# tax consequences



## dubmac (Jan 9, 2011)

Hi all. 

I am posting this with full awareness that this tax situation may be unavoidable in it implications, but I will proceed on the off chance that one of you (out there) may have some input that is revealing.

A relative (& husband) own a home in Vancouver, which has likely increased in value 4-5 fold since the purchase. 
The two of them have been "ex-pats" living abroad (France), and in their circumstances, do not pay any tax. (as I understand it, her husbands employer pays his portion of tax under their employment contract arrangement). They rented their Vancouver home for much of the past 5 years. The home is not their principal residence. They have reached the point where she will need to either return to Canada (...and re-establish their home as PR, and pay Canadian taxes on his sizable salary), or apply for French citizenship (.. and be required to "deal with" Canadian assets) and settle any tax bills prior to exiting Canada for good. 

The home, now, is perceived as a tax liability. 
Selling the home now would generate a sizable tax bill (50% of FMV I think), which would translate to something like 400-500K in tax. As you might expect, they are curious to what alternatives there might be.
Returning to Canada to live and retire is not in their plans.

Has anyone dealt with similar circumstances? 
Is it possible to transfer this asset to the relative brother? or nephew to enter into a more tax-friendly circumstance?

They are likely to use the services of a tax professional, but if you have any input/experience, I would be interested to hear about it.


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## gardner (Feb 13, 2014)

dubmac said:


> do not pay any tax


... in Canada. Presumably they report the rental income and pay taxes on it in France, as well as the income taxes that seem to be withheld at source in France.



> They are likely to use the services of a tax professional


They would be foolish not to, IMO.

My prediction is that they would be entitled to the principle residence deduction for the period where the home was PR, before their residency changed, however since their tax residency is now France, not Canada, the French rules will prevail and they need French legal guidance.

EDIT: Here is a useful writeup:
http://www.taxplanningguide.ca/tax-...tion-taxable-canadian-property-non-residents/


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## OhGreatGuru (May 24, 2009)

In addition to the above, from a Canadian tax point of view they will not pay 50% of the FMV in taxes. I have no idea what the French tax liability would be.

The "Capital Gain" is not the FMV, it is the difference between the FMV and the original purchase price.

Capital gains have an "inclusion rate" of 50%, which means only 50% of the capital gain is taxable.

The highest income tax bracket in Canada is about 50%, so the actual tax would be 50% x 50% = 25% of the capital gain.

If their home was their principle residence for part of their period of ownership, their capital gain would be reduced in proportion to the number of years it was their residence. There is a CRA guide on this - T4037 - Capital Gains.

To further complicate matters, they may or may not have made a declaration that the home was being changed to an income property. If they did, there should have been a "deemed disposition" at the then FMV. Theoretically they could have chosen not to do this for up to 4 years, and continue claiming a principle residence exemption for those 4 years, subject to certain conditions. But since they have been absent for 5 years, they may be in contravention of that exemption, unless they qualify for an extension.

They need to talk to a tax professional.


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## dubmac (Jan 9, 2011)

They don't pay any tax in France - his salary and perks are tax free. 
When he settles things here, he'll likely buy a place in France, take citizenship & pay taxes there.

I heard back from them & apparently pretty much everything you said above is true - they won't pay as much tax as originally thought the house was their PR 5 yrs ago, so the estimate of fair value begins at that time. Also, the home is shared ownership - which may impact how much tax is paid. He makes tons of dough, she doesn't work. He would, were he in Canada, be in the top tax bracket, but he doesn't pay any tax here. Thanks for the input guru.


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## OhGreatGuru (May 24, 2009)

dubmac said:


> They don't pay any tax in France - his salary and perks are tax free.
> ...


This sounds like a very peculiar arrangement. From your first post it sounds more like the employer is paying some kind of tax on their behalf, and they just never see the before-tax figure. But I know nothing about French taxes.


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## dubmac (Jan 9, 2011)

OhGreatGuru said:


> This sounds like a very peculiar arrangement. From your first post it sounds more like the employer is paying some kind of tax on their behalf, and they just never see the before-tax figure. But I know nothing about French taxes.


correct guru. Employer covers taxes. Very sweet deal.


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## gardner (Feb 13, 2014)

dubmac said:


> Employer covers taxes. Very sweet deal.


How is it different from any tax-deducted-at-source system? Looking at French income taxes outlined in Wikipedia, it looks to me like the income taxes are in approximately the same range as Canada, ie: 14% .. 45%. The French are as interested as anyone in the panama and paradise papers and other schemes -- they would not just lay back and ignore high income earners failing to pay taxes.


