Selling Canadian Rental Property

[gab]

Hello,

I have property in Canada that is currently being rented out. I am a Canadian and have been paying tax on the rental income to Canada since I left Canada and moved to England in January 2005. I pay my employment income taxes in UK. My domicile is still Alberta, Canada. I also own a house in England. As of February 2010 I have gained my Indefinite Leave to Remain in the UK and would now like to sell my property in Canada.

I have followed the CRA guidelines online to do my Canadian rental property taxes for the past 5 years. I believe I would be able to follow them simply to pay the capital gains tax on the sell but believe this will be a significant value. I thought professional support could help reduce that tax payment, especially if I changing my domicile to the UK could reduce the tax payment. I am not sure if it would be better to discuss with a professional in Canada or the UK.

Any help is appreciated!

Thank you!

[mullet]

I think it would be difficult to become UK domiciled while you still have property in Canada. Also, any remaining family in Canada would have an impact, as would any (potential) Canadian pension. It is not easy to change your domicile (said Mr M Al-Fayed).

I don't know anything about the Canadian system but I can say that while you are domiciled in Canada you would be chargeable to UK CGT on this disposal only to the extent that the gain is remitted to the UK. I think you have to claim for the remittance basis now. (Still working a year or two behind, so not totally up to speed with new rules).

[Michael I. Atlas, CA]

If you would have posted this in the International Forum I would have seen it sooner.

Changing "domicile" would have no bearing on your liability for Canadian taxes on the sale.

If you are a non-resident and sell the property, you are subject to Federal tax in Canada on any capital gain or recaptured CCA if applicable. The taxable portion of the capital gain would be reported on a T1 return, not the T1159 used for the rental income.

There would be tax clearance and withholding requirements-in the absence of a clearance, the purchaser will have to withhold and remit 25% of land portion and 50% of building portion of proceeds (although most do not know that and use 25% for all). A claearnce can be obtained by paying or putting up security for 25% of the excess of proceeds over cost as well as estimated tax re recapture if any. This always works out to be more than the actual tax, so, if that is paid, there will be a refund to claim on filing T1.