Contact UsHello. I am an American who just sold a small parcel of land in Prince Edward Island, Canada. I bought it in 2003 for 21,000 CAD and sold it in 2016 for 30,000 CAD. I am unclear on how I will pay Canadian capital gains taxes, and avoid double-taxation of US cap gains tax.
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Tax Professional Answers
Chad Hatalla
First, let me preface my answer with that I understand the general requirements, but do not prepare Canadian income tax returns. Also, I am assuming that the property was not a resource or timber resources use property.
Within 10 days of the sale, Form T2062 (www.cra-arc.gc.ca/E/pbg/tf/t2062/t2062-11-16e.pdf) should have been filed and a tax payment of 25% of the gain paid to the CRA. The CRA then issues you a Form T2068 (Certificate of Compliance). Generally, you are required to file a Canadian nonresident return reporting the gain from the sale by April 30, 2017. To file your Canadian nonresident return, you will need a Canadian Tax Number (SIN, TTN or ITN). If you do not have one, you can apply for one by filing Form T1261.
To determine the gain for US purposes, you need to use the exchange rates for the date of purchase and sale to convert to US dollars the purchase price and sales proceeds respectively. As this was a Canadian property the gain is considered foreign sourced. You should report the net gain on Form 1116 and claim the Canadian taxes as a credit to offset the US taxes on that gain. If you did not pay any Canadian taxes in 2016 with respect to the sale, but will do so with the filing of the Canadian return, then you will need to pick up the credits on your US return using the Accrual method.
If you did not file Form T2062 you could be subject to penalties of up to CA$2,500. I would recommend that you contact a Canadian tax professional to assist you with your filing as they may have a way to mitigate penalties.
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370 weeks ago
Within 10 days of the sale, Form T2062 (www.cra-arc.gc.ca/E/pbg/tf/t2062/t2062-11-16e.pdf) should have been filed and a tax payment of 25% of the gain paid to the CRA. The CRA then issues you a Form T2068 (Certificate of Compliance). Generally, you are required to file a Canadian nonresident return reporting the gain from the sale by April 30, 2017. To file your Canadian nonresident return, you will need a Canadian Tax Number (SIN, TTN or ITN). If you do not have one, you can apply for one by filing Form T1261.
To determine the gain for US purposes, you need to use the exchange rates for the date of purchase and sale to convert to US dollars the purchase price and sales proceeds respectively. As this was a Canadian property the gain is considered foreign sourced. You should report the net gain on Form 1116 and claim the Canadian taxes as a credit to offset the US taxes on that gain. If you did not pay any Canadian taxes in 2016 with respect to the sale, but will do so with the filing of the Canadian return, then you will need to pick up the credits on your US return using the Accrual method.
If you did not file Form T2062 you could be subject to penalties of up to CA$2,500. I would recommend that you contact a Canadian tax professional to assist you with your filing as they may have a way to mitigate penalties.