Canadian tax on US principal residence sale?
Key Points
- Canadians selling a U.S. principal residence may be subject to Canadian tax on the capital gain.
- The U.S. may also tax the sale, but the Canada-U.S. tax treaty can help avoid double taxation.
- The principal residence exemption in Canada can reduce or eliminate Canadian tax on the gain if certain conditions are met.
- Properly reporting the sale on both U.S. and Canadian tax returns is crucial to avoid penalties and ensure tax compliance.
- Consulting with a cross-border tax advisor is essential to navigate the complexities of selling a U.S. property as a Canadian resident.
If you need help in reviewing your cross-border tax or investment situation, please feel free to reach out to us here. We look forward to speaking to you soon.
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Question
Hi Phil,
I just watched Episodes 17 and 14 on your Youtube Channel on the sale of principle residences. I was wondering if you could provide more information for our particular scenario. My husband and I own a principle residence in California and want to sell it as soon as we move to Canada on work permits. I understand that the IRS will exclude $500,000 of our capital gain from taxes but what are the Canadian tax consequences?
To make things simple, we’ll assume that we sell the house for $800,000 USD and have a taxable amount of $300,000 left after the principle residence exclusion and we file as married joint.
My specific questions are:
1) do we get a tax credit for capital gains paid on the $300,000?
2) It seems like from episode 17 that Canada will exclude our entire capital gains as long as we meet the principle residence test (which we will).
3) The Youtube video refers to “residence” selling a principle home. Are we treated as residence even though we have not gained permanent residency yet?
Thanks for any information you can supply. Also, I would appreciate any referrals you can give to hire a cross border tax accountant in the Vancouver or Kelowna area.
Cheers,
XXXX XXXXXX
Answer
Hi XXXX
Thanks for the email and for following the YouTube channel.
I should be fairly straight forward (maybe). The US implications as you’ve outlined them below will be the same, however when you move to Canada your assets will be revalued for Canadian tax purposes. Therefore, if you move to Canada before selling the property and it’s worth $800,000 at the time your new Canadian tax cost basis will be $800,000. If you sell it for $800,000 you will not have a Canadian capital gain. That being said, you would need to convert everything to Canadian dollars at historical rates.
Also, depending on how long you wait to sell the property and how much the exchange rate has moved you may have a small Canadian capital gain. However some or all of this gain could be offset by Canadian foreign tax credits.
It may also simply be considered your principal residence for Canadian purposes as well, however you would need to ensure you didn’t also buy another Canadian principal residence.
Aside from the home make sure to plan for any US investment assets like IRAs, ROTH IRAs or other regular investment accounts. If you need help with other cross-border investment planning please let me know.
Hope that helps.
Cheers
Phil