# selling a foreign principal residence



## barleydrinker (Nov 18, 2017)

I was looking at the taxation rules for selling a principal residence in Canada.

Here is my understanding.

1) Basically, if you own a principal residence that later ceased to be your principal residence, you pay capital gains on the portion of time you were not a principal residence.

Example: I bought a property and owned it for 10 years, and it was my principal residence for 9. I compute the capital gains tax liability for the full ten years, but I then pay 1/10 of it.

Is this (essentially) correct?

2) Does this apply to a foreign principal residence? I am moving back to Canada and will likely keep my house and rent it out.


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## OnlyMyOpinion (Sep 1, 2013)

Welcom to CMF.
1. Any increase in value since the house stopped being your principal residence would be subject to capital gains. So in your example, any gain from year 9 to year 1o (NOT 9/10's). Did you rent the house in year 9-10? If the house was empty or it took a year to get it sold, you do not need to consider capital gains because there is a 1 year 'buffer' as I recall.

See here: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/principal-residence-other-real-estate.html 

And here: https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2016-growing-middle-class/reporting-sale-your-principal-residence-individuals.html


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## AltaRed (Jun 8, 2009)

I don't know if the rules are the same for foreign property. I'd think the ACB of the property would be the market value (per appraisal) of the property on the date of entry to Canada (like it is for capital property). 

The more important issue may be US tax obligations as the OP leaves the USA. (if the OP is coming from USA). They don't have the same principal residence exemption that I am aware of. No idea how it works for any other country. The OP has not said.


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## OhGreatGuru (May 24, 2009)

OnlyMyOpinion said:


> Welcom to CMF.
> 1. Any increase in value since the house stopped being your principal residence would be subject to capital gains. So in your example, any gain from year 9 to year 1o (NOT 9/10's). Did you rent the house in year 9-10? If the house was empty or it took a year to get it sold, you do not need to consider capital gains because there is a 1 year 'buffer' as I recall ...


This is a common misconception. For most home-owners, the formula for calculating the Principal Residence Exemption, as explained in T2019, is a simple formula based on the years of ownership and the years of residence. There is no calculation of the actual increase for individual years or groups of years. And consequently no need for an appraisal at the time it ceases to be a principal residence. As noted by OnlyMyOpinion, there is a 1-yr buffer in the formula, so if in fact it was your residence for 9 years out of 10, you would still get a 100% exemption.

If a property is changed from Principal residence to a rental property, there can, in some circumstances, be a "deemed disposition", in which case an appraisal becomes necessary. People who are in the business of making such conversions, need to do it because of the tax implications; but you can rent a principal residence for up to 4 years without declaring a disposition, as long as you don't try to declare a capital cost allowance on the rental income. You can even get extensions beyond 4 years if circumstances warrant.


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## OhGreatGuru (May 24, 2009)

barleydrinker said:


> ...
> 
> 2) Does this apply to a foreign principal residence? I am moving back to Canada and will likely keep my house and rent it out.


I don't really know, but it would seem to me to depend on whether CRA considers you to be a tax resident of Canada. This foreign gain has occurred on foreign property you own, presumably while absent from Canada.

If you rent it out, it would be foreign income, which, going forward, you would have to declare, as you would any other type of foreign income.

From a capital gain point of view, I think you would be subject to future capital gains from the date that you re-entered Canada. You would have to ascertain FMV for that date. But check CRA's web site for "immigrating to Canada" and "Foreign Property"


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## kcowan (Jul 1, 2010)

I think your main issue is dealing with the taxes due in the foreign country. In Mexico for example, capital gains are taxed as regular income, so there is never any Canadian tax owing upon disposition. Similarly in the US, the PR exemption is related to buying another PR. If you are leaving the country, there is no PR exemption. So you will have paid all the taxes owing and claim that against any tax due in Canada.


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## Eclectic12 (Oct 20, 2010)

barleydrinker said:


> I was looking at the taxation rules for selling a principal residence in Canada ... Does this apply to a foreign principal residence? I am moving back to Canada and will likely keep my house and rent it out.


