selling property in country of origin

[Rosie1957]

Make your life simple, open a business somewhere around the concept of charity in Canada, sell your property and move the money to your business account. This way you are not personally liable for hefty taxes

Be aware that registering a charity for the purpose of operating it as a tax shelter is illegal. It's not something I'd advise doing if you want to keep your PR status.

 

[EU_2010]

Yes, you're right - see Section 128.1 of the Income Tax Act. An immigrant is deemed to have disposed of their property at FMV at the time they become a resident and to have immediately reacquired it at the same cost. There are exceptions made if the property is already in Canada (shares in a Canadian corporation, Canadian real estate) or is already being used in a business active in Canada.

A full quote from the ITA follows.

*If* the transaction were also taxable in the seller's country of origin, then the amount of gains taxable in that country might be quite different from the gains taxable in Canada. Only the portion of the foreign taxes that relates to the amount of gains taxable in Canada would be eligible as a foreign tax credit on the Canadian return.

Rosie

Thanks again.

The transaction will be free of tax in my home country as more than 10 years have already passed and I haven't sold it yet.

Do I understand correctly that if I sell the place in 2015, I will get taxed on the difference from the fair value of the property at the time I became a permanent resident in Canada (March 2014) and the price I will be paid when I sell.

Let’s say the difference is 30K EUR. Would I get taxed on that and at what rate? What FX rate will apply (the one applicable in March 2014 or at the time I sell?) This could make quite a difference.

Would you recommend having the property appraised this year (to prove the fair value at the time of becoming a permanent resident in Canada)? What I’d like to avoid is getting taxed on the difference between what I paid 11 years ago and what I’ll sell it for in e.g. 2015.

 

[Rosie1957]

Thanks again.

The transaction will be free of tax in my home country as more than 10 years have already passed and I haven't sold it yet.

Do I understand correctly that if I sell the place in 2015, I will get taxed on the difference from the fair value of the property at the time I became a permanent resident in Canada (March 2014) and the price I will be paid when I sell.

Yes, that's correct.

Let's say the difference is 30K EUR. Would I get taxed on that and at what rate? What FX rate will apply (the one applicable in March 2014 or at the time I sell?) This could make quite a difference.

The capital gains (or loss) would be calculated using the value of the property in Canadian dollars at the time you became a PR vs. the proceeds in Canadian dollars at the time of the sale. You don't calculate the gains/losses in euros first and then apply an exchange rate, you have to calculate the exchange first using the appropriate rates for each time period.

Assuming you have a gain, then once you've calculated what it is, 50% of it is included in your taxable income. The rate at which the taxes are calculated depends on the total amount of your taxable income. If you're in a higher tax bracket, you get taxed at a higher rate. Large amounts of taxable capital gains may also cause you to be liable for "alternative minimum tax." If that happens, my advice is to have an accountant do the return!

Would you recommend having the property appraised this year (to prove the fair value at the time of becoming a permanent resident in Canada)? What I'd like to avoid is getting taxed on the difference between what I paid 11 years ago and what I'll sell it for in e.g. 2015.

A professional appraisal is certainly one way to establish an FMV at a specific time. Another value that's often used is the assessment value for property taxes. This isn't exactly the same as the FMV, but it's usually in the same ballpark and easy to document.

 

[EU_2010]

This is extremely helpful, thank you Rosie!

I am actually meeting with an accountant next week to file my 2013 income taxes. I'll ask him a few questions and will definitely consider hiring a professional when the time comes that I sell. It will be money well spent.

Interesting to hear about the property taxes. It works differently in my home country, they remain the same for most of the time. Every couple of years, the city may decide to increase them but this was not based on an increase or decrease in FMV.

 

[Rosie1957]

It's not much different here. Assessed property values don't change as quickly as FMV does, but over time they tend to follow it. Every few years the city says, hey, property values have gone up, we ought to be collecting more tax dollars!

 

[Hello 123]

Hi Rosie and other senior members on this forum,

Request your guidance please !!

We have received our PR from Quebec and propose to land in in Mid June or July.

Our question is -

I have a residential property in my home country India, that we wish to sell.
We expect a profit which we will reinvest in another residential property in India
hence there will be no capital Gains tax levied in India as per the laws here.
However it may be subject to Capital Gains tax in Canada.

