45(2) election for a non-resident

Tax Topics
1

My client left Canada in 2021 (cut all ties and took his family overseas indefinitely). Him and his wife retained their principal residence here in Canada and began renting it about a week before they left. I was considering the 45(2) election to avoid the change in use due the rental but they can’t take the PRE for the years that they are non-resident anyway. Would it make more sense to claim the deemed disposition of the property and “bump up” the cost base so when they ultimately sell it, the higher value is now the cost base?

How do I handle that week before they left that they started renting?

Interested in hearing your opinions. This is my first (and hopefully last) non-resident client!
Thanks!

2

Once you start renting it out there is a change of use and a deemed disposition. This is not a choice. It’s a matter of fact.

3

Thanks @Rein. There definitely is a choice if the 45(2) election is filed on time.

4

** you are a resident or deemed to be a resident of Canada.* This line in the 45(2) does take away the choice. They are no longer resident in Canada.

5

I think this is a very tricky situation, the section 45(2), if you use it, basically nullified your client’s non-resident status because the intent to leave is not permanent.

6

@obhorst that clause is for extending the use as a principal residence for the additional 4 years which the 45(2) allows for. As my client is not a resident, he will not be eligible that PRE extension of 4 additional years. But he is eligible to file the election and avoid the change in use. My question is - is it worth it to do so and if I don’t file the election, how do I handle that one week gap because there is also a deemed disposition on leaving the country!

7

I think you have to take the time periods one by one:

  • original rental: PRE applied at FMV as of date of moving-out
  • intervening week: technical report only - no gain to disposition at emigration (FMV is your new ACB)
  • taxable Canadian property until returns or sells, ACB = FMV at emigration

S45(2) does nothing for the TP here.

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8

This makes sense @SmallBizGuy. There should not be a gain or loss reported for that one intervening week as it’s too short of a time period.

Is the deemed sale reported in the exact same way as the actual sale? So answering “yes” to the question on the first page “did you sell your home in 2021” ? I keep looking for a box to tick that indicates it was a “deemed” sale vs an actual sale.

Thanks everyone for your thoughts.

9

I’d probably file the first disposition (deemed, on change of use) on the T2091 with appropriate details and the second (deemed, on emigration) on the S3 with both values the same. It may be “wise” to get a proper appraisal done, though most people are cheap, and get a realtor to write a letter of opinion (more of less worthless).

It doesn’t matter if it’s a deemed disposition or not - and the minorly non-technical language is likely TC’s. Both dispositions remain reportable, even if the second one is really moot.

The actual form says:
“Even if you do not sell your property you may have a deemed disposition that you must report. A deemed disposition occurs when…”

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10

I am actually curious if there is going to be transfer tax on the deemed disposition and acquisition.

The acquisition will deemed to be made by your client after he/she becomes a non-resident, and non-resident buying Canadian property, I think is subject to a higher transfer tax in some jurisdiction

11

Doubt it, because it’s not an actual sale. Laws per the ITA don’t necessarily have to align with Federal, Provincial, Municipal or other law.

12

It is not an actual transfer of ownership from one person/entity to another. It is a deemed disposition to avoid accounting complications for the income taxes purposes when status changes.