I am a Canadian citizen who moved to the US a few months ago. We were not able to sell our residence before we left, and we are selling now. If we had sold before we left Canada, the big capital gain on it would have been tax-free. By selling it now, I am told that I have to put-up 25% of the capital gain as security with the Canada Revenue Agency, to get a “clearance”, and the IRS will tax the gain because they consider my cost base to be the amount I paid when I bought it 12 years ago. Am I screwed?
Tax Professional Answers
Selling it before you left would have been easier, because you would not have had to deal with CRA tax clearance requirements.
However, the gain should be tax-free in Canada under the “principal residence exemption”. The CRA has an administrative policy of allowing that exemption to be applied when you apply for a tax clearance, so you should not have to put-up any security with the CRA.
For US tax purposes, you should be able to use the fair market value when you left Canada as your cost base. This is done by filing your US tax return in accordance with Article XIII(6) of the Canada-US Tax Convention, which states:
“Where an individual (other than a citizen of the United States) who was a resident of Canada became a resident of the United States, in determining his liability to United States taxation in respect of any gain from the alienation of a principal residence in Canada owned by him at the time he ceased to be a resident of Canada, the adjusted basis of such property shall be no less than its fair market value at that time.”
Meet Leading Tax Advisors
Federal Tax Credits & Incentives Practice Leader
New York, NY
Managing Tax Consultant
Des Plaines, IL
Rancho Santa Fe, CA
President/ Tax And Financial Advisor
Managing Tax Lawyer
Tax Advisor/Fiduciary Coach
San Diego, CA
Senior Tax Principal
Daytona Beach, FL
Managing Tax Advisor/CEO