Mr. A is a Canadian Citizen, he moved back from HK in July, 2021 then becomes a Resident again.
He has a house “Ha” & house “Hb” for rentals all the time and paid withholding tax. Now, he picks Hb as for his (his family) principal residence. Also, he plans to buy another house Hc for investment in Dec., 2021. In next Dec, 2022, he will move to Hc and will sell Ha & Hb. Questions regarding his 2022 T1:-
1, Any special treatments for capital gains for Ha & Hb, given that Mr. A is here/a resident for only a year?
2, Can he claim principal residence for Hb?
Facts surrounding this topic is very complex, and I think you should consult with an accountant with expertise in this area.
Some of the issues that I have seen, that could be cause for problem, non-resident with family in Canada, wife, kids, frequent visits back to Canada, owing a house, significant ties, but declared as non-resident, CRA might disagree
Purchased property after becoming non-resident, received from parents etc…
Ditto @jeffliu - this could be quite complex for tax purposes, particularly with respect to Canadian “residency” - it’s not just a matter of saying, “…he moved back from HK…” or that he is a Canadian citizen.
If Mr. A and his family live in house B for a year, then sell it and move to house C, technically house B was their principal residence, and should qualify for the PRE. However, if he sells house C within a couple years and moves to house D, that would definitely raise a flag with CRA. Houses B & C may have been their legitimate principal residences, but Mr. A should be prepared to prove that he wasn’t living in these houses in expectation to sell and make a profit. And note that if Mr. A sold his principal residence in HK in 2021, he will have to report that on his Canadian tax return for 2021, which would cause the sale of house B (in 2022) to similarly raise a flag for CRA.
Also, the payment of withholding tax is irrelevant. If Mr. A “paid” withholding tax, that just means the seller was non-resident, and CRA is “holding” that amount for the seller (in expectation that the seller may have to pay tax on a capital gain). It would have been a tax credit for the seller in that year. But, Mr. A’s purchase price would not have changed. For instance, if Mr. A agreed to buy a house for $100,000 he may have “given” $75,000 directly to the seller and $25,000 to CRA, but Mr. A’s tax cost of the house is still $100,000. (Withholding tax is not charged ON TOP of the purchase price.)
There are some new taxes on the purchase of real estate by non-residents, but that is not “withholding tax”. I’m not sure whether the payment of these new real-estate taxes affect the status of the PRE.
Thanks for all the feedback. All your presentations are very helpful.
This apparent assignment question is probably allocated quite a few marks, so would require quite a long discussion by way of answer (and containing ITA references).
CRA would argue that the principal resident exemption can only be claimed if you have the intent to live there indefinitely. [which is clearly not the case] And you have to be a resident. And even if all that is true, there would be a deemed disposition for Hb anyway. Get an accountant.