Ardara

Hi all. I'm hoping you might be able to help.

Bit of background information - received PR end of October this year and hope to land early next year - possibly not returning if we can arrange to rent/sell our house and arrange employment.

Reading the wiki and searching BE I'm a little confused We can't sell our house at the moment as it is worth less than we paid for it 4 years ago and were considering renting it out and selling when prices reach our original purchase price.

Am I correct in thinking that:

1. If we sell the house now at a loss (luckily we are not in a negative equity position) and take the remainding funds with us we are not liable for any capital gains tax in Canada - all funds being tax free.
2. If we have to rent it out, we pay tax on any income left after mortgage, rental fees, etc.
3. If we sell the house after it reaches the original purchase price ie £40k higher than now, we pay CGT on £20k - (then $20k each).

Can anyone give me a very rough idea of how much this tax might be? (Is it based on the amount of tax you pay on your earnings?) - on approx $40k pa?

When we applied for PR over three years ago, we never anticipated having any of these problems:curse: OH is starting to think it might not be worth leaving the UK!!

Thanking you in advance

triumphguy

Capital gains tax is worked out this way.

If your gain is $40,000 you are taxed at your marginal tax rate, on 50% of the $40,000.

So you are taxed on $20,000 at your marginal tax rate.

If your marginal tax rate is a nominal 25% then you owe $5,000.

Your marginal tax rate will depend on your province and how much taxable income you had during the year you realise the capital gain.

BTW: Where is your house? If it's your residence in Canada you will pay no capital gains when you sell it.

When you rent out a house you pay income tax on the net. So you can depreciate the house (CCA), and write off all expenses involved with owning and renting that house, including office space in your own home, and vehicle expenses. See an accountant for your own case.

Check out this site:
http://www.taxtips.ca/personal_income_tax.htm

Check this out to estimate the tax owing:
http://www.taxtips.ca/calculators/taxcalculator.htm

JonboyE

That is right. The Canadian government has no interest in any transactions that take place before you become tax resident in Canada.

Right again.

This price now is irrelevant. The only value that matters is its value on the date you become tax resident here. That is its market value on that date converted into Canadian dollars at the rate on that date.

As triumphguy says, it depends on your province of residence and your other earnings that year. Only half the capital gain is taxed. It will most likely be somewhere between 30% - 40% of the taxable capital gain (15% - 20% of the actual capital gain). Given the housing market in the UK at the moment it will probably be very little.

Whilst you are quite correct that you can claim capital cost allowances each year, if you expect to make a capital gain when you sell it this is generally not a great idea unless you expect to hold the property for the long-term. If you make a profit on the sale all then all the CCA you have claimed becomes taxable in the year you sell the property - a year when your marginal tax rate is likely much higher than the years in which you claimed the CCA.

Ardara

Thank you both for your replies. What a mine field

This has been really confusing until now, I understand it a lot more now after your explanations.