Should I pay taxes when sell my house in Canada?

[shaul]

I've heard that if you sell house in Canada and move abroad, you have to pay 25% withholding tax. Is it correct?

We are planning to sell our house in June (when we're still in Canada) and right away after selling - move to US.
Should we pay any withholding taxes?
This house is our primary residence and we lived there for over 10 years.

[Steven]

No not on your primary residence. It sounds like you're on about departure tax, which is explained here: http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... n-eng.html

The average person doesn't usually get hit with it, if you have money in an investment outside of an RRSP or TFSA you might do. The rate is the same as the capital gains rate so if you dispose of those assets now it costs you the same either way.

If you have an RRSP contrary to what basically every bank seems to say you do not have to close it out, the 2008 tax treaty changed the rules so they're treated as IRAs in the US. Depends on whether you move your tax home to the US or not, if you stay resident in Canada for tax purposes then things like departure tax are irrelevant.

In addition a lot of the blurb on the departure tax on the web is also out-of-date (as are many of my older posts on here), the 2008 treaty moved the cost base to the point of immigration, so if you pay departure tax when you leave Canada, the US will assess any capital gain from the date you moved your tax home, NOT the point at which you acquired the asset. However you may need to fill out some paperwork to explain that to the IRS when you dispose of it, probably an 8833.

There is also no good reason to close any Canadian bank accounts you have now that Part XIII tax has been largely abolished, you just notify the bank of your US address and if you move your tax home to the US that you are non-resident for tax purposes so you get an NR4 instead of a T5.

If you're moving to the US it's a good idea to read IRS publications 519 and 597 (the current edition of which doesn't include the 2008 changes).

Generally speaking if you're only going for a short period of time (less than one full calendar year) it's not worth the hassle of moving your tax home to the US and back.

[shaul]

Steven, appreciate your help!

Generally speaking , we're going to stay in States for good. There is a good chance that we'll get L1-A/L2-A and company suggesting that in 1.5 -2 years we gonna get a Green Card.
The only thing that will tie us to Canada - RRSP, DCPPS, RESP, bank accounts. We're selling our house and importing to States our cars and furniture. On all registered funds , we also doesn't have Capital gain (we have capital loss).
So, I thing the best is to move our "tax home " to US ASAP.
Here is where I'm confused:
1. If we move in June (we are flexible). As per IRS , if we live in US more than 183 days, we can fill taxes in US. So, we don't need to fill Canadian taxes at all? and report Canadian income up to June to US?

2. If we move in July . As per IRS , if we live in US less than 183 days, we should fill taxes in Canada. So, we don't need to fill US taxes at all? and report US income after July to Canada?

Also, you mentioned Depature tax - what is it?

[Steven]

Departure tax is a tax you pay on capital assets subject to the tax when you depart as explained in the link above. E.g. if you have shares or stocks outside of a tax shelter like an RRSP, when you leave you are deemed to have disposed of them at that point (although you haven't) and must pay capital gains tax on them.

An RESP I don't think is recognized as a tax shelter in the US. But an RRSP is, but you have to declare it on Form 8891 when you file your tax return. Contributing to it after you leave isn't possible (legally it can be done but practically it's not), better to start up a 401(k) or IRA.

Forget about the substantial presence/183 days test, people always seem to focus on that but it's largely academic for Canadians because of tax treaty provisions.

If your intent is to live in the US permanently you should move your tax home, this requires severing all residential ties to Canada. On your T1 for this year you will state the date you left and pro-rate your deductions and exemptions, etc. to the number of days you were in Canada. On the US end you have to file dual-status which is explained in IRS publication 519.

Essentially you file a 1040NR for the first part of the year and a 1040 for the second part of the year, pro-rated to the number of days you were in the US.

So basically you will file three tax returns for 2009, two in the US and one in Canada, although the 1040NR will probably be blank.

The key bit is to sever all residential ties to Canada so the CRA doesn't deem you resident, this requires you to get rid of anything only a resident could get, which means your DL, healthcare card, etc. and not to have any other significant ties, e.g. a pile of furniture in storage. You can keep your bank accounts including your RRSP, but you must notify the bank of your non-resident status for tax purposes, which is more than just notifying a change of address, you must be down in their system as non-resident for tax purposes.

[shaul]

The problem with NR 73 , that there is no strict rules and everything is on discretion of CRA clerk. I called CRA International department and they told that 5-6 minors ties is still OK to move tax home to US.
Also they told that they have a huge pile of applications NR73 and I can fill it out after I move to States. As per bakn accounts, CRA told that enough to notify bank that you're moving permanently to US.
Another question, if I fill out NR73 and CRA still will consider me as Canadian resident, can I sever more ties with Canada and reapply? in what time frame can i fill it out again?

The problem that generally i can redeem all my RRSPs (except those on long term GIC), but I cannot even theoretically redeem DCPPS, DPSP or RESP.

Other think that probably can help to move tax home from Canada is that I lived only 10 years in Canada, before i lived 20+ in Russia and 10 in Israel and hold except Canadian, also Israeli citizenship.....

[Steven]

Don't send in NR-73 unless they tell you to, otherwise you've just given them information they can use against you. However it's a good idea to read it because then you have an idea of what they're looking for.

What you need to get rid of primarily are residential ties only a resident could get. E.g. driver's licence, healthcare card and so on.