Canadian Capital Gains tax
ralft
less than $1K. Social security and some investment interest money
keeps us going.
Now, I am suddenly lucky enough to have a sale of piece of land that I
own in Canada. If it happens, I will have $200 to 400K in Canadian
capital gains which I will pay Canadian Capital gains tax on. I think
that I will be taxed at the rate of about 16%. I had been told
previously that I would have to pay US Capital Gains also and that
there would be limited or no credit for the foreign tax paid. Studying
this yesterday, it looks like I was misinformed. Is there some fine
print somewhere which would maybe prevent some or all of the credit
from being applicable?
parrisb...@yahoo.ca
I hate to burst your bubble, but there are several points which you
have neglected.
One: As you are a non-resident to Canada, selling Canadian Real
Property, you must apply for approval of the sale to the Canada
Revenue Agency. The withholding rate is 25% on the sale, unless you
can claim an exemption under the Tax Treaty. See
http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/dsp/menu-eng.html for
information. Before you scream unfair, I will point out that Canadians
selling Florida vacation property are subject to the same rules with
the IRS.
Two: The tax rate isn't 16% in Canada. Currently, the lowest federal
rate for a resident Canadian is 15% BUT you are non-resident and are
subject to surtax.
Three: The process for approval of your sale takes about 3-9 months
depending on where the property is located within Canada. Speak to
your Canadian Lawyer now if you have not already started the process.
The sale can not complete without the approval.
Four: You need a Canadian tax return and a tax preparer who is
specialized in the non-resident real property sales. This is not
everyone. (I do this due to my training with also preparing US Tax
Returns.)
This is before you file your resident tax returns.
As for the question about limited to no credit for foreign tax paid, I
suspect that someone was reading about Foreign Earned Income Exemption
credit and not looking at the Foreign Tax Credit. The former will
provide no credit while the latter does, but it is limited depending
on your particular situation. In general, most countries and
jurisdictions provide credit for taxes paid to another jurisdiction to
the extent that they tax the same source of income.
As an example, an individual earns x dollars in country Y but is
considered a tax resident of country Z. If Y's tax rate is 10% and Z's
is 15%, Z will give credit for all the taxes paid to Y and want an
additional 5% but if Z's rate is 5%, the credit is only 5% of x
dollars against Z's taxes. To rephrase, you will only pay the higher
tax rate but whom you pay would be the fine print.
I hope that helps.
Tim Parris
Canadian, Quebec and US Personal Taxes
Canadian and Quebec Estate Taxes
P: (613) 216-2028
F: (866) 380-5270