Canada Revenue Agency Deemed Disposition of Property Rules?

[pbaker144]

Deemed disposition of property rules

paragraph 12 of IT221R3 states "For example, an individual who is leaving Canada
is required to either pay, or post acceptable security for, the Canadian
tax payable with respect to capital gains arising from the
deemed disposition of all of the individual’s property (with
the exception of certain types of property that are listed in
subsection 128.1(4)(b) of the Act), upon the individual’s
ceasing to be resident in Canada.

(a) If a residential property that is outside Canada is covered by the deemed disposition of
property rules could an exemption from capital gains be claimed by declaring it a principal
residence outside Canada under the provisions of IT120r5-e paragraph 38?

(b) If indeed a residential dwelling ourside canada can be exempt from capital gains tax by
declaring it as a principal place of residence outside Canada does it still have to be
included in form "T1161 LIST OF PROPERTIES BY AN EMIGRANT OF CANADA" for the purpose of
determining whether the exemption limit is exceeded?

(c) The current rules say that individuals who were tax resident in Canada for 60 months or
less when they were declared non-resident for tax purposes by the Canada Revenue Agency
are exempt from the provisions of the "deemed disposition of property" rules. Is this still true?
Did this exemption rule exist in July 3, 1996? If not when was it introduced?

Thank you for your kindness

Peter Baker

[pbaker144]

I have a follow up question about IT221R3

Deemed Non-Residents – Subsection 250(5)
of the Act
Application of Subsection 250(5) of the Act
¶ 24. An individual who is otherwise resident in Canada
for purposes of the Act (whether factual or deemed – see ¶s 4
to 23), and who, at a given time, is resident in another
country for purposes of a tax treaty between Canada and that
country (see ¶s 25 and 26), is deemed not to be resident in
Canada at that time, pursuant to subsection 250(5) of the Act.
The individual is treated as a non-resident for all purposes of
the Act, including the provisions deeming an individual to
dispose of his or her property upon ceasing to be resident in
Canada and the Part XIII withholding tax provisions, from
the date that subsection 250(5) of the Act applies to the
individual. Subsection 250(5) of the Act does not apply to an
individual who was resident in another country for treaty
purposes, but otherwise resident in Canada, on February 24,
1998, as long as the individual has maintained this “dual”
residence status continuously since that time.

i do not understand it. Could someone explain what this means in layman's terms?

Thanks much

Peter Baker

[Michael I. Atlas, CA]

My general answers are as follows. However, you should retain me or someone else to give you more detailed advice. I am numbering the answers to correspond to your questions:

(a) Yes-a foreign property can qualify as principal residence
(b) I see nothing on form that would suggest that it could be excluded
(c) This has always been around-note that it only applies to property owned at the time you became Canadian resident, or property that you inherited while resident

The rule in 250(5) basically says that if you are deemed non-resident for the purposes of a tax treaty, you are also deemed non-resident for the purposes of the Income Tax Act.
Prior to this rule, some individuals tried to have “their cake and eat it” by arguing that they were still Canadian resident under domestic rules (because of continuing ties) and hence no deemed disposition on departure, yet they would argue that they were protected from ongoing Canadian tax because of treaty.

If you want to go beyond above, you can contact me offline and retain me.

[pbaker144]

What is the T1161 LIST OF PROPERTIES BY AN EMIGRANT OF CANADA exemption limit today? Is is C$25000?

What was the exemption limit that prevailed in 1996?

Thanks again

Peter Baker

[Michael I. Atlas, CA]

Yes, 25K today-understand that this is just an exemption from submitting form-not an exemption from deemed gains.

I am not sure what the situation was in 1996, or even if there was that form