Sale of Principal Residence in Canada after moving to States

Utah Bound
New Member



Joined: 03 Jun 2008
Posts: 3

Posted: Tue Jun 03, 2008 8:33 am

 

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We are moving to Utah next month, but have not completed the sale of our house in Canada yet. My husband has an L1-A visa and the kids and I already have our L2's. Can anyone tell me if there's anything we need to be concerned about, tax wise, in selling our house after we make the move? This is intended to be a permanent move, as my husband's company is applying for green cards on our behalf, but our visas are good only until Oct/09. are there any forms we need to file with CRA in order not to have any taxes withheld from the proceeds of the sale?

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1112
Location: Calgary

Posted: Tue Jun 03, 2008 9:57 am

 

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Technically you are liable to capital gains tax on the period of time you possessed the house after it ceased to be your principal residence. Which is 15% on the capital gain over whatever period of time it is. However I wouldn't worry about it too much if it's a short period of time, i.e. less than a year. If it's more than a year expect to pay some tax. So for example if the house appreciates by $10,000 in a year, then you are liable to tax of $1,500.

Be careful about the moment at which you move your tax home to the US, as it will result in more paperwork if you have to pay CGT in Canada and then claim the foreign tax credit in the US. However the current rate in the US is the same, so the tax cost is the same.

http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html
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Steve.

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Utah Bound
New Member



Joined: 03 Jun 2008
Posts: 3

Posted: Tue Jun 03, 2008 10:33 am

 

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Thanks so much for your reply Steve. Part of my concern relates to the idea of the purchaser's attorney withholding 25% of the proceeds of the sale of the house as we will be deemed non-residents. It sounds like a huge hassle, when all we really have is a timing issue. Might we be better off maintaining Canadian residency until the sale of the house, even if we are physically already moved?

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1112
Location: Calgary

Posted: Tue Jun 03, 2008 9:31 pm

 

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I would say so. Especially since house prices are going in the reverse direction in the US, so say for one year your house in Utah is not your principal residence, but it doesn't increase in value - so there is no capital gains tax.

If I were you I wouldn't move my tax home to the US until I was sure that the permanent residency application is going to be approved. It's a real pig to move it to the US and then move it back again, look at all the threads on here where people have messed up RRSPs, 401(k)s, been hit with penalties because they forgot to cut some obscure residential tie, gotten ill and not been eligible in Canada, etc. ad nauseum.

That CRA tax guide I linked to above gives you an idea of what your obligations are, and it lists all the IRS publications you should have a look through. Mainly publication 519.
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Steve.

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Utah Bound
New Member



Joined: 03 Jun 2008
Posts: 3

Posted: Tue Jun 03, 2008 10:09 pm

 

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Thank you so much for your feedback and for the links. I will certainly look through everything carefully. I think holding off on severing everything might be the wisest course right now, until after the sale of the house etc. I had seen another post you made about not severing until the end of the year and then making everything clean for the following year. That's looking like a good option as well.

I can't tell you how much I appreciate your input.

Kathy

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perkyj
CanuckAbroad Regular


CDN in Illinois

Joined: 21 Mar 2008
Posts: 74
Location: Illinois

Posted: Wed Jun 04, 2008 5:39 am

 

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You're right that they can/will hold back 25% of the gross, which of course is way too much. We had no mortgage, so it would have meant 25% of the total sale price. What I needed to do was file a proposed disposition of property form with Rev Can that calculated the proposed capital gain of the amount that the house appreciated between the day that I left Canada and the day that it sold. For me, the net was zero. Revenue Canada then sent a compliance letter to the lawyer telling them how much to withhold, which for me, once again was zero. I then had to file that compliance form with Rev Can the next year to put the house sale on the books even though there was no tax to pay. Everything else on the return was 0,0,0 because there was no Canadian income. You can read all about it at Rev Can's website and it's pretty simple. This is just my experience and how it worked for me. Good luck.

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