shell&jim

I have been told something by a family member today in a bid to stop us emigrating and I just wanted to check it was true!

They said that if we were to buy a house in Canada and then decided to come back to the UK in a few years, if we sold the house in Canada we would have to leave 25% of the proceeds in a Canadian Bank Account until our next tax return was completed. Is this correct?

We will be moving to Nova Scotia.

iaink

News to me. I dont think capital gains tax or whatever would apply to a primary residence so it seems unlikely

Island_Girl

capital gains tax does not apply to primary residence and it should not matter where that residence is or where you move too.

sounds like a cry from family for you not to go hang in there.

iaink

"When a non-resident sells Canadian real estate, he/she is required to pay the appropriate amount of taxes on any capital gain. The normal Canadian tax rates will be applied to 50% of the gain. However, a non-resident is required to pay an estimate of the tax before the sale, an amount equal to 25% of the gain. This amount is to be retained by the seller's lawyer until such time as a clearance certificate is received from the Canada Revenue Agency (CRA) in connection with the sale of the property. Upon payment, the CRA will issue a clearance certificate to the seller, but not until there has been a contract of purchase and sale with all subjects (conditions) removed. The wait for the certificate is usually 6-8 weeks. If the certificate is not obtained, the purchaser is required to withhold from the sale proceeds, a percentage of the selling price (usually 25-50%).
"

So this might backfire on the family as what they are saying only applies if you dont infact become a canadian resident

shell&jim

Thank you everyone for your help. This is obviously the information they are using but have interpreted it incorrectly. We would be residents and it would be our only house.

iaink can I ask you where you got the quote from so I can print it out and have some ammunition?

iaink

Quoted from here:
http://www.assignmentscanada.ca/buyingincanada.html

The relevent bit of the Canada Revenue Agency Website is here: (but it isnt in English as far as I can tell )

http://www.cra-arc.gc.ca/tax/nonresi...sp/menu-e.html

Judy in Calgary

I have done a few Google searches for word combinations like NON RESIDENT + PRIMARY RESIDENCE + CAPITAL GAINS + CANADA REVENUE AGENCY, and have found a few CRA websites, including the one that iaink referenced:

http://www.cra-arc.gc.ca/tax/nonresi...sp/menu-e.html

I have found all of them to be shall we say slow reading. Although I have not found a statement to the effect that the capital gains exemption on a primary residence does not apply to a non-resident, that's what the various CRA websites seem to imply.

Here is the website of compassGUIDES, which appears to be a company that sells publications about the tax and other implications of expat assignments. The website discusses the pros and cons of retaining (and perhaps renting out) a primary residence while a Canadian resident goes abroad on a temporary assignment versus selling the primary residence.

One of the advantages of retaining the primary residence during the overseas assignment is, "There are then no capital gains to be reported to the CRA on a sale of the home ....... "

A warning under the heading of "Selling" is, "Assignees [people being transferred abroad] should be aware that if they are selling their primary residence, they will be required to report any capital gains in their Canadian income tax return."

When residents of Canada (including Canadian citizens) sever their residential ties with Canada (by, for example, moving abroad to work, selling their Canadian real estate, etc.), they become non-residents for tax purposes.

I think it may be the case that the capital gains exemption on a primary residence in Canada may not apply to a person who becomes a non-resident of Canada for tax purposes.

While I don't feel I have got to the bottom of the matter by any means, I would not be comfortable dismissing shell&jim's family member's claim out of hand.

iaink

I guess the question is, once you sell up to go back, are you still considered a canadian resident.

dbd33

In the worst case you'd just have to be careful to sell the house before telling the authorities that you'd moved, not that I'd bother telling them I'd moved anyway.

The risk here is that, if the poster moves to Canada, buys a house, holds the house long enough for there to be a profit on it, decides to leave Canada and does so in a disorganised fashion, some of the money from the sale of the house might be held until the following May.

I know I'm more willing to take chances than many posters, but, really, shouldn't a plane crash en route to Canada be a bigger worry ?

Judy in Calgary

Yes, I agree.

Besides that, yo yo-ing back and forth amongst countries in any case is an expensive exercise. Frankly, any capital gains tax that might have to be paid would be only one of several expenses involved in moving.

But to return to technicalities, any expenses that you'd incurred in maintaining the house could be used to offset the capital gains (if there were capital gains).

I have a vague recollection of this issue coming up when we moved from Calgary to Houston in 1995. I seem to recall pulling out the file in which we stored the receipts for furnace repairs, house painting, etc., etc., etc. If my fuzzy memory is correct, we had ejoyed a small capital gain on the sale of our Calgary house, but that had been wiped out to all intents and purposes by the real estate commission and the maintenance expenses during the period that we'd owned the house.

And remember that only 50% of capital gains are taxed.

shell&jim

Thanks again everyone for your help.

It does look a grey area as to when Canadian authorities consider you to be no longer a resident. It is something we need to bear in mind as we are unsure how long we will stay in Canada. My husband has a 3 year work permit with our PR application in process so we do not know what will happen in the future.

Judy in Calgary

You might be a resident from a citizenship and immigration point of view, but you would be a non-resident from a tax point of view.

Here is Canada Revenue Agency's web page on Leaving Canada. It states:
As CRA's page states, there also are other factors that contribute to the assessment (e.g., giving up your Canadian driver's licence, closing Canadian bank accounts, terminating Canadian health insurance, etc.). I know from experience that maintaining a bank account in Canada, on its own, is not enough to classify you as a resident of Canada for tax purposes.

Judy in Calgary

One thing to consider doing, if you do move to Canada, is to rent out your UK house while you rent a house in Canada. I'm sure that route has its pros and cons too, but I think I would give it serious consideration if I were in your position.

shell&jim

We did consider renting our house out but we could not afford to rent in Canada and pay the mortgage on our house if we could not find someone to rent. Also my husband has exhausted the job market in our area so if we did come back to the UK we would have to move to a different area anyway! We have a buyer for our house who is desperate to move in but I am having to slow everything down as my husband is in NS trying out his job first.

iaink

Not that it has anything to do with the original question, but it makes sense to rent here in canada at first anyway to me. MLS is not the best way to judge different neighbourhoods, and after a NS winter you might decide to try somewhere else anyway.

Selling a house here if you make a mistake is a relatively expensive business (for the same reason buying one here isnt), so I would resist buying until you are sure about your long term plans and requirements. But I can understand the desire to own too.