ARH

I've just finished my 2007 Canadian Tax Return, but I'm wondering how I deal with the rental income from my UK home. I've already dealt with UK Revenue and Customs and declared my income including the NRL1 form.

However, what do I show on the Canadian Return? My wife and I make very little money (if any) after mortgage and insurance payments. I have printed off the Foreign Income Verification Form (T1135E), that's the only thing I can see is relevant. The Statement of Real Estate Rentals form (T776E) seems to be for rental properties in Canada itself.

Any help appreciated!

Thanks
ARH

JonboyE

You do need to complete T776 for your UK rental and file this with your Canadian tax return. You should convert all amounts into Canadian dollars on the day the rent was received, or expenses paid. You can find historical rates here.

When you have completed T776 transfer the gross rents and net profit to lines 160 and 126 on T1 (Canadian Tax Return).

I assume from your comments that you have not paid any UK tax on this rental income. If you have you will also need to complete a foreign tax credit claim T2209.

ARH

Thanks JonBoy E

I notice you can claim back expenses associated with the rental, such as insurance and mortgage interest - is that true?

Thanks
ARH

JonboyE

Of course. You only pay income tax on any profit you make, after deducting all the expenses you mention (also any agents fees, repairs and maintenance incurred and so on).

buzzmonster

Hi we are in the same situation and I don't fully understand the reciprocal tax agreement between the UK and Canada.

We too rent out our UK property and makle very little on it once we have paid the fees and mortgage. I was hoping that we could opt to pay tax on the rental income in the UK as this wouldn't even get above our tax free limits and therefore we would pay no tax. Then when this is declared in Canada as we would have already be subjected to UK tax we wouldn't get stung for Canadian tax as well. Does anyone know if this is the case ?

If we end up having to pay tax in Canada the income would presumably be added to our Canadian income and therefore we would get hit at the top tax rate - thus making the house in the UK uneconomic. (as you can only claim mortgage interest as an expense not the captial repayment)

Thanks for any advice

Andy

bazzz

No. If you are resident in Canada then you must pay Canadian tax on your worldwide income, minus any tax already paid overseas. Otherwise people would effectively have two tax free allowances merely because they own property overseas. Hardly fair, is it?

Correct. Of course, by paying off the capital on your mortgage, you are effectively increasing your net worth, so it's only fair that you should be taxed on it. Don't forget you can also claim things like agent's fees, repairs, insurance, service charges, etc.

VancouverNewbie

hi all,

also note that you will have no tax-free personal allowances in the UK if you are not resident in the Uk - in fact as a foreign-resident - you will have to pay income tax at full rates-

any tax paid is credited as tax already paid when you file the Canadian return- so you don't get double-taxation.

(you can deduct the cost of travel to Uk to inspect and mantain the property).

If you have substantial capital gains, I would liquidate and bring over to Canada - as your capital gains base would begin from the moment of becoming Canadian resident. Future capital gains in UK will be much higher then what you can expect to pay in Canada.

JonboyE

Not necessarily true. A British citizen resident in Canada will still have a UK personal allowance for UK source income. For rents, this is from HMRC website:

HMRC will tell an agent/tenant not to deduct tax if the non-resident landlord has successfully applied for approval to receive rents with no tax deducted. But rent paid with no tax deducted remains liable to UK tax. So non-resident landlords must include it in any tax return HMRC sends them.

All non-resident landlords who receive rents with no tax deducted will have a tax district.

Some individuals who are not resident in the UK for tax purposes are not sent an annual tax return automatically, even though they have UK rental income. This is because many non-residents will have sufficient UK personal allowances to cover any liability.

Note also:

UK allowances for non-residents

If you are an individual not resident in the UK, you may claim tax allowances if

* you are a Commonwealth citizen (this includes a British citizen)
* you are a national of any European Economic Area (EEA) state, that is:
o Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, United Kingdom
o and also, for tax years from 2004-05 onwards, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia;
o and also, for tax years from 2006-07 onwards, Bulgaria and Romania.
* you qualify under another category. See the Notes to Form R43 for full details.


True enough

Brilliant. I never thought of this, but I don't see why not.

