DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

What’s Your Tax Issue?: Sale of Canadian Real Estate

In Canadian Income Tax, Non-residents on October 29, 2009 at 3:59 pm

The Tax Issue:

I own one third of a country home (located in Canada) together with my two siblings and I recently moved to the Bahamas. Do I have to pay tax in Canada on my share when the property is sold, since I have no tax to pay in the Bahamas?

The Answer:

First, when you leave Canada to become a non-resident, there are certain rules to consider. The big one is that you have a deemed disposition of all capital property at fair market value as of the date you left. I would seek professional advice in this regard.

But there are exceptions, one of which is real property located in Canada. The taxation of your share of the country home, therefore, is deferred until you actually sell it. At that point, it’s fully taxable in Canada regardless of where you live, because it falls into the category of  “Taxable Canadian Property”.

At the time of the sale, you will have to provide the CRA with information and withholding taxes will likely apply to your share of the proceeds under section 116 of the Income Tax Act. You will have to file a Canadian income tax return to report the disposition and the taxes withheld will go as a credit against the actual taxes payable on the tax return. This issue was discussed in an earlier post. Again, at this point, a tax professional should be able to guide you.

  1. My son (Canadian by birth) resides as a legal resident of the USA and has done so for the past 7 years. He recently sold a portion of a very small bush cottage of which his share was $11,000.00 Cdn.
    He filed the required form T2062 and waited until same was processed. CRA misplaced this file (located same 6 months later) and subsequently allowed his lawyer to release funds held for the 25% of capital gain as they said the T2062 would be processed as filed. The funds were released by the lawyer and returned to my son. CRA now states that they require further information i.e. receipts, declaration of value at time of purchase and declaration of value on sale. It seem that CRA has been incredibly incompetent. Can my son stand on the fact that the funds were released on their approval and having noted that the T2062 would be processed as filed as now he will be hard pressed to obtain the additional information? It seems the CRA employee handling this goes on whims as to what she requires.

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