JonboyE

Yes, that is the way it works.

Muskoka

This is what is confusing me, from a CANTAX 2012 Publication:-
In this regard any home that you or your spouse or your child ordinarily inhabits in year can be designated as your principal residence for the year. The threshold is relatively low. For example if you inhabit your cottage for two or three weeks during a year you can meet the 'ordinarily inhabits'threshold so you could designate the cottage as your principle residence for that year.
Furthermore, the cottage does not have to be in Canada. A home, condominium, cottage, etc outside of Canada can qualify as your principle residence in a year as long as you ordinarily inhabit the property in the year........

Aviator

Forget any publications other than these Principal residence and other real estate CRA set the rules, what they say is what happens.

There is going to be somewhere you spend most of the year, if you live in a home for 3 weeks of the year, where do you spend the other 49 weeks which is where you are likely ordinarily resident.

Muskoka

Thank you so much. I do now understand that this is how it works. Can I ask another question please? If I sold my house in UK, and purchased a smal home in UK AND a small home in Canada, would I then have to pay CGT still on the sale of the original house in the UK? Thank you in advance. Sorry, but it is a huge decision for me.

Snowy560

Hi I've just scanned this thread so apologies for cross posting.

With regard to non resident CGT liability in the UK: the rules changed on 5 April this year and non residents are now liable. What non residents are now liable for is the CGT on the difference in value between the valuation of the property on 5 April 2015 and valuation on the date of sale (which is exchange of contracts see below). We sought professional advice (from a UK perspective) because we sold our house in June. The professional advice was in the form of a half hour consultation via the phone with an expert recommended to us in a partner firm of the lawyers acting for us for the sale.

The trigger point in the UK for valuation purposes is exchange of contracts. We established that, as far as the UK (HMRC) goes, we won't (or are extremely unlikely to) have a CGT liability as we sold so close to the change in rules. Plus I found some HMRC pages which describe about the last 18 months of ownership prior to sale, what you can deduct from your liability etc. Most of this won't be relevant to us as we sold so close to 5th April but it might be to those of you selling houses in the UK going forward.

With regard to our CGT liability in Canada, we know we will have some, but as JonBoy says, my preliminary back of the envelope calculations make me think it will not be as bad as feared. I'm going to consult a professional ahead of time (like now!). Knowing what you're dealing with allows you to get your head round it and accept it before you're hit with it as it were.

Going back to the UK at this point (for me especially after selling!) is rather unrealistic and probably far more costly than the resulting CGT. I go back to JonBoy's point: it may not be anything like what you fear. Get an estimate based on some possible figures and then decide.

S

Aviator

You will. In the year you move you could claim a UK home as as principle residence, after that it would be liable to CGT.

Snowy560

I actually think you should seek professional advice both in the UK and in Canada as to your potential CGT liability in both places, most especially if you are considering quitting your job and your life here in order to save on paying tax.

These are big decisions. You could make the wrong one because you were not aware of the "big picture".

S

Muskoka

Ya, thought so. Didnt' think it would be that easy. Just trying to make my money keep working for me, with interest rates as they are at the moment. So thanks so much

Muskoka

To be honest, its a tough call. I know of a city accountant (with his own big company - hes the MD), and hes advised me no CGT........yet here its indicated I would have CGT to pay. I checked myself with C.Revenue and yes, CGT is applicable. Hence this forum seems to be far better informed than supposed 'experts'

I would aim to get 'expert' advice, but as I say 'the experts' seem to be here!

Snowy560

Have you considered any potential UK CGT tax liability?

There is a double taxation treaty (Canada/UK) so you would not be doubly taxed, but you should check the HMRC situation as a non resident, depending on when you decide to sell.


S

AlliF

I would listen to the good folks here.
The first tax return we did here I used an accountant -turned out she didn't have the first clue. She was convinced we were going to get deductions on our moving expenses (even though I told her we wouldn't get it as I knew from reading numerous posts on here that was absolute bollocks!)
Glad I hadn't gone out and spent that predicted return or we would have been in trouble 😳

Heretic

You are liable, but it doesn't mean you pay nearly as much as you might think.

This ignores Canadian tax - Jonboy is right in saying when you moved to Canada, the base cost of your UK property is uplifted to the market value when you arrived in Canada, not when you bought the house.

PLUS - you get a credit for any double taxation you might incur.


1) You may get Principal Private Residence Relief on your UK home for more time than you think. Remember - if your UK home has ever been your PPR, you get PPRR relief for the final 18 months of ownership EVEN if you haven't lived there.

PPRR can wipe out a lot of your taxable gain.

2) UK non-residents are indeed now liable for UK CGT on UK residential property. BUT - only on the increase in value since April 2015.

3) You will get to deduct costs of conveyancing/estate agency etc. which reduces your taxable gain.

4) I guess you're a UK citizen - you get the UK CGT allowance. This shields £11k-ish of gains from tax.


AFTER all of that - now your gains face taxation. BUT -

5) The UK CGT rate is much lower than the income rate - top rate of 28%.


Adding all of those factors - it may not be as bad as you fear. But I haven't crunched the numbers and I don't know your full situation.



HTH.

Steve_

Can't be bothered to read through this whole thread but anyway, bear in mind CGT is calculated from the point the asset was acquired, not the date you immigrated. Not entirely sure how it works with your principal residence as it is free from CGT in both jurisdictions until it ceases to be your principal residence but generally speaking, the rule is when you crystalize the gain it is subject to CGT over the life of the asset, you can't pro-rate it from the date you immigrated. This can have rather major tax consequences, or at least it could in the past but it's not such a big deal since the UK imposed CGT on non-residents because there's tax either way.

Also assuming there is CGT in both places, you can claim a foreign tax credit for the UK tax on T2209. But - the CGT rate in the UK is 28% and in Canada it is 50% of the income tax rate (i.e. less) so you effectively pay the UK rate after the tax credit.

JonboyE

This is not right. Paragraph 128.1(1)(b) and (c) of the Income Tax Act deems all capital property to be disposed of and reacquired immediately before someone becomes a tax-resident of Canada.