Question is ... does the primary resident exemption (PRE) apply to your tax situation?

If leaving Canada meant becoming a Non-Resident for Canadian tax purposes where the foreign property was acquired after becoming a NR, then it reads to me that there's no Canadian tax implications (i.e. no PRE and no capital gains). Everything would be determined by the country you are a tax resident for.

https://www.canada.ca/en/revenue-ag...-moved/determining-your-residency-status.html
https://www.canada.ca/en/revenue-ag...anada-non-residents/non-residents-canada.html

The earliest the PRE or CG for owned property would come into play is when you moved back to Canada to become a Canadian tax resident again.


If you maintained enough ties to Canada to keep being a Canadian tax resident, then the PRE as well as CG would apply. As I understand it, you would also be filing Canadian tax returns on world wide income - the same as if you were still in Canada, plus whatever the local country requires.




OhGreatGuru said:


> OnlyMyOpinion said:
> 
> 
> > ... If the house was empty or it took a year to get it sold, you do not need to consider capital gains because there is a 1 year 'buffer' as I recall.
> ...


YMMM ... based on recent changes.



> For dispositions occurring after October 3, 2016, *the "one-plus" factor applies only where the taxpayer is resident in Canada during the year in which they acquire the property.*


http://www.taxtips.ca/filing/principalresidence.htm


Cheers


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## barleydrinker (Nov 18, 2017)

I am having a ton of trouble posting (I don't know why my posts aren't showing up, but here goes again. I tried to add more info last time).

I am living abroad in a country that Canada has a tax treaty with. I ceased to be a Canadian resident for tax purposes in 2006, as I paid full tax to another country. In 2008 I moved to another country with which Canada has a tax treaty. I have lived in Canada at all since 2006. I have no property there, no real ties save a small RRSP (which I haven't contributed to since leaving) and a small bank account.

The house I purchased abroad I have lived in for a number of years. I think the only way that Canada is involved is that for probably the first couple of years after moving back to Canada I will retain ownership in the home and receive rental income on it.


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## OhGreatGuru (May 24, 2009)

From what you describe, I think you are correct. When you return to Canada, you will be in possession of a foreign asset, with a "deemed acquisition cost" of its fair market value on the date you return to Canada. So you should get an evaluation at that time. After you become a CDN tax resident, CRA can tax future capital gains going forward. And as you say, if you have rental income, it has to be declared.


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## Eclectic12 (Oct 20, 2010)

The other potential item is that if the deemed acquisition cost > $100K CAD then possibly a T1135 will also need to be filed as it is an income producing property.
https://www.pwlcapital.com/en/Advis.../March-2014/Tax-Tip-Do-I-Need-to-File-a-T1135


Cheers


*PS*

It is probably just the wording as well as the problems posting but the tax residency for Canada is driven by the residential ties, not whether full tax is paid to another country.


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## barleydrinker (Nov 18, 2017)

OK. I am back.

Ok. So it seems that I should get some kind of certificate for assessed value.

About the T1135: am I exempt for a year? The website above (and others) say you get a 1 year exemption if "this is your first tax return". Well, I was born in Canada and filed in Canada up to 2006, but I haven't filed since.

About whether I am a tax resident, I know that it is about ties. I would be shocked if I was considered a tax resident of Canada. I have no property there (save a small bank account and an inactive RRSP), no income of any kind there, and a bonafide tax resident (employed, living with kids) in a country with which Canada has a tax treaty.


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## Eclectic12 (Oct 20, 2010)

On the last tax return filed, presumably for tax year 2005, did you fill out your date of departure to make sure CRA knew you were emigrating?

https://www.canada.ca/en/revenue-ag...residents/leaving-canada-emigrants.html#mgrnt

If not, the ties will determine whether you really are a NR but may mean that CRA still thinks you are a Canadian tax resident, with outstanding tax returns that were not filed and possibly assumed income that may mean assumed taxes/late penalties/interest.


Cheers


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