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## dubmac (Jan 9, 2011)

He has a job, basically, as an inter-national consultant with an oil company. As far as I know, they have unique contracts that they offer professionals with certain skill sets - he an engineer with a PhD. I don't think that you could call the job ordinary - (his salary goes into a swiss bank account etc.. whereas most other people put theirs in a regular bank)


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## gardner (Feb 13, 2014)

Well, Swiss folks, as a rule, put their money in a Swiss Bank -- but whatever.

The point is that this guy likely has tax-residency *SOMEWHERE* and wherever that is, their rules will have a role in the outcome. If his tax residency is somewhere with a tax treaty, then that will make a difference. If his residency is somewhere without a tax treaty like the Caymans or something, then he will be looking at the basic withholding taxes. Here's what the CRA says:

https://www.canada.ca/en/revenue-ag...sing-acquiring-certain-canadian-property.html

Tax treaties by country are here:

http://www.fin.gc.ca/treaties-conventions/treatystatus_-eng.asp


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## dubmac (Jan 9, 2011)

probably Canada tax rules apply now in his case - since he still holds Cdn citzenship.


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## humble_pie (Jun 7, 2009)

dubmac said:


> A relative (& husband) own a home in Vancouver, which has likely increased in value 4-5 fold since the purchase.
> 
> The two of them have been "ex-pats" living abroad (France), and in their circumstances, do not pay any tax. (as I understand it, her husbands employer pays his portion of tax under their employment contract arrangement). They rented their Vancouver home for much of the past 5 years ...
> 
> ...




it seems the answer is No, no one has dealt with similar circumstances. 

imho this is a highly complex situation & i do not see any alternative to finding (choose carefully) an international tax practitioner who can guide this couple, since you mention they have no intention of returning to canada. There are established canadian law firms with offices in paris, there should also be paris offices of international accounting firms with experienced & specialized canadian partners. Canadian embassy in paris might have a list of referrals. The paris offices of the big canadian banks would also know such CAs.

the fees will be top dollar, however if your relatives are truly not taxable in canada, it is even possible that the full untaxed capital gains from the sale of the vancouver property will belong to them, ie the house can possibly be sold without canadian capital gains tax. 

i don't think it is appropriate for cmffers to get into speculation as to what the relatives' exact tax circumstances are. The situation is too complicated. Neither are the principal parties themselves querying here in the forum, what we have is a 3rd party famiy member querying on their behalf.

suffice to say that every great world capital city such as paris has all kinds of official & quasi-official international agencies located in them. Many of their employees are tax-exempt. It's a common pattern. 

.


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## gardner (Feb 13, 2014)

dubmac said:


> probably Canada tax rules apply now in his case - since he still holds Cdn citzenship.


Not at all. Canada and nearly all other western industrialised countries tax by residency, not citizenship. Only the US uses citizenship (and other unspecified "ties") to claim taxing authority over people.


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## Eclectic12 (Oct 20, 2010)

dubmac said:


> probably Canada tax rules apply now in his case - since he still holds Cdn citzenship.


Where did you get that idea?

Canada bases taxes on tax residency from residential ties ... not citizenship. Only the US and one other country use citizenship.
https://www.canada.ca/en/revenue-ag...-moved/determining-your-residency-status.html


From what I understand ... question one is if the residential ties have been cut to the point of being a non-resident (and when). 

Question two is whether the final tax return that records the departure date was done properly. This includes being considered to have sold things like taxable investments for a capital gain (or making an election to defer the CG taxes to when the investment is sold). 
https://www.canada.ca/en/revenue-ag...a-non-residents/leaving-canada-emigrants.html

Part of becoming a NR properly I believe would have been to get a FMV for the former principal residence. Emigrating from Canada gets rid of the principal residence exemption so selling the home as a NR triggers capital gains on the growth while a NR.


France has a tax treaty with Canada so there may be more choices available that help with tax issues.


As the employer is taking care of the tax bill ... are they providing access to tax experts that have experience in this type of situation as well?


Cheers


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## dubmac (Jan 9, 2011)

Eclectic12 said:


> France has a tax treaty with Canada so there may be more choices available that help with tax issues.
> 
> Is the employer is taking care of the tax bill ... are they providing access to tax experts that have experience in this type of situation as well?


As far as I know they are getting advice from the employer, and some sources in France....yes.
(I was curious however whether anyone had experience from the Canadian tax side of things - but, it is a rather complex situation, best to let the blue suits sort it all out)


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