# disposition of taxable canadian property for non-residents



## xclaim (Mar 30, 2012)

hello gurus : 

I have the following scenario : 

bought house on 3/31/2004 for $230,500 
moved out of Canada on 7/29/2012	(became non-resident)
sold house on 1/8/2014 for $426,000

now i agree i am not a Canadian resident but i thought that most of the capital gains are exempt but,

CRA's calculation is
Proceeds 213000
Adjusted cost Basis is 115250
Capital Gains is 97750
Principal Resident Exemption is 88863.63
Taxable Gain is 8886.37
Tax @ 50% is 4443.19

i was under the impression that out of the 9 years i owned property i was Resident for 8 years and therefor the whole amount was exempt ? 

any help is appreciated.

thanks much


----------



## Eclectic12 (Oct 20, 2010)

Under the "Principle Resident Exemption" section:


> ... *If the home is sold prior to leaving Canada,* the full principal residence exemption should be available, with some exceptions, resulting in no tax on the sale of the home.
> 
> Complexities of selling a home that formerly qualified as a principal residence arise when the property is sold as a non-resident of Canada. The reason for this is that *the home cannot be designated as an individual’s principal residence for the years that they are not a Canadian resident for tax purposes,* with the exception of years where they were a Canadian resident for tax purposes for at least part of the year.
> 
> _The result of this is that the principal residence exemption will not fully offset the capital gain on the sale of the property and a taxable gain may arise in Canada _ ...


http://www.cramagazine.com/issues/fall_winter06/article03.htm


So it appears that it would have been better to sell before cutting Canadian resident ties if one wanted to keep the full Principle Residence Exemption.



Cheers


----------



## KRIS_KROSS (Jan 28, 2014)

The basic formula for the PRE = [(1 + # of years designated as PR) / # of years owned] * Gain

Eclectic is correct in that you cannot designate the property as your PR for the years you are not a Canadian resident.
The # of years is based on the # of taxation years (calendar years) that end after acquisition as per 40(2)(b). Thus, you owned the property for 10 years (2004-2013), and you were a resident for 9 years.

The remainder is simple math.

PRE = [(1 + 9)/10] * (97,750 - selling costs) 

Thus, you will have no gain because the +1 rule in your PRE calculation would eliminate the gain. 
Fill out the T2091 form to designate as your principle residence when filing your taxes this year.

I think you should also confirm for sure when you became a non-resident, as that could affect the calculation above.


----------



## OhGreatGuru (May 24, 2009)

The calculation (as spelled out in T2091) is based on the "Number of tax years", not the "Number of 12-month periods" If you do the math, I think he owned it during 11 tax years: 2004 - 2014 inclusive.

It was his principle residence for 9 tax years: 2004- 2012.

PE = ((9+1)/11) * $97,750 = $88,863, which matches the CRA assessment.

If his closing date had been in December 2013 he would have been OK.


----------



## Zeeshanbmerchant (Jan 4, 2014)

xclaim said:


> i was under the impression that out of the 9 years i owned property i was Resident for 8 years and therefor the whole amount was exempt ?


What in the world would give you that impression


----------



## xclaim (Mar 30, 2012)

Zeeshanbmerchant said:


> What in the world would give you that impression


a real-estate lawyer mentioned it to me.


----------



## xclaim (Mar 30, 2012)

thanks all : 
but how did the CRA get

Proceeds 213000 and
Adjusted cost Basis is 115250
?


----------



## xclaim (Mar 30, 2012)

also if i have a capital loss from previous years can i offset the capitals gains from the loss when i do my yearly returns ?


----------



## Zeeshanbmerchant (Jan 4, 2014)

xclaim said:


> a real-estate lawyer mentioned it to me.


consider the source


----------



## OhGreatGuru (May 24, 2009)

xclaim said:


> .... but how did the CRA get
> 
> Proceeds 213000 and
> Adjusted cost Basis is 115250
> ?


I didn't notice that part. Was this a jointly owned property? Because those numbers are 50% of what they should be.


----------



## xclaim (Mar 30, 2012)

OhGreatGuru said:


> I didn't notice that part. Was this a jointly owned property? Because those numbers are 50% of what they should be.


perfect thanks. It is a split between me and my wife.


----------



## Eclectic12 (Oct 20, 2010)

xclaim said:


> also if i have a capital loss from previous years can i offset the capitals gains from the loss when i do my yearly returns ?


Yes .... it's capital gains so capital losses can be claimed to reduce it. 


Cheers

*PS*
I should add that I'm not a tax expert and have not seen anything saying that the capital gains from a house sale needs to be treated differently or is excluded from applying a capital loss against it.

I'd suggest either calling CRA to confirm or checking a tax book/specialist.


----------

