MONTREAL — Last week’s column outlining the tax implications of selling a home before or after leaving Quebec for another country generated several additional questions.
So let’s revisit the topic here, with an eye to addressing some of those queries.
For those of you who wondered if the same rules applied for a relocation in Canada, rest easy. Selling a home in Quebec to take up residence in another province generally is a tax-neutral event; the principal-residence exemption means a seller normally owes no capital gains on any appreciation in value of the property.
And Canada Revenue Agency even allows a grace period in the same calendar year if you buy your new principal residence before actually selling the old one.
Some readers pondering becoming non-residents of Canada wondered what would happen if they sold a property here after relocating elsewhere. Would they be entitled to the principal-residence exemption for the time they lived in the house in Canada (which would be the case if they sold before leaving), or would they lose the exemption when they became non-residents, leaving the full appreciation taxable?
Canada Revenue Agency says they would get the benefit of the principal-residence exemption for every tax year spent here after the acquisition date, but not for any years between the departure and actual sale. (Withholding tax of at least 25 per cent would apply on that portion of any capital gain, if they’re non-residents, CRA said.)
One reader intending to become a U.S. resident is thinking of renting out his condo in Quebec for a year, in case his opportunity south of the border doesn’t pan out. If he moves to the U.S. this year and decides to stay, the condo will be sold next year. How does that position him tax-wise?
For starters, the condo will be considered sold for tax purposes when he changes its vocation to revenue property. The principal-residence exemption will cover gains to that point, but any appreciation after is taxable. The tax department allows you to make an election, so there’s no disposition until the property actually is sold, but that disqualifies you from claiming capital-cost allowance as an expense against rental income.
Since the owner will be a non-resident, gross rental income will be subject to a withholding tax of 25 per cent, payable to CRA. He might get some of that back but will have to file a Section 216 tax return (with CRA).
If he returns to Quebec next year and moves back in, it’s treated as another disposition and the property regains its status as a principal residence.
Q: I have an interesting conundrum regarding taxes. My husband and I own shares of a company called Stratabound Minerals, which got shares for a property sale to Winston Resources and decided to “dividend” them to shareholders. Winston then spun off two other small companies, and we got shares of them as well, plus T5 slips to remit with our taxes. The combined value of these share dividends for tax purposes was more than $2,200, but these shares were not sold, and they’re not worth much now. Why am I expected to pay taxes on gains I never received?
A: This is not an uncommon occurrence in the investing world. Instead of cash, the company has given investors shares that it acquired and didn’t wish to retain. Your T5 reflects their market value at the time of the payout. That is the tax cost to you when it comes to determining the capital gain or loss when you dispose of the shares.
The Gazette invites reader questions on tax, investment and personal finance. If you have a query you’d like addressed, send it to Paul Delean, Gazette Business Section, Suite 200, 1010 Ste-Catherine St. W., Montreal, Que., H3B 5L1, or to email@example.com.