taxable profits calculated and deferred on forms 1243 and 1244 and allows other properties to have their cost price adjusted for US tax purposes to the values on the date of emigration/immigration.
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So, if she is treating herself as a resident of the US and has another house in the US, she will be taxable in Canada and the US on any profit or gain in values from the date she moved to the US.
If she is still taxing herself as a resident of Canada and does not own and live in a home in the US and lived in the Canadian house for 24 out of the 60 months before sale, the house is tax free in both countries.
If she is taxing herself as a resident of Canada and has a home in the US, she has to decide which house she is going to claim as her tax free residence for Canadian tax purposes because she can only have one. If she elects to claim the Canadian house tax free, then she will owe CANADIAN tax on the US house even if she bought it after moving to the US.
Your friend needs to talk to someone who knows what to ask and what to do and we do provide that service. You can see charging details in the following pricing guidelines.
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From: centapede-bounces+xxxx=xxxxxxxxxx.com at lists.centa.com [mailto:centapede-bounces+markb=bradstreetcpas.com at lists.centa.com] On Behalf Of US / Canada Income Tax Help - CEN-TAPEDE
Sent: Tuesday, August 19, 2008 12:55 PM
To: CENTAPEDE; CENTAPEDE-ca; jurock
Subject: US CANADA Canadian Living in US selling house in Canada? T2062T2062A T1161 - david ingram expert cross border non-resident income tax help and preparation by five tax experts with years of experience with Canada, Panama,American and Mexican income tax
QUESTION:
As per Canadian Income Tax law (section 116) that a non-resident dispose a property then buyer's lawyer must withheld 25% of sale price and remit to Revenue Canada. I am living in US (for last 1 year) and rented my property in Canada but now wanted to sell that house. I have been paying Canadian taxes every year without showing any US income as I dont have any US income (thats a different topic)but buyer's lawyer designated me as non-resident (I am Canadian citizen though) and said he never been here in last 6 months therefore he'd deduct 25% of the sale price. I found out this when 2 days left for closing so I suggested my lawyer to step back from selling the house to the buyer. I signed all the papers in the front of US lawyer and courrier it to my lawyer 3 days prior to closing. Obviusly, I dont want to them to take off 25% of sale money so I didnt want to sale anymore. Since, Its been couple of days over since the closing date was and havent heard anything from buyer's l
awyer yet. I know this deal has gone bad but what are my chances that I can still get to keep my house? What are other consequences I might be facing that buyer's lawyer might cause in coming days?
Best Regards,
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david ingram replies:
The 25% is the starting figure and is only a withholding tax.
If you left Canada and the house was worth $400,000 and you are selling it for $400,000, you can file forms T2062 and T2062A and have the withholding canceled.
If it was worth $400,000 and you are selling it for $500,000, by filing forms T2062 and T2062A, you can have the withholding reduced to $25,000 (25% of the $100,000). When you filed your actual tax return at the end of the year, the actual tax on $100,000 profit would only be about $12,000 and you would get a $13,000 refund.
By canceling the sale or failing to proceed, the realtor has a legal right to claim a full Real estate commission from you and the buyer can sue you for non-performance and any losses they have sustained. Those two situations are likely far more serious than the tax possibilities.
You need to consult another real estate lawyer to understand your rights.
If no one told you about the forms T2062 and T2062A, you were not served properly.
If your lawyer did not explain form T2062A and T2062 to you , you need a different lawyer.
If it is a BC sale you could try Bill Spohn at (604) 926-8681 or David Stoller at (604) 922-4702 -- both understand non-resident sales.
You also should have filed form T1161 for the return for the year that you left Canada.
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these older questions might help.
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QUESTION: Hello ! I am a Canadian citizen moved to USA in Jan.1.07. I am selling my house after 10 months(empty after I left).I still have bank a/c's and my wife is a Canadian PR. Will I have problems to sell my house in Chatham, Ontario. Please reply - 309-333-xxxx. Regardsxxxxx xxxxxxxx ------------------------------------------------david ingram replies: I see you sent this twice - sorry it was not answered but I do get 30 to 100 a day and can not even begin to answer them all. This has been answered for other people however in the time between the two questions. Because you are not living in Canada, anyone buying the house is required to withhold 25% of the GROSS sale price unless you fill in and file forms T2062 and T2062A with the CRA within ten days of the actual sale. This form would take into account that the house was your personal residence up to the day you left. For 2007, you must file form T1161 as a departing resident. Failure to file Form T1161, can end up with a $2,500 fine as shown below. Happy to look after these departing Canada returns for you. These similar questions were answered on Feb 17 for instance. ------Hi David,
(1) I am a Canadian Citizen and employed in Canada from Jan 01, 2007 to June 30, 2007 and my tax was deducted at source. I have received T-4
(2) Since the employer closed down the facility, I received unemployment benefit until November 04, 2008. I have not received any paper from EI income so far
(3) Since November 05, 2007, I am working in USA under TN-1 work permit and i have W2 from my employer
Can you please tell me how much it would cost for filing tax against above income? Which documents I need to provide you?