Now we have the flexibility to land in Canada before or after completing this transaction
which brings us to the following two scenarios -

1 - Land before the transaction and report the present fair market value of the property upon landing,
as we understand that once this value is declared the profit is calculated on this reported value
and not the historical purchase value, as per Canadian law.
2 - Or land after completing the transaction and show the profits as already incurred prior to landing and becoming PR.

Please advise which approach will lower our tax incidence.

Also please note that I do not have any other property so will this qualify as my primary residence as I have lived
there 30 years?? Now I live in a different city for the last 20 years, although in a rented house. I stay at my ancestral house whenever I visit there.
Will greatly appreciate your answer.
Many thanks in advance.



_

 

[steaky]

Hi Rosie and other senior members on this forum,

Request your guidance please !!

We have received our PR from Quebec and propose to land in in Mid June or July.

Our question is -

I have a residential property in my home country India, that we wish to sell.
We expect a profit which we will reinvest in another residential property in India
hence there will be no capital Gains tax levied in India as per the laws here.
However it may be subject to Capital Gains tax in Canada.

Now we have the flexibility to land in Canada before or after completing this transaction
which brings us to the following two scenarios -

1 - Land before the transaction and report the present fair market value of the property upon landing,
as we understand that once this value is declared the profit is calculated on this reported value
and not the historical purchase value, as per Canadian law.
2 - Or land after completing the transaction and show the profits as already incurred prior to landing and becoming PR.

Please advise which approach will lower our tax incidence.

Also please note that I do not have any other property so will this qualify as my primary residence as I have lived
there 30 years?? Now I live in a different city for the last 20 years, although in a rented house. I stay at my ancestral house whenever I visit there.
Will greatly appreciate your answer.
Many thanks in advance.
_

In either scenarios, it's silly to report capital gains to the Canadian government when you are not even residents for tax purposes.

 

[Rosie1957]

Hi Rosie and other senior members on this forum,

Request your guidance please !!

We have received our PR from Quebec and propose to land in in Mid June or July...

...Now we have the flexibility to land in Canada before or after completing this transaction
which brings us to the following two scenarios -

1 - Land before the transaction and report the present fair market value of the property upon landing,
as we understand that once this value is declared the profit is calculated on this reported value
and not the historical purchase value, as per Canadian law.
2 - Or land after completing the transaction and show the profits as already incurred prior to landing and becoming PR.

Please advise which approach will lower our tax incidence...

You're not considered Canadian residents for tax purposes *until* you land. Make things easy on yourself - land after the transaction is completed. That way the gains won't be taxable in Canada at all.

 

[Hello 123]

Thanks Rosie and Steaky for your response.

Steaky, in Scenario 1, I would become a PR and liable to declare world income...

As advised by you Rosie, ideally we would like to complete the transaction before
we become Permanent Residents. However, this property is jointly owned with my
brothers and the transaction may take some time.

We cannot delay the landing beyond June as my sons University would start by
September and we would need to finish the admission formalities for that, as well
as settle down and acclimatize.

Hence we would then be looking at Scenario 1 as mentioned in my previous post.

If so, please advise what paperwork is required to declare to the Canadian Tax department
the Fair Market Value of the property at the time of first entering Canada and acquiring
Permanent Residency. I understand the capital gain will be the assessed on the sale price
above this declared rate and not the original purchase value.

Your guidance again will be very helpful.
Many thanks in advance

 

[steaky]

Thanks Rosie and Steaky for your response.

Steaky, in Scenario 1, I would become a PR and liable to declare world income...

You are not liable until you are a tax resident. You could land to become a PR and then immediately return to another country for residence/work - that does not make you a resident for tax purposes.

 

[Suin]

As I understand the money sent as a gift is not taxable. Is there a limit on the amount of money sent as a gift?

 

[Deepi333]

Hi Rosie, Steaky and others,

While filling the T1135 for equity mutual funds and shares of foreign companies, do we give the FMV on the date of landing as in the case of real property? For the next year will this amount be added to shares/units of mutual funds purchased in that year to show highest cost amount during the year?

 

[prashant1965]

Hello. I am a Canadian citizen living in US. I am trying to transfer money (proceeds from selling an inherited property) from India to Canada, I have paid the long term capital gains and filed the tax return in India. Do I owe any taxes in Canada (or just declare in the return)? Any information on this would be sincerely appreciated. Thank you for the assistance.