I don't think this is a great issue. Unless you really plan things badly, your former UK home will escape UK capital gains tax. There is a discussion of this issue in the wiki here. This exemption does not apply to buy-to-let properties, but if you have these you should be getting professional advice.

Biiiiink

Wow It doesn't work in reverse, I tried and failed to claim for air tickets to Calgary. The accountant said only "local" travel to the property.

mandi moo

This might already be covered, sorry. Im back in the UK and want to claim back taxes we paid in Canada. Ive been told what forms to fill in but when i go to the webste its confusing and theres different forms for different circumstances. Now i know im a bit blond
but does anyone know of someone that would do all this for us?
Id rather do it right than send all the receipts etc to the wrong people.
Hope your all doing well, miss you lots, UK is S*#T.
Mandi xx

JonboyE

You are right. According to the CRA's website, if you only own one rental property, you can only claim local travel to carry out repairs. If you own two or more rental properties at different locations you can claim ALL travel expenses connected with managing them.

This is a spiteful little restriction. If you are paying tax on the income you should be able to deduct the cost of earning that income. The default position of the Income Tax Act is that expenses are deductible as long as they are a) incurred to earn taxable income and b) reasonable. I guess this restriction is there to stop people deducting the cost of holiday travel by claiming they are visiting a rental property e.g. rent out your cottage for 4 weeks in the summer and claim all your other trips as deductible expenses.

The inference is that if you have two or more rental properties in different locations you are in a genuine business and if you have one you are not.

The CRA's website does not make a reference to the law on this. I would love to see the section of the ITA they rely on.

Thank you for pointing this out.

JonboyE

Am I right in assuming you were living and working in Canada, but sometime during 2007 you left to live permanently in the UK?

If so, just fill in the tax return you would have filled in if you were still here. If you were in Alberta chose the Alberta tax package here.
You just need to include income up to the date you left Canada (and you will have to prorate the $9,600 personal tax credit).

Mail it to:

International Tax Services
102A 2204 Walkley Rd
Ottawa ON K1A 1A8
Canada

But keep copies of everything.

gryphea

OK

Bumping this back up.

Do I take it you fill in a T1135 (E) as well as the T776?

We arrived 30th November 2007 and had NO rental income for the year ending 2007. Do we still need to fill in T776? If so can we claim our loss, as I think we can, eg our mortgage interest for December? If so, how do we work out our loss, eg assuming we can work out from our mortgage statement what our interest for December is, what exchage rate do we then use?

Also
on the T1135 (E) form you have to tick a box 'indicating the total cost of the investment' in various bands. We have looked but are very confused on this. Is this the total value of the property? Is it the total value split in two as we are joint owners? Is it the total value minus mortage? Or the total value minus mortage split in two?

Would really really appreciate help as the clock is ticking!! Next year I think we will get an accountant, but for 1 month and no rental income we didn't think it was worth it!

Gryphea

London-England-Lads

Great thread all these tax issues are so daunting ! Guess its the fear of the unknown !!!

It will be fine when we have done outr first one !

Rob

JonboyE

Yes, except see below.

As Biiiiink pointed out above there are different rules for rental income and business income. Rental income is considered as passive income whereas business income is considered as active income. The CRA will not allow you to claim the same kinds of expenses to earn passive income as they will to earn active income.

If you borrow money to set up a business the interest is a deductible expense even if you do not yet have any business income. It is different for passive income. IMO you will not be allowed to claim an interest expense for December as this will be considered a personal expense. It will continue to be a personal expense until you start to rent your home. I.e. expenses are not deductible until you demonstrate there is a reasonable prospect of earning taxable income.

If the reason you were unable to rent your home in December was because you were carrying out renovations you would be able to add the interest to the tax cost of the house, but you would not be able to deduct it from other income.

If you need to file a T1135 each person would declare their share of the free market value of the UK house on the day they landed in Canada. E.g. you jointly own a house that had a market value of UKP250,000 on the day you came to live in Canada (when the exchange rate was 2.1). You each declare $262,500 (250,000 x 2.1 / 2). The amount of the mortgage is irrelevant.

However, as you will not be claiming the mortgage interest as a business expense (assuming you accept my interpretation) the UK home will be classed as personal use property. Therefore you do not need to file either a T776 or a T1135.