Next year, I would have only income from USA and how much it would cost to file tax return. Do I have to file tax return in Canada for the year 2008 against USA employment earning only? It is temporary yearly base job contract. I intent to be a Canadian Citizen.
Regards,
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david ingram replies:
If you do not want to report your US income to Canada, you need to file a departing Canada return including form T1161.. If your house is rented out, you should have filed form NR6 BEFORE leaving the country.
Our fees are outlined in the Disclaimer below following some older questions.
QUESTION: Hi David, I am Canadian citizen, worked in Canada for the first 5 months of 2006. then moved to US and worked then for the rest of 2006. I have income from Canada employer, Canadian bank and US employer. I filed tax return on my US income to IRS already. I haven't done Canadian tax return yet. I had thought I only need to file canadian tax return on my canadian income. But it seems both CRA and IRS requested to report my world income to both. I am confused. What should I do to file the tax return to both? More specially, I received NR4 slip from CIBC bank. I could not find where to enter this form when I used Ufile.ca. How can I enter US W2 form into any Canadian tax form? How can I enter T4 slip into US tax return form? thanks a lot! _______________________________________________________________
david ingram replies:
An NR4 does not go on the Canadian return. It goes on Schedules B and 1116 of the US return
The T4 does not go on the US return unless you are filing as a year round resident as in 2 below.
I am too busy to come up with a new answer but this older one will give you an idea.
QUESTION: Hi David, I really need your help in filling U.S tax and I am getting mixed messages which forms to file. I am a Canadian Citizen in U.S on TN visa for more than a year. I have RRSP in canada over 10,000 put in fixed bond and saving account in a bank. What do I need to file here and what forms do I need to fill. Do I still have to file tax in Canada for canadian earning? Please help. ____________________________________________________
david ingram replies;
You need to file a departing Canada tax return and file T1161 if you left more things than your RRSP behind. The Canadian return will only include Canadian earnings although if you had a Home Buyers Plan, it is all due and taxable on the departing Canada return unless you have paid it back.
For the US, you have two choices:
1. File a 1040NR dual status statement and a Dual Status 1040 Income Tax return with no standard deduction
or
2. File a full 1040 which includes your Canadian income and gives you a full standard deduction and the right to file a joint return if married. This is usually the best if you left Canada early in the year as you did.
If you can't figure it out, file an extension form 4868 (find it at http://www.irs.gov/pub/irs-pdf/f4868.pdf )
and then send the information to us at the address in blue below to complete for you.
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QUESTION:
We moved to the US in December 2004. At the time that we did our 2004 taxes, we did not have any 2004
US income to worry about, so we used ufile.ca to do our Canadian taxes. We have a house in Canada that we
kept with the intent of renting it out, and were unaware of the requirement to file a T1161 until we began
working on our 2005 taxes with the assistance of an accountant. By the time he got involved, it was already
late. In January 2007, CRA assessed a late filing penalty for both myself and my husband as joint owners of the
property. The statement was sent to our old address, even though we updated our address at the time we sent
in our 2005 tax returns. My question is this: Is there any way that we can get the late filing penalty forgiven?
We have done everything else by the books, and we did file the T1161 when our accountant brought it to our
attention. Thank you.
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david ingram replies:
The T1161 for a departing Canadian is due on April 30th of the year following the departure. The penalty is a minimum of $100 or $25.00 per day to a maximum of $2,500. This is the same penalty for the late filing of a T3 return with distributions.
I know of no method of officially canceling the $2,500 penalty you will each have received. You could try writing to the FAIRNESS COMMITTEE and explain the situation and they might cancel it. for $5,000, it is certainly worth the effort.
You can start looking up the rules for the FAIRNESS COMMITTEE here:
http://www.cra-arc.gc.ca/agency/fairness/prov_3-e.html
I do not expect them to agree but they might.
You might write to Prime Minister Stephen Harper as well. The penalty is unfair because although easy to find if you know what you are looking for, NO ONE knows about it automatically.
The tax preparation programs do not tell you to fill it in when you put a date in for departing Canada.
The $2,500 penalty is imposed after 100 days.
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pert US Canada Canadian American Mexican Income Tax service and help.
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Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert US Canada Canadian American Mexican Income Tax service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.
$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits no move in or out
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales) are likely $50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.
This is a guideline not etched in stone. If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
--IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--
-Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation in connection with personal or business affairs such as at www.centa.com or www.garygauvin.com. If you forward this message, this disclaimer must be included